Public Finance Q&A

Are you asking a macro question or something more specific to the industry?

VP total comp estimating about $350k, Directors and MD are harder to say as it depends highly on results, but rough estimates I would say D in the +$500k range and MD +$750k range

Hours are better, analysts I would say depending on the firm, range about 60-70 hr on average but of course it has its good and bad weeks. In terms of the work, I think more quantitative skills are required because unlike corporate debt, municipal debt can be structured (often is) up and down the entire curve solving against revenue constraints and an issuer’s desired debt service. Also, if you like public policy, you will learn a lot about now state and local governments work. Finally, depending on the types of deals and issuers you cover, it could be exciting and mentally challenging (from an exercise your brain perspective) even after many years - particularly in the current environment when governments are trying to figure out how best to navigate the financial impact of COVID-19.

In terms of life style, let’s just say I think it is a good balance of making a very decent living and having time to enjoy it.

It depends on where you are in your career when you exit, I know analysts and associates who left for tech, hedge funds, etc. as they are still early enough in their careers but have been told that the experience they gained in PF with dealing with clients and critical thinking has helped him make the transition easier (whether that is true or not I am not sure but make sense to me). Those later in their careers usually go into government or in another role within the industry (credit, insurance, etc), but I think those who have been there long enough have a decent nest egg saved up so not necessarily motivated primary by money if they leave.

I think all of the skills needed to be successful in most finance jobs are needed. We spend a lot of time responding to RFP (because it’s government and many have procurement rules) so MS Office skills (Word, Excel, and PPT) are a must (if you don’t know it, you will learn it fast). Then also it helps a lot to be quantitatively incline, as there is a lot of modeling involved. But I think some of the most important qualities are the ability to look at the big picture, and work as a team player. Junior resources are strained at many BB firms so a non-team player will be exposed fairly easily.

Munis like many asset classes experienced a lot of volatility during this period, and many deals are still on the side lines (more because rates and spreads aren’t where they need to be to get the deal done, and lower, “more challenged” credits face more uncertainty). But while volume has declined, things are stable now. In PF with a BB you don’t really have to worry that will be no business, because we are here to help issuers navigate through uncertain times. Capital means a lot when markets are volatile, that is why BB firms in PF are fine and will have a lot of business.

For the first part, see above. On your second question, with BB firms there are a lot of opportunities to move laterally within the firm. PF encompasses not only investment banking, but also S&T, credit analysis, derivatives and other cap market structures, P3, direct lending, etc.

As an intern, depending on the firm, you may have access to the Ds and MDs, but you will mainly be working with the Analysts and Associates. So those are the folks that will opine on your performance and whether they believe you are a good fit for a FT position after internship. So I think the best interns I have seen are the ones that are proactive, always asking how they can help, have good communication (in terms of what you have on your plate, priorities, etc.), and generally strive to make the Analysts and Associates look good. One of the biggest challenges at BB firms from my experience is for jr bankers to balance a lot of different things on their plates, so the more you can help them get through their day the more favorably you will be viewed. But that is just my opinion based on what I've seen.

I am not aware of any recent laterals at the VP and above levels, but I wouldn't imagine that WFH has any meaningful impact. Folks that get hired at that level aren't evaluate on how much work product they can generate, but whether they have existing relationships and ability to grow the business.

I think the perception that you are "pigeon holed" in munis is because there are many who entered PF without having much interest in public policy. Also, any job that pays less than what you make in IB is viewed as not a move up, but in reality if you are indeed interest in the public sector and later decide to leave the bank and want to be the Finance Director at XYZ county or school district, you can certainly do that. So people do move around. But like any other job, if you get too far into your career, say want to go from marketing to becoming a programmer, of course it will be much harder (but doesn't mean it had anything to do with your first job being a "pigeon hole").

I think when the 2008 financial crisis hit many people thought the smaller firms won't survive or there isn't much incentive for them to stay in the business, but while some did consolidate or gone away many did stay around. Notably, its not just balance sheet, even a big firm like UBS, who was the top firm in the space at the time, blew out their PF department because the Swiss simply don't understand the business and wasn't critical to their overall business. Then the BABs were introduced and money was to be made and incentivize firms of all sizes to stick around. But given the additional regulations around PF in recent years, I do think its hard for small boutique to even medium size firms to operation. That is why you've seen firms like S&Y, De La Rosa, etc. all get absorbed. So the bottom line is I don't think consolidation will stop but many have already done so. As for whether its beneficial to move up to larger company, I always think at the lower ranks you always want to be at the top firms for job security reasons. They have the ability to take financial hits, more spread out in terms of operations, and have more resources.

I have known of people leave for debt management and other finance functions at local governments such as utilities, airports, universities, school district, cities, counties, etc. Mostly larger municipalities where they issue frequently, so makes sense to hire someone familiar with debt.

I am not familiar with how the MM firms operate internally, but I can tell you that a couple of the BB I have been with have excellent internal mobility programs. I personally have not utilized it but I have heard of a few who found other positions within the bank through these programs (but none were to the corporate side). That said, I did know of a person in my training class many moons ago that left HC PF and went to corporate, but that was when he was a 1st year Associate. So that is the long way of saying, it's not common but I am sure it happens depending on the persons specific situation.

Also, maybe you are already aware but within PF there are corp tax-exempt groups. Finally, I responded to another person above, I think if your goal is to ultimately enter corporate IB you should try to start there.

For interviews, I would suggest brushing up on time value of money concepts. Also, be generally aware of where the market is (UST yields, equity indices, what the Fed has done, etc.), and more specific to municipals check out headlines on the bondbuyer.com (its a paid subscription service but some free articles), You can also Google around and given how often much municipalities have been in the news of late, at least get a feel of what is generally affecting local governments.

awesome thank you

Most transitions happen at the analysts and associates levels. I haven’t known any personal from corporate but I am sure it’s happens. But I would say the skills need at the jr banker level can be taught.

From an issuer’s perspective it’s mainly about cost of funds, which means tax-exempt debt is usually the best option. But depending on ratios, there have been rare occasions that taxables cost of funding is comparable or even better. Other reasons tax-exempt or taxable may be viewed differently are things like future call optionality, structuring limitations due to preferences from different buyer bases, etc.

All else equal, and it’s the same or not costing you much more to borrow taxable, you should do it all day long so you don’t have to worry about tax compliance (I.e. arbitrage rebates, spend down requirements, etc.)

1) Some issuers believe that competitive sales always gets them the best bid. While it may be true in many cases, that is not always apparent, especially when the market is challenging and having a marketing period is invaluable. Also, the more you depart from a plain vanilla deal, the more it makes sense to do a negotiated sale.

2) Just like bankers, there are good and bad municipal advisors. It depends on the MA and situation, the good ones do pull their weight and add tremendous value.

3) I have done both

4) I have never viewed it that way, because the more complicated the deal is the more an issuer would benefit from turning to a BB with the capital and distribution capabilities. Of course the largest issuers in the country also happens to be those who issue straight forward/ strong credits deals. So it's not surprising that all the BB are after those deals. That said, the BBs I have worked for have all done more than their fair share of interesting deals.

5) That is a good question. From a structuring perspective, the banks always find some ways to tweak existing products and structures to get issuers where they need to be. I don't know what the next big thing will be, but one guess is given how taxable offerings are becoming a larger piece of the market, I can see a bigger push to change how taxable bonds could be more effectively marketed and sold to the international investor community. If you are in muni S&T, you probably know more than I do on that front!

I know junior bankers at both small, mid, and BB firms who work a lot of hours. I think it depends on the group you are in and who you work for. I would say on average analysts and associates at BB average 60 hours a week, with some weeks better than others. I have also known those at smaller firms that work a ton, simply because hiring more support comes out of the MD's pocket. At a lot of small firms it's eat what you kill, and if you want more bodies you have to pay. Then there are those at small firms where the MD isn't very productive so they are mostly sitting around responding to RFPs hoping to get deals. So I wouldn't say that there is an absolute correlation between hours and the size of the firm... like with many things, it all depends

I am at a BB and we have a project finance team within our department. Over my 3 years here, 3 people on the team left to join project finance groups (sellside/buyside). As for the skill set, its kind of similar, particularly for new construction, as you are trying to reach coverage constraints but the revenue you are sizing from are the difference - in project finance there is more artful forecasting initially (you rely on a feasibility consultant to actually come to market). As for which group is better experience wise, I would say, not knowing much of the corporate side, that being in a power/utilities group is probably better as you are less reliant on DBC but that is an educated approximation.

Hours depend on your role.  Analysts and Associates I would say generally 60-70 hrs is typical with some weeks better than others.  Sometimes when RFPs and interviews that suddenly pops up it throws a significant wrench into their schedule.  As you move up, your hours "in the office" naturally decreases but your hours on the phone, on the road, and working around the clock probably equals to roughly the same amount of work.  The type of work may change from speaking with clients and other industry partners, reviewing work product, and other management type activities but its a trade off between higher responsibilities with less grind. 

As for regional offices, I work in a large regional office, and I would say it is the best point of entry because the learning curve is much steeper and you get more responsibilities as a junior banker.  You likely will have more limited resources than being in NY but your professional growth in the regions is worth it.  

It depends on the person.  But for the most part you are learning and building relationships about a unique sector.  So would it be easy to transition into something different? It would be as easy as transitioning from PE to PF is the best I can put it. 

Any word on increase?

Oh wow, I am a year late to respond here.  My bad, I haven't been checking WSO often.  But I hope you did get the summer internship!

Again, a year late on the response here, but scroll up and I have my estimates of the comp.  Should still be fairly accurate in a "normal" market.  This past year was a down year. 

A bit late on my response, but in PF there is a lot of Excel modeling as well as working on DBC Finance.  The degree of complexity depends on the deals.  Most of the deals I work on are pretty straight forward but there are the occasional deals that need to be fun on What's Best.  I think the average day of an Associate looks very much like an Analyst (at least in my group), the Associate just gets an extra "helper" to help them get the job done (btw I hate it when Associates just dump things on Analysts, especially when it's not the most effective use of time).  But Associates are expect to work on the initial drafting of proposals, administrative deal processing (i.e. forms, calendars, etc.), model debt scenarios, research stats on credit presentations, review prospectus, etc.  There really isn't anything typical, as Associates are expect to do everything that they did as Analysts but at the same time learn how to take on more responsibilities so they can be ready to eventual take on the VP role.   

Salary should be the same across groups.  Depending on the firm, they can also be the same across locations (so it sucks to work in NYC with it's higher cost of living vs. in Charlotte for example).  As for bonus, at BBs, I am pretty confident that the variance isn't what I would deem large (maybe +/- $10-15k).

Many of the PF BB’s recruit from undergraduate target schools for their summer Analyst and Associate programs.  They like to get their FT pipeline from the summer intern classes. If you weren’t able to participate in those recruiting efforts (which start very early now, like in the spring for the following summer), then as an MBA I think your best course of action is to leverage your professional network, or even explore regional firms (Loop, Siebert, etc.) as they likely have more flexibility to hire based on need at the time and not tied to a strict recruiting cycle.  Or you can also try to get into public finance through a municipal advisory firm.