Lifespan of Banker Who Doesn't Source

Seeing a lot of threads suggesting IB has better LT risk-adjusted earnings. Comes up in the context of MM PE paying less cash comp vs. staying in IB. Have been out of the IB game for a while, so some questions for those of you who work at banks 

1) What time horizon is this true for?

2) Do you view current ASO > VP, and VP > SVP promotion rates as being elevated relative to historical norms?

3) In a downturn, would said promotion rates decline and revert to lower historical levels?

4) How long can one ride it out for the higher risk-adjusted / probability earnings - do most SVPs at your banks execute?

5) If your firm has little white space (most sponsors and corporates are covered), how do you elongate your life span.

Wondering if the whole "higher visibility into higher comp" thing only applies through the end of year VP years, and then you have a quicker exit out the door if you can't source? PE at standalone funds may have that too, but certain other strategies at AMs like RE, Infra, Credit are less rigid from that perspective (i.e. may be able to stay employed longer)

Comments (23)

  • Associate 3 in IB-M&A
Jun 20, 2022 - 12:42pm

ASO -> VP is more or less a given, especially at a BB - guess that's where the "risk-adjusted" part comes in, as PE has no such guarantee. If you're awful they can make you do 1 more year, but everyone willing to stick around for it gets there - it's solely a game of attrition. Hard to say about a downtown, obviously 2008 wasn't your traditional downturn, but think total comp would be more impacted than title promotions. The important part of that VP promote is getting assigned to clients you actually want.

VP -> D and D -> MD are when ability to produce come into play. Even then, some awful people get promoted just because they stick around. Bonuses are a much more realistic assessment of performance than promotions of course - they will pretty much promote anyone to VP or even D, but they might give you very little or no bonus if they really want you out. 

Client coverage when everyone good is already taken is a real problem and where a lot of VPs choose to exit stage left to a different bank for better coverage. The guys who are really set on staying at their shop might try to get creative - talking to clients who always use a competitor, bringing in coverage that's not traditionally in your space, or moving downmarket trying to hit on MM deals. 

  • Associate 3 in IB-M&A
Jun 20, 2022 - 1:16pm

Low or no bonus, but they're not gonna fire you. Some directors fly under the wing of a superstar MD and get by on their relationships / don't have to do a ton of sourcing because they've got big deals, but that's rare. And when you hit MD you're toast.

But if you're just straight up not producing, typically will go elsewhere within a few months of receiving a shit bonus. Happens all the time.

  • Intern in IB-M&A
Jun 20, 2022 - 2:55pm

Are VPs / D's essentially given a book of business by outgoing MDs that they need to grow?  Curious how much of the client base is sourced from scratch versus legacy clients 

Jun 20, 2022 - 4:22pm
rabbit, what's your opinion? Comment below:

Can speak to my experience. I get handed the day to day for some relationships and hunt for my own. Day to day = catching up with C-suite periodically and after earnings, staying up to date on the business, giving color on markets and deals, pitching acquisition targets etc. Basically staying in front of mind for when a deal starts to materialize, that's when the MD starts plugging in too.

Also go out and hunt on my own. Lots of meeting lawyers, accountants, cold/warm reachouts to C-suite. Existing relationships + execution take up most of my time so don't can't spend tons of time on this. 

Am at a non-EB boutique for context.

  • Associate 3 in IB-M&A
Jun 20, 2022 - 10:15pm

Typically a relationship will be VP/MD, or VP/D/MD for a really important client, so you're not poaching on any MD books as there will always be an MD on the relationship, even if it's new and you brought them in. Clients are handed down from VPs who have left or gotten promoted. At my bank the jostling for the best clients starts at like associate 2, and if you work closely with a killer MD you can have a readymade book of active clients with little sourcing necessary.

To give some harder numbers, I'm at a top group at a BB where we have contact with most of the large clients in the space. VP1 books are at least 75% old clients, with ~25% from "scratch" - as said above these are typically MM, people who don't normally play in our space, or the occasional company who basically always uses a different bank. 

The promote is easy but from watching people get promoted VP1 might be one of the hardest years in banking. Combining client service with producing perfect materials on a LOT more deals than you're used to and trusting the associate to do all the checking in the weeds... can't speak for any other banks but in my group VP1s might work more hours than analyst 1s

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  • VP in IB-M&A
Jun 20, 2022 - 8:02pm

At an EB for reference

The EB structure is interesting because depending on the group, the senior MDs really have a dominance over the relationships and are always the ones to get the calls even if the client has worked alongside the Director/SVP on the same projects. For some Directors who don't branch off, that can make it very hard to originate their own stuff but also provides quite a bit of stability to ride out the Director years for a long time. At the high end we have some 6+ year Directors who are the Senior MD's right hand man and do all their execution. Mind you these Directors take their own meetings too with sponsors and publics that the MD doesn't touch, but tbh doesn't seem to result in much deal flow.

That said once you approach 6+ years you may get asked to leave (though normally with all your accrued stock vesting and given a window to look for a new gig). Seen many occasions where they actually end up getting the MD promotion by switching to a more middle market platform (something like BMO, Piper Sandler, Raymond James, etc.). Seen some others take more cushy roles in corporate development or asset management (e.g. family offices) so not like these guys are screwed.

Jun 23, 2022 - 2:37pm
nychimp99, what's your opinion? Comment below:

And I've seen VP and above move from EBs to BBs in recent years (2019 onwards). The few people I networked with mentioned this happens because they felt like they were always in execution mode for deals that MDs at EBs brought in, and wanted to build out their own origination capabilities- to your point Senior MDs dominating the relationships at EB

Maybe its easier at a BB since a lot of relationships there are tied to the institution and not the individual, and D onwards - there's opportunity to build out your own clout instead of waiting for someone to retire.

Another thing to note is: many of the founding members /Senior MDs at EBs were originally from leading BBs but had to step down/retire to make way for the next generation. They left for independents and kept those relationships/ongoing work with them. (I guess this also somewhat contradicts my point about relationships at BBs being tied to institution rather than the individual, but for some clients that's simply not the case as they will truly value an individual SMD with their advice). The SMD at my group is exactly one of them- and he has no plans on retiring or giving up those relationships anytime soon. We "pitched" a bunch of times for work with one of such clients (against his old BB and others), for a process where it was already pre-determined that we will win based on the fact that the SMD has been working with that client for over 10 years now and knows the entire management & their business inside out.

  • Intern in IB - Gen
Jun 20, 2022 - 8:29pm

How do RX MDs manage client relationships vs coverage MDs? Do coverage MDs bring in deals for RX then the RX MD executes? I'm hella confused on how RX works in this regard. 

  • VP in IB-M&A
Jun 20, 2022 - 8:39pm

Yes, that is generally how it works. RX MD's aren't going around to healthy companies pitching themselves to wait on their downfall. That said, even in good times RX MDs are taking meetings with credit funds, hedge funds, etc. so that in the event one of their credits gets into trouble, they'll be well positioned to get tapped for a role representing a group of debt holders.

The RX industry is small too and at the large cap level is dominated by a small subset of banks with this expertise (e.g. PJT, Moelis, HL, Evercore, etc.). So if a large company needs a restructuring the list of banks they reach out to to pitch is significantly smaller than a traditional M&A deal. The banks from this group that aren't chosen to represent the debtor will likely have a very good chance of representing someone on the creditor side anyway. 

Also remember a lot of these groups are Restructuring AND Recapitalization - they'll get brought in to advise on cap structure too which can be for both healthy companies and distressed companies

Jun 24, 2022 - 3:27pm
PeRmAnEnTiNtErN, what's your opinion? Comment below:

Also remember a lot of these groups are Restructuring AND Recapitalization - they'll get brought in to advise on cap structure too which can be for both healthy companies and distressed companies

This, I have been pulled in with the small RX team my bank has to look at some companies that are highly leveraged compared to their peers. Its a good way to lead some of your clients.  

  • Analyst 2 in IB - Cov
Jun 22, 2022 - 3:52am

Bump. 

I've seen no-deal MDs getting promoted from D after 15-20 years because of "loyalty". It's pathetic. 

  • Intern in IB-M&A
Jun 22, 2022 - 6:35am

If he's not bringing in his own deals then he's TC is relatively low, no?

  • Analyst 2 in IB - Cov
Jun 22, 2022 - 9:58pm

I believe so? Since an MD's base pay is high enough for most middle class people, he definitely lives a relatively comfy style.

Maybe not yacht-level as some senior rainmaker MDs do. 

  • Business School in CorpStrat
Jun 22, 2022 - 10:04pm

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