Lateral Market

From my vantage at least, the lateral market is certainly “open” (and markedly improved from 2Q 2023 - 1H 2025), but with banks being more cautious, selective, and slower in hiring processes than we’ve previously seen. Feels like teams are being thoughtful in trying to build out their long term talent pipeline and fill out the talent bench vs just staffing bodies (such as the mad scramble to fill seats we saw in 2021-2022). 

Three things, all somewhat interrelated driving this in my opinion - (1) current activity levels, (2) expectations for 2026, and (3) AI.

1. Current activity levels - while m&a is “back”, with revenues/fees up considerably, deals have heavily skewed towards large cap strategic deals vs middle market or sponsored transactions, leading to an increase in deal volume by $ but not total quantity. It takes roughly the same amount of juniors to get a small done deal than a large one, so we’re not seeing the same “strain” on capacity in the system as we did in other hot markets. So while some banks may need some additional support around the edges, and likely have the budget to hire, there’s not a pressing need to have additional folks hit the desk asap - meaning teams have the luxury to be selective in candidates, focusing on talent and spots that are longer term more strategically important (ie hiring a seemingly “career banker” associate for a class they cut too deep on in 2023), vs a day 1 need. 

2. Expectations for 2026 - market is at a weird place right now (when isn’t it in the 2020s?). Things are “good” with debt/equity markets constructive, a favorable regulatory backdrop, and an obviously backlog of deals to get done (sponsor portfolio needing to be monetized at record high, mandate from corporate board rooms to get things done, big inventory of IPO candidates). There are also cracks and warning signs across the system - frothiness in equities driven by AI enthusiasm, deteriorating job market, tariff pain starting to hit corporates and consumers. 2026 could be the year “animal spirits” are finally unleashed and we get dealmania - or it could be a challenging period of market dislocation - banks are trying to somewhat thread the needle on headcount such that they won’t need to aggressively cut if there is a downturn, but are also geared up and ready to go if a real good party kicks off. 


3. AI - everyone knows things will look different in 2-5-10 years with how junior banker activity gets done, but no one really knows exactly how. I have yet to see (at least large) banks really meaningfully replace A&A labor with LLM yet, but it’s obvious to everyone there are (at minimum) effeciency gains on the horizon, and potentially a complete upheaval on how deals get staffed - and (as a recurrent theme here) banks want to be reasonably prepared for the whole spectrum of outcomes. The other wrinkle here (Matt Levine writes about this occasionally) is that there is yet an AI model that can drive senior banker activity - so how do you balance hiring the right amount of juniors to be trained into senior bankers while still unlocking the synergies of AI - kind of a key question for banks these days.