Got an offer from a BB and I will have to choose my team soon. Their LevFin/FSG is the top one, however, would it be dumb to join one of these teams at the moment given the current economic/financial situation where a correction will most likely happen?
For those who worked in FSG/LevFin during/post the crisis how was the deal flow impacted? Same for people that worked in these teams during the Euro credit crisis in 2012?
This is for London/Europe.
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Anyone? hominem
LevFin is particularly pro-cyclical because it is capital markets driven so it exhibits more extreme boom-bust characteristics than traditional banking groups. The mistake that most people make when it comes to joining a cyclical group like LevFin is to extrapolate the past into perpetuity. In my experience, busts come a lot faster and more suddenly than booms. If that happens, investor demand will dry up, companies won't be able to tap the markets, and deal flow will come to a halt overnight. LevFin will have deeper and wider layoffs than most other groups, because of the massive hiring that happens during the boom. I knew a lot of laid off LevFin bankers from the last crisis. The right time to join LevFin is at the trough, when things are at its worst, and then you ride the cycle up -- not at the peak right before an impending crash. Best of luck with your decision.
Makes sense, thanks. I am guessing you are mainly referring to the GFC. Given how extreme this recession was it might be just an anomaly, have you heard anything similar for the early 2000's recession and before?
I was speaking generally. That said, I should point out that the other mistake that people make when thinking about cyclical things is believing that this time might be different. But it usually turns out to be wishful thinking.
I hope I'm wrong. But if anything bad happens, at least you will have thoughtfully considered the risks beforehand and accepted those risks with eyes wide open.
One thing to keep in mind for this cycle is that debt markets have been white hot. Leverage loan issuance is at all-time highs, and the overall quality of the loans being originated have eroded for a couple of years. You probably have a number of banks that have continued to staff up to support issuance as we got deeper into the cycle. Many people don't expect the leveraged loan boom to end all that well, as the higher leverage points and weaker structures probably lead to weaker recoveries and a pretty punishing time for investors.
The GFC was focused on real estate / structured product markets, and while leveraged finance was certainly impacted, it wasn't the epicenter. There are a number of financial commentators that seem to think leveraged credit will be a major pain point for this cycle. Who knows if they are right or wrong? It is something to think about though, and definitely something to be prepared for if you are entering LevFin.
Finally, keep in mind that LevFin is primarily originating and dealing with performing credits that are pretty down the fairway for most institutional term loan / high yield buyers. The group is transaction and fee focused--much of the credit risk is being distributed to investors vs. held on balance sheet. There isn't necessarily a need for such a large LevFin workforce in a downturn, unlike credit underwriting / RX.
I don't have too much experience in LevFin, but in my RE firm, we tend to lever up when the market is going shit because we want to have the buying power to catch good assets being mispriced. Is it better for LevFin to do the same thing as the Risk/Return profile have been vastly improved because of the reduced price?
A lot of really valid points in the post above. I would like to look at it through a slightly different lens though.
1) If you're going to be entering as an analyst, you will be less susceptible to lay-offs (particularly if you're performing reasonably well).
2) The next downturn is unlikely to be as severe as the GFC (hope I'm not tempting fate here!)
3) Whilst much of their focus during a downturn will be on ensuring PE portfolio companies perform - with cov-lite deal structures widely in place, the chance of immediate default is much lower. Companies also generally have higher equity buffers than during the GFC. So overall there will still may be trades to be done (A&Es, balance sheet repair trades with a combination of equity and debt, refis, etc.)
4) Private equity has raised huge sums of capital in the past few years. The set of deployment opportunities during a downturn could be considerable. Carrying out take-private transactions whilst the markets are rough will be difficult for leveraged finance bankers but could equally represent a good opportunity to make fees (+ would offer great learning experiences for juniors)
To retain some balance, it is true that leveraged finance can be a particularly unpleasant team to sit in whilst the high yield / leveraged loan capital markets are shut. Sitting around for 1-2 quarters doing nothing in a big team, knowing big lay-offs are likely to be just around the corner is a really unsavoury experience. Let's just hope the next down-cycle is a lot shorter in duration and shallower than the previous one.
How would you say the climate is now? I'm just an undergrad, but from what I heard from some top groups is that the "overnight halt" did happen around March, but since then, they've been doing extremely well due to companies seeking liquidity. I've heard LBO activity is down though, so I am interested in your thoughts on the current climate.
Also interested!
bump
Anyone in LevFin/FSG could provide any insights for us?
In general: dealflow will of course be impacted in a down cycle, but that's true across the board. I'd recommend going with the top group, chances are analysts have placed well in the past and even if the economy blows up at least you have relationships with PE (assuming that's your goal)
Makes sense thanks
Does the advice hominem provided about the cyclical nature of Lev Fin apply to the same degree for DCM? What does the short - mid term outlook for DCM look like?
In our BB’s sponsors group, I believe exactly half the analysts got laid off in the last recession. That being said, last recession was particularly dire for credit markets and I don’t think the reaction would be nearly as dire this time around.
Didn't expect so much layoffs... just a massive decrease in dealflow therefore lack of exits. Did some of the analysts transition to RX given their exposure to debt? And likely increase in RX dealflow.
Not sure what became of them. One of the interns moved internally, don’t know what became of the rest.
Being in a credit focused team during a credit-bust is a great opportunity to learn about distressed and stressed debt. I started in the levfin team of a ratings agency and it was a fantastic learning curve. Almost every LBO I looked at was busted with the company looking for covenant waivers, holding out for amends & extends, and engaging in restructurings/liquidations. I felt that myself and the other new analysts learned a lot more than the guys who joined in the bull market when every deal got financed and problems were few and far between.
But that would be more applicable to RX team wouldn't it? How would the LevFin teams be involved in such situations?
Curious about this as well.
Going off of this, how would FIG (specifically banks) be affected in the current market? I know the inversion of the 2/10 has major impacts and will on some of these financial institutions.
Similar to OP, i'm trying to gauge what the future for FIG would be, as I'm interviewing with a boutique in the space.
If you're talking about CS, Sponsors/Lev Fin is def the top group. Even if deal flow slows down, I feel like the prestige of the group might still go a long way for exit opps. Tbh I would join it no matter what the market does. If this for SA or FT?
SA - most firms predict a recession in 2020/2021, basically at the start of my FT in case of conversion. Can you PM me please? Out of PMs...
I would generally give little weight to market timing when choosing a group. On the margins, sure it can help break a tie. But I wouldn't give it more weight than that.
The problem with following the standard advice of avoiding LevFin at the end of a cycle, is the same problem with following most conventional wisdom: everyone is already following it.
Take for example the group that made you the offer: they might already be very short-staffed because we've been (in people's minds) at the late part of a cycle for the last 3 years. They may be so understaffed that a severe slowdown would only get them back to appropriately staffed.
Consider also the timing: if we are indeed at the very end of the cycle, could it actually be the best time to join? Some credit tightenings are very short. We had one in early 2016, lasted less than a month. Maybe getting in at the top means also getting in at the bottom.
Lastly, let's assume the worst for a moment. Let's assume the cycle is indeed ending soon, and it will indeed be a bad couple of years for LevFin. Isn't that assumption already largely "priced in" to the employment market such that LevFin groups have already had trouble getting people and have had to reach lower into the candidate pool? And thus the candidate is probably getting the LevFin offer from a better brand name bank or for more money, or some other compensating factor? Theoretical I know, but just throwing it out there as another caveat.
I could go on and on with caveats to the conventional wisdom, but the main point I would make is that it's never a good idea to try to beat any market (a trading market, an employment market, etc.) by basing decisions off widely-held, basic information. I think it's fair to consider the cycle on the margins, but only as a small/medium factor alongside others (fit, culture, etc etc etc).
Assuming this is Credit Suisse, LevFin would be great. I have a friend who believes it was his single greatest career decision joining LevFin during the recession. Counter cyclical nature of LF is just the cherry on top.
Is levfin counter cyclical? always thought Rx was the counter cyclical group...
Out of interest, what team did you go with in the end?
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