Greetings Monkeys!
As there are many of you who are pursuing IB, we have written up a high-level overview of the different paths that one could take post-IB Analyst stint. We were in your shoes not too long ago, happy to answer questions or help where needed!
Welcome to Investment Banking: Where everyone on the outside wants in, and everyone on the inside wants out.
The worst-kept secret in the world of IB is that junior Investment Bankers are planning on staying at their bank forever. Sometimes it is necessary, of course, for these interns and analysts --typically-- to play the role publicly, but the real plan of action in the majority of cases is to make an exit.
This is not a bad thing, however, and is not a “knock” on the opportunity that IB can bring you. The opening of doors and barriers to these impressive exit opportunities are arguably the best part of the job out of undergrad, even when compared to the size of your incoming bonus or locked up salary for the year. That’s how you should be thinking, at least.
Given our current macroeconomic views on what the future years and decades of the Finance industry will look like, we would highly urge you to consider the Buy-Side.
Much of Investment Banking’s appeal comes with the roles it can unlock for you for your next gig. Some of the most popular exits from IB are jobs in the “buyside.” The buyside includes Private Equity (PE and VC) and Hedge Funds. These jobs are essentially unlocked by doing a good enough job at your investment bank, and they can be tough to get without IB experience.
The #1 most sought-after Investment Banking exit-op is the transition from a 2nd year IB Analyst to the buyside an Associate at a Private Equity firm. There are many different types of Private Equity roles (most often when “Private Equity” is mentioned, it is referencing the classic buyout PE shop), so let’s discuss the advantages and disadvantages of going into each.
Private Equity (PE, Growth Equity, Venture Capital):
Private Equity, the cherished golden path of High Finance, where everything is good in the world and you will finally have a strong work-life balance. At least that’s what you have been telling yourself. In all seriousness, while PE will still require high discipline and focus, it has been a fantastic place to be in Finance over the recent stretch.
The great thing about investing roles dealing within private equity transactions, is that you could be well on your way to earn “carry” (read: carried interest) for the money your fund makes. Or at least, have part of your Bonus structure tied to how well your firm invests.
Venture Capital is funding young businesses and startups that generally have extremely high growth potential. This is a riskier investing model than the model that the standard Private Equity firms use, investing in companies that are more established and have already proven their worth in the market.
VC is an interesting place to be in your career, especially if you are interested in the emerging technologies of the world and enjoy being on the West Coast. However, working at a VC can pigeonhole you into the world of startups / entrepreneurship. If this is something you have interest in, there are still plenty of opportunities within this spectrum to keep you busy, but it is something to be aware of if you don’t enjoy the tech world.
There are also Growth Equity investors who work in between the spectrum of Venture Capital and Private Equity. These Growth Equity firms are often still referred to as “PE shops,” but they operate at a bit earlier business stage than the classic LBO PE Firms. Growth Equity is an interesting fit for you if you enjoy working with early stage companies, but not to the level that you are hoping to scout out the next Snapchat or Zoom from Silicon Valley.
Hedge Funds (Public Markets)
Similar to a Private Equity investing role (even more so in a lot of cases), Hedge Fund analysts can end up with a large chunk of their compensation tied to performance of their fund.
The downside to the public markets is that you fundamentally have much less slack to pull on as a firm when your performance can be tracked and updated every minute of the day. The private equity model allows for a much longer timeline for their investments, so you are less at risk of having your seat pulled out from under you on the private market buy-side (PE, VC).
The Hedge Fund industry over the past decade has cooled down due to the rise of passive investors (into index funds like the S&P 500 for example) and the rise of other investment opportunities (crypto, private equity, real estate).
These industry headwinds have caused the old HF compensation model of 2-and-20 (HF gets paid for 2% of Assets Under Management, and 20% of the profits of their investments) to shift in recent years to a more normal profit-take % of 15%.
Still, there is a ton of money to be made at the top if you play your cards right, you could make plenty of money and get to learn from some of the top traders in the world. You will not get away with having sloppy fundamentals in the mathematics and technical skills needed as a Hedge Fund Analyst.
Other Common Exit Opportunities:
The other popular exits for bankers after their 2 years analyst stint is Corporate Development, MBA, and Entrepreneurship. Notice that becoming an Investment Banker and completing your analyst program will allow you with huge career mobility. Any company in the business world would love to add an ex-banker to the ranks, as it is proof that you at least are somewhat smart and can work hard.
Corporate Development / Strategy:
This exit opportunity is the best path for those that are tired of the long, stressful hours in banking. Your typical Corp Dev gig post-IB stint will be a 9-5, which will free up time on the side for work-life balance (or to work on multiple income streams if you’re smart!).
In Corporate Development, you will be responsible for executing M&A transactions and capital-raising (just like how it is in Banking), except you are now working for a company instead of a bank. The job requires much less of you than Banking or Private Equity would, but you are still making six figures and are doing similar work. You will likely work on the strategy side of the business with former management consultants.
Top 10 MBA (Warning!):
Many bankers will go and get their MBA either directly after their banking experience, or after getting a few years of experience on the buyside. The MBA Route certainly made more sense 15 years ago, when information and opportunities for collaboration through the internet weren’t as built out as they are today. Many PE firms are no longer requiring that their juniors get an MBA, and you undergo massive opportunity cost to forfeit $200k+ jobs while shelling out tuition fees.
We would not recommend this route, but it is an option for people on the outside breaking in (maybe they didn’t get a banking offer during their undergrad SA and FT cycle) and people who are looking to make a big career switch. We expect that with every year that passes, the prestige and worth of getting an MBA (even at a top-tier business school) should decrease continuously.
Entrepreneurship:
Last but not least is the route of rolling the dice and going out on your own. Perhaps through your stint in IB, you have learned the ins and outs of a market that you cover, and you have a strong game plan set for the next greatest product. Investment Banks typically attract more risk averse individuals, while entrepreneurship is the complete opposite risk tolerance point.
You could win big or you could lose big; most of these businesses end up failing. If you venture down this road, be prepared to face the tough sleepless nights where you are worried that doom is imminent for your brainchild, asking yourself why you didn’t just take the Private Equity job like everyone else did!
TLDR:
The Buyside opportunities (PE, HF, VC) are very appealing, but there are also many other ways to make money and better your life. At the end of the day, PE is the most preferred step after IB for a reason. This may not necessarily be what you do until the day that you die, but it is a fantastic career progression coupled with your prior sell-side experience.
Feel free to leave any questions in the comments or through PMs.
We wish you the best!
The goal would be move move into something more chill and work on a small start up on the side.
Definitely not a bad idea! Having your W2 as your sole source of income isn't something that we would recommend. Our inspiration, BowTiedBull (formerly WallStPlayboys) is very big on the idea of the sovereign individual, having control over your income streams so that you work for yourself eventually. Of course this is easier said than done, but you will free up so many hours in your day taking a WFH gig (Corp Dev / Strategy is a good one coming from IB if you can find a flexible employer), which you can use to work on building up side-businesses. Some examples of this are Copywriting, High-Ticket Sales, E-Comm, etc etc.
Also want to add that a start-up doesn't have to be the next billion-dollar company. Most successful+realistic side income (from what I have seen from peers and myself) are ones that are scaled up from side-hustles.
For me, I am finally at a point where my net worth from side-income would beat the original path I was going to take, which was PE.
Can you give any insight on what you do on the side?
Dude, If Driving dump trucks for a few hours a day paid as much a PE count me in.
That's awesome, definitely should be the goal of everyone reading this! You can scale and ultimately sell your side-business (likely will be strong multiples as well if WiFi Money); the same can't be said for a seat in PE, or any job for that matter.
What about credit investing?
I'd say this "guide" is very biased towards PE, without any substantive information on the actual exit ops you mention.
Your hedge fund section implies all hedge funds are equity L/S funds that don't beat the market. This is by and large a misleading assertion when you consider the plethora of hedge fund strategies that exist not only within equity (value, growth, GARP, sector focused, equity neutral, quant, etc.) but also in other asset classes (HY credit, Distressed credit, global macro, event driven, activist, etc.). If you can dream up an investment strategy, there is probably a hedge fund out there that does something similar. Also, saying that "hedge funds can't even beat the market!!!!" is such a hollow statement. There are PE and VC firms that have dog shit returns that don't beat the market either. Generally, shitty funds get ruined on redemptions and capital outflows so they won't last long either way. There are plenty of funds generating alpha and crushing the market. Stop reading the news, bud. I'd argue the most prestigious seats in finance are HF roles at Tiger cubs and activist funds like Elliott.
Also, what you didn't mention about PE, is that in most cases, it is banking 2.0 - shitty hours and culture, grunt work, tons of sourcing at the junior level, and arguably less job security. Also, carry as a junior is a joke. Getting to a level where you have a decent amount of carry is extremely difficult. The economics of the PE business model is great for people at the top, but it is quickly becoming oversaturated. There is soooo much capital chasing not a lot of deals rn, and the IRR%s are getting blown up.
This has been talked about on this site before, but banking, especially now with the pay bumps, isn't the worse place to be. You'll likely make just as much, if not more than your peers on the buyside and have way more job security.
Also, the fact that PE has been a great industry historically doesn’t mean the success can or will continue forever. At some point the more firms that pop up is going to lead to more competitive processes (higher bids and lower returns) and fee compression (lower profits and salaries), not to mention risk of legislation/regulation that could harm the industry. Have a feeling the next generation of PE partners is going to have a very different experience than current PE partners
Fair enough, we certainly do love our PE! Hedge Funds also **of course** offer great opportunities for people. We would argue that it depends more on your own personal skillsets to which you would prefer working towards. Certainly, to your point, PE is not an easy gig and could be as stressful (or even more) than your IB stint dependent on where you land in PE Recruiting. Reading back the section on Hedge Funds, we would agree that it doesn't give HF's enough credit which wasn't the intention.
Banking is certainly not the worst spot to be either; there is much better job security and you will be receiving healthy paychecks. However, we have always preferred using the IB opportunity as a launchpad into ventures where you have chances of acquiring equity in businesses. Just being a worker in Private Equity likely won't get you all the way there since the business-model is most rewarding at the top (why would someone give up carry unless they have to?), but it will allow you to get the experience necessary to go off on your own at a later point if that's what you are after.
Would disagree. Having worked in IB and PE. PE absolutely does not prepare you “better” for starting your own ventures.
Lmfao this guy posted this on Reddit and got ripped to shreds - not sure what he expected here.
Link? lol
IMO, hedge fund activism is the pinnacle of money management for the junior analyst.... hedge fund activism, as an investment strategy and process, requires “a private equity approach to the public markets,” supporting management teams like a private equity firm, but only maintaining a 5-10% stake in the company, not acquiring it outright. A significant advantage of this strategy is that hedge fund activists avoid paying the 30-50% premium that private equity and strategic acquirers pay, while maintaining a significant voice as an active and engaged lead shareholder... in other words, they can create value without having to pay 30-50% control premium required in private equity investments.
At the entry level, PE has a banking 2.0 culture... much like the mega banks, Apollo/Blackstone/Carlyle, these global institutions, attract the highest achieving professionals and the brightest minds... on paper. The sheer size and scale of these institutions begets tremendous imposter syndrome amongst the juniors; if asked to opine on a particular topic, i.e. where is the best risk reward in capital markets today and why, juniors shrivel up and presuppose the seniors know something they do not in virtue of being older and having a different title. This rigid epistemological dogmatism, i.e. that juniors have not the tools nor the maturity to contribute to strategic conversations about the philosophy of value creation, is sad, and in the age of the internet, its wrong. Long story short, industries lke i.e. banking and PE, which recruit wide eyed college kids before they know who they are or how they think, rely on ego-prestige; these kids want it because they are told it is what everyone who is the best wants, and if they want to think of themselves as the best, which of course they do, they will want it to... in reality, a seat at the table at a 10 man multi billion dollar shop/strategy like a mudrick capital is infinitely more preferable than being stuck in a pure monkey role at a mega bank or a fund. The monkey skills will be automated away over time; software is the obvious solution for PPT deck and XLS spreadsheet building, look at recent startup canalyst for example. If you want to work in finance and you know this is the career for you, none of this applies to you; being a monkey could be a perfect means to achieve some end, i.e. get the "seat at the table" looks from some of these full cap stack players.
Money management, or risk capital allocation, is a financial service not dissimilar from gambling; people buying assets/tickets due to some belief that the future is going to unfold a particular way. George Soros is famous for his love of philosophy and the impact of Karl popper on his trading. Bill Miller adds, "Philosophy involves critical thinking and reasoning about highly complex issues. At its best it is rigorous and analytical. These skills are exactly what are required to think through and understand capital markets and the analysis of businesses. However good one is at this, philosophical training will make you better." Im not saying philosophy is key to finance...but if you ask icahn, gundlach, soros as to what makes them good investors, they'll probably point to philosophy, as they have done in the past.
Bayesian confirmation theory defines confirmation as a relation between evidence, hypothesis, background assumptions, and some probability measure. The probability measure is interpreted as an agent’s degree of belief function. Since the agent’s degrees of belief are used to determine whether the evidence confirms the hypothesis, confirmation cannot be used to determine the agent’s degrees of belief, that is, how worthy of belief the hypothesis is.
'The Alchemy of Finance', a book written by George Soros (1987) on the workings of financial markets, 'has found a place in the reading lists of business schools as distinct from economics departments', according to the author (2003, 4). His theory of reflexivity, which is at the center of the book, states that interdependence exists between the cognitive and manipulative functions of market participants. While Soros claims that imperfect knowledge rules on financial markets, academic orthodoxy assumes perfect knowledge and hence displays – in the absence of external shocks – financial markets as efficient.
We review the work of Soros on reflexivity and follow up his claim that it can be used to attack the efficient market hypothesis. Both are discussed and then the ideas of Soros are compared to those of Post-Keynesian economics. We argue that Soros’ book is mainly ignored by neo-classical economists because they disagree with his axioms, and by heterodox economists because his ideas are not new.
Corporate Development I feel can be underrated at times if you find the perfect fit. Especially the ones that do hybrid setups of PE/corp dev (and in some cases, forming SPACs with coinvestors).
What industries do the hybrid PE/corp dev setup?
Have seen it at TMT companies specifically media, sports. I'm sure there a few more I can't think of within other industries that use tech/media.
I would love to move more towards an early-stage company but feel like the value we provide with a finance background is not aligned with the selling or product roles that early stages companies need to grow and scale.
Does anyone have any perspective of what exits look like for a TMT banker wanting to be more operationally driven in an early tech company? I just feel like doing FP&A or going and doing corporate development are not relevant for early-stage companies
Truth is, a startup doesn't need finance people. It only needs 1) People to design the product or service, most of the time engineers. 2) People to sell the product or service, i.e. sales people.
In the startup world, finance people are middle or back office.
Honestly the truth until the company is in hyper growth mode and has at least certain amount of funding - $XX million - $XXX million.
The coolest corp dev job I've seen (at least IMO) based off what they do is at a unicorn corp dev but they barely made any acquisitions so far. It's a one man show so the person who has the position probably gets incredible exposure (Founder is a true visionary/fairly young and company has very high internal ratings by employees). I wouldn't call the corp dev the most important. I agree it's likely the product/ engineering team.
To all young readers, take this post with a grain of salt - these guys are trying to monetize something that's already free through their blog.
Could exiting from the analyst level in IB land a corp dev manager role at a company like spotify?
Iste voluptatem itaque autem culpa aut recusandae. Eius eveniet officia laudantium corrupti nostrum quia esse qui. Cupiditate similique rerum quidem hic. Consequatur eaque pariatur laudantium accusantium voluptatem aut. Consequuntur nihil quia iste.
Quis ex odio nemo dolorem sint est. Provident sunt ratione qui rerum quis qui sint.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Tempore aut dolorem labore consequatur ut atque iste. Suscipit rerum voluptatem nulla sint. Illo omnis ullam odit et sed ex libero. Pariatur quod sit quas itaque. Ut sit qui occaecati qui quaerat et.
Beatae temporibus reiciendis nobis accusantium voluptatum fuga quisquam. Culpa porro aut alias et. Quod adipisci nihil non at. Nulla consectetur tempore repellendus quia temporibus.