So, I know you'll read this and say ' He's naive". Actually I'm not and have man y years of battle scars on the retail side. Been through the boiler room cold calling w business when it was legal and encouraged. Was told the best lead in the world was if someone answered the phone. Figured out how to make it work and built a lasting 29 yrs strong! Would have been easy to quit as most did. Was starving on 100% commission and no advance. had the lights shut off at home. You get the drill.
So my question is, why are so many bankers hyper focused on exit opportunities? It seems to me you have to work your ass off to get to the right college. Then work your ass off to get an interview / hired. Then you work your ass off in the job for a few yrs (making good money for a kid). I realize it's a grind but so is law school and med school and top MBA and consulting, etc. It's all a grind until you're a leader and have others to do the grind. If the answer is you really want to be at another place, why don't you just focus on getting there the whole time?
Have two friends who are F250 CFOs. Both took different paths (MBA vs. CPA) but neither of them did IB to grad school back to IB associate to PE to MBB to corporate dev. The CPA did Big 8 to client to wharton (paid for by client) to various finace roles within client to CFO of division to CFO at another global company. MBA was basically the same. Once he got to where he is he moved up the food chain to the CFO position. Has been employed there 20 yrs. Makes 2M / yr and does really interesting work making all the IBers jump through hoops.
A little confused on what your asking - you essentially said why focus on exit ops but proceeded to rave about your two friends who once had exit op-type jobs..? Nonetheless, IB has higher pay and sets you up better than starting out in finance at a F500 company. There is a reason such a high proportion of executives started out in IB. Your two friends worked their way up the corporate ladder, but by no means is that the 'standard'
My point was they DIDN't bounce around. One spent 5 yrs at PW, joined a client and stayed there until he waA which he took at night and weekends while he worked for them). They other basically did the same thing.
Because investment banking culture at an industry level (not just at a certain specific firm, or group) is toxic.
When a banker's entire existence is based on chasing clients, and if you're lucky enough to get some, pandering to them, berating juniors for perceived shortcomings (because it only took you 25 years to "get it" - boy you sure catch on quick), and positioning yourself politically within your firm through an office version of the Hunger Games, you could see why that wouldn't be the most appealing way to spend the next 30 years of one's life for certain perceptive 22 year olds.
1st of all, I "got it" very early in my career - mid 20s - and have made great money for a long time. But you are making my point. Why do it at all if it sucks so bad? Lots of other ways to make a great living without killing yourself. Shorter sales cycles, less aggravation.
because thats where you develop tools and skills necessary for PE/HFs however, p72 is starting its own in house training program for undergrads so maybe thats where the finance industry is going-- lesser reliance on IB for "training wheels"
I wasn't referring to you specifically, but the ubiquitous "you". I thought context made that pretty clear.
Not sure that there are "lots of other ways" to make low-to-mid single digit millions annually (or more) at the apex of your career earnings potential.
Are you a troll? The answer was stated like 5 times. IB is a stepping stone to PE/HF where the real money is. Same thing with big4 and Consulting in most cases....you go in, make a few bucks and learn a bunch of stuff real fast, then get out before you get stuck there.
Obsession with exit ops? You want the best option for an exit. You bust your ass for 1-10 years, you don't want some shitty podunk job, you want the best you can get.
All these guys "obsessed with their jobs".....they'll have the option to be golfing at 45 while most people are still worrying about making mortgage payments. Some might even stay in industry and try for billionaire/political goals. If you're in this for any other reason, you're doing it wrong.
Also important to note that a large percentage of junior bankers do not care about finance at all so they would naturally care about how they can leave.
They went into the industry because they went to a top school and followed the herd to chase a prestigious/selective job largely cause they didn't know what to do or their true passion (human rights/urban planning/whatever it is) doesn't pay for Nobu dinners and other luxuries.
Everyone talks about it coming into banking, because by definition everyone coming into banking is coming out of college or is otherwise very young, and therefore by definition (and I don't mean this as an insult) is dumb and doesn't know shit. Turns out some people want to stay in banking. Some want to go to plain old asset managers. Some want to be lawyers (pray for them). Some want to do corporate development where, if you're in the office past 4 on a Friday, something has gone horribly wrong. These are all fine! PE seems great (and it can be) but A) there just aren't that many MF jobs to go around, and B) for some it's not as glamorous as it seems.
The focus on exit ops around here is one of the dumbest aspects of this site. Exit ops depending upon the individual first and the firm, the group, the location, etc of your analyst stint are all distant secondary factors.
I think most people prefer a sure thing to taking risk. The OP's career path is non-standard. The two CFOs the OP mentioned took more standard career paths. Most kids going into IB don't want to be CFOs at F500 companies. They want to be partners at PE funds, VC funds, maybe a few hedge funds as well. To be honest, I don't think most kids going into IB have any idea what they want to do. They just hear that IB pays well and sets them up for a high-paying career almost immediately after graduation. For a lot of the kids applying to IB or consulting analyst programs, they measure their lives in competition with one another. If you had to crush it in grade school and middle school to get into a competitive high school, then crush it in high school to get into a good college, then crush it again to get a good internship, and crush it one more time to get a return offer--well, that's how you're conditioned. The drive that got you to the full-time offer is the very same drive that propels you to ask, "What's next?"
And in the modern economy, it's not clear to most new graduates which (if any) career paths their parents may have taken will be available to them. Technological change used to take more than a full generation for corporate and societal adoption. That's not the case any more. People graduating today will probably experience triple or quadruple the disruption to their careers as their parents did. Since you can't control for almost any of the exogenous shocks to your career, it makes some sense to play it safe out of college and focus on your next move from a position of relative strength. That seems like a reasonably sound strategy to me.
tldr: if you want to take the work minimizing path (which sounds like what you're advocating), then the very obvious answer is to take the path one all these kids want to take, though it is only obvious when you think "outside the box". in my particular case, I work at a hedge fund and am 1,000% confident that my lifetime hours of leisures are higher than if I had worked my way up at F500 companies in corporate finance. (to be clear, I work in public markets so am fully aware of how hard it is to be confident about knowing anything!)
usually the response to this is "money is not everthing" and to portray me as a greedy, anxiety-ridden and money / prestige driven person. that's why all these kids pursue this path, right? this explanation is common and what plays to the narrative you are told about people that work in finance and hedge funds. it's also just wrong.
if you assume that both me and your F500 / corporate friends are both "work averse" (e.g., want to minimize lifetime hours worked), then the most work averse path is to do the path that i took by an disgustingly wide margin because my excess earnings allow me to retire far earlier. in simple terms, I am working 25-50% more hours but I make 2-10x as much; if you put all these earnings in savings that compound over time, then I get to retire way earlier and I work fewer hours over my lifetime. if you have a time preference for leisure at a younger age, you can also just switch jobs more often and use the in-between time as vacation (which is what I did before I started my current job and plan to continue doing going forward).
to "invert" my statement and view it from the opposite angle, it would seem extremely irrational to me to decide to cut my workweek by just 10-15 hours per week at the cost of several hundred thousand per year (or at the cost of several more decades in the workforce, if you prefer not to think in monetary terms).
money and time aside, it also matters that you enjoy what you do. my job is by literally any objective metric a lot cooler than yours even though I'm a lot younger. I get to be a detective and talk to some of the world's leading technology executives on a regular basis. i am playing a competitive sport against some of the world's brightest people, which is something that motivates me. most of my job involves a great deal of autonomy and intellectual freedom, even though I'm still in my 20s. it's something i've wanted to do since a young age and I actually do love it. i also personally don't find the job stressful (a good part about efficient markets is that is it both hard to make money AND hard to lose money in large quantities).
if you model it out, there is actually simply no set of mathematical assumptions where you can maximize either wealth, leisure, interesting-ness of work or career opportunities by actively choosing to reject a career in high finance and instead working directly at a F500 (unless you're one of those lucky people that just becomes the director of biz dev at a pre-IPO startup after a short stint at a mega-fund). there are a few reasonable reasons to go into corporate finance but they are: "I uniquely believe that my skills add more value to the world at company X" or "I actually did not want the extra responsibility at a young age -- it stresses me out" or "the type of person on Wall Street is typically pretty douchey and rude; this makes me not like work" or "this type of work makes me suffer health problems that make it not sustainable for me." these were not the reasons you stated, so I'll be firm in stating that your account of this tradeoff is actually just intellectually dishonest.
the kids on this forum aren't misguided -- i actually think they are pretty rational and I am glad i was one of them when i was younger a few years ago.
I subscribe the same train of thought as you. None of the CFOs or Entrepreneurs I know (and I know a few) done a stint in IBD, or even remotely know what IBD is. I think this is especially true for Europeans. I mean I have seen ex IBD and Consulting guys move in to executive positions, but there are many ways to skin a cat.
Im moving to a Fund shortly and the 3 portfolio managers come from Big 4 accounting backgrounds, and not the sexy kind of accounting either.
No point in preaching about this on WSO, most are drinking from the IBD Kool-aid. The majority of the IBD or bust mentality on WSO comes from students who don't know if its New York or New Year.
I think it's realistically a matter of the 'jammed doorway' at IB shops. PE/AM/HF/CD, etc., all like to poach from top IBs because the perception is that there are a limited number of spots for the best kids at the best schools. These kids are then put through the large institution machine of professional decorum, so that perception is enhanced, making it easier for those kids to be respected more than anyone else. You get a situation where the story told enough times that it becomes true as more kids fight to go through this path to get to the coveted role, and then also bolster the narrative once they get in those seats and have decision making ability. And so, everyone wants to be one of those "pathway" kids, so I doubt there's even a thought about just being in the process, it's about focusing on the destination these kids have been planning for since they were young.
2 Reasons:
1) They go in knowing how unlikely it is they'd ever make Partner/MD or whatever carrot firms dangle in front of you to keep you working like a horse. These days it's just not possible unless you're a mega revenue generator or Mr. Rolodex, and the business model counts-no, depends- on them burning you out long before that happens.
2) The exit opps themselves are damn good. Aside from the obvious PE/VC/HF/HSW jumps, they give you an advantage for some pretty cool unicorn gigs. I was in an FLDP and rotated into a Corporate Strategy role, so my colleagues were all ex-MBB-D. The caliber of recruiting opportunities (and comp) they got was a league better than what I was seeing, though I lucked into something decent. That kind of optionality is a valuable chip.
Proud as I am of my resume, I'll always regret not having started out in Big 4, IB, or Consulting. My colleagues with those experiences came out with technical skills, networks, the benefit of the doubt from employers, and a level of polish that took me several years to earn. If I could have had the same advantages slaving away for 2 years? Done
brotherbear has addressed the most important point, which I'll make my first.
One:
The overwhelming majority of people in life are followers. There's a natural sorting mechanism. Few people have the mental and emotional composition to withstand the pressure of being a leader (defined as the person with whom the buck stops, call that 'founder' or 'entrepreneur' or whatever you like; in short, the person who applied their own ingenuity to move something from zero to one).
Two:
Technology is an incredibly democratizing phenomenon. This applies here in two ways. First, the simple advent of the Internet has granted tremendous visibility on all career paths that previously had significant cultural or informational moats around them.
Banking was historically a more insular field than most. Law school and med school were easy; you got good grades, took a test, and applied. This is why being a doctor or lawyer were the two automatic career expectations of a 'smart kid' from the Great Depression until the dot-com boom, whereas a banker (of any kind: corporate, commercial, or investment) was the path for a connected kid. Nobody in the middle class knew what the hell it was as a profession, and you had to know somebody on the inside to get a seat.
(e.g. Warren Hellman became a partner at Lehman at the age of 26, one year after he graduated from HBS. How did that happen? He was the great-grandson of one of Wells Fargo's presidents, and through distant in-laws, related to one of the three founding brothers of Lehman.)
(e.g. Ace Greenberg as the classic story of being a huge anomaly for being able to break into a bulge bracket bank coming from a midwestern Jewish family, and how rebuilt the entire firm over time around his values of "PSD" rather than the blue-blood heritage every other white-shoe firm prized.)
This is borne out in the data for graduate school admissions. Top law and medical schools have effectively maintained the same relative rankings and admissions rates for decades with very little fluctuation on either dimension. Business school, on the other hand, is a dramatically more recent phenomenon.
I don't mean that the schools themselves are young, I mean that their 'prestige' is nowhere near as historical as law or medicine. HBS was accepting candidates without a standardized test into the '90s. The acceptance rate in the '70s was in the 40%s. People were applying directly out of undergrad or with one job (and only 12-24 months total experience) and waltzing in.
Part of that was self-selective (in that you had to think of yourself as Harvard material, you had to know how to write an application that would resonate with the committee, you had to be able to afford the costs), but if you go talk to the generation of guys who graduated between the '60s-'80s, they'll tell you with candor how easy it was and how much of a step down it was image-wise from law school.
I heard a megafund founder everyone here would recognize by name in a small group setting say that "I went because it was the only graduate school program that I could fill out an application for five months before classes started. Hell, it was the only place I could get in."
This recent (in relative terms) rise in the perception of the business school phenomenon and swell in the ranks of business school applicants and alumni also correlates pretty well with the mushrooming size of banks' employee count. All the bulge bracket banks used to be literal partnerships with several hundred employees. Today they're all behemoths with bloated employee counts in the tens of thousands. (e.g. Ace took Bear from 1,000 employees to 6,000 in the '80s.)
Second, social media and the attenuating sociopsychological effects it has unlocked have made it both way easier and way more natural as an adolescent or teen to stay abreast of every great thing every single peer of yours is doing. Obviously, any rational individual knows that Instagram is a curated and glamorized portrayal of the life someone lives, but people who are highly externally regulated or who haven't fully developed as individuals (read: every young person everywhere) continually fall prey to benchmarking and to FOMO.
We see this in the rising prevalence of mental health issues in teenagers, in the remarkably brutal college application process, in the early career stage. When you see that your 8th grade classmate is volunteering in Chile over winter break, you have to to. When your 10th grade classmates are doing three APs, you need to do the same. When your high school's top-10% are running 4.0 unweighted GPAs and 4.6 weighted, you have to step up to match.
It's harder to stand out for college admission, your first internship, or your first job when everyone around you has a profile with perfect grades, four substantive leadership positions, two impressive philanthropic accomplishments, one major sport, and one second language.
In short, it's way easier to learn more about what everyone else is doing. It's also way easier to get caught in a recursive loop of comparison and competition. The unifying factor there is technology: it lets us see more and it shapes our behavior.
Three:
Economic and cultural factors have rewritten the rules of employment. You used to be able to get a job and spend an entire career there. The stories of Jim Skinner starting at McDonald's as a trainee in 1971 and reaching CEO in 2004, Jim Ziemer starting at Harley Davidson in 1969 as an elevator operator and hitting CEO in 2005, Sam Palmisano starting in sales at IBM in 1973 and earning CEO in 2002, and Ace Greenberg starting as a clerk at Bear in 1949 and making CEO in 1978 are not replicable for people starting at companies in this millennium.
People have wised up to the fact that the most dependable way to get a title and compensation raise is to move to a competitor every 2-4 years. In some fields (usually tech-related), that trends as low as every 12-18 months. Equity grants and their cliff dates really drive the duration of high performers' employment.
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Investment banking plus its vaunted 'exit opps' is one of the smartest risk-adjusted paths to higher-than-average career success. The contributing set of factors behind performance in it are fully identifiable, measurable, and predictable.
In light of all I wrote above, it becomes eminently clear why so many people pursue banking as their first job.
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ThatOtherGuy understands my first (not numbered) point very well. People continually defer decision-making. Said differently, people always want the broadest optionality. If you give people two choices, Ticket A with 10 fairly equally weighted outcomes ranging from $200k-500k in annual income and Ticket B with 4 outcomes, one at 70% and $0k / one at 25% and $100k / one at 4% and $500k / one at 1% and $10m+ ... everyone punches Ticket A day in and day out.
From how you described yourself rickle, it's clear you're a Ticket B guy on a binary scale. You figured out how to build a thing of and on your own that works. Whether you're clearing six figures or eight figures from it a year is irrelevant. Given two choices, very, very few people make the same choice you did and go "Yeah, I'll jump".
Lastly, BobbybananamA's heuristic is gold. Some people have the temerity to make a time-weighted analysis of expected payoffs, then use the output to drive their decision, agnostic of what their experience will be like.
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In summary:
(i) What your friends did is actually fairly similar to what you're questioning. They went to professional services firms that afforded them the transferable and marketable skill-set that allowed them to move to the exit they were most interested in. Banking offers a better caliber of exits than accounting.
(ii) The way the world works has evolved, so people are adapting their behaviors.
(iii) Young people today themselves are wired differently (and in a different way than could be said about every generation in history).
I'm not sure 'the path' really existed 30 years ago. I think it's a bit of a shame that people like Gary Cohn couldn't hope to get an interview at Goldman these days. There is a lot of talent in the world outside of HYP or Oxbridge/LSE. That said, it seems you're talking about sales & trading more than I-banking. I started my career in trading, and was something of a quant. Even a decade ago when I started my career, you have to realize how parochial the IT systems at banks and hedge funds were.
There were different position management systems across all desks. Rates used different risk management software from currencies, who had completely different systems than equities. Even within teams, the flow and options desks might use different systems. It was a complete disaster from a planning perspective, and the effects are still felt today. Some of the systems were built in-house and some were bought by third-party vendors. It was really up to the Desk Head which systems his team used. And in the years leading up to the financial crisis in 2008, whole teams used to get poached from one bank to another. When they moved, they wanted to keep the systems they already knew, so the new bank would simply buy seat licences for the new systems and figure out the integration.
All of this was done without any consideration for the costs, the cybersecurity risks, or the integration risks (sometimes, adding new systems to an already badly structured IT enterprise can cause portions of said system to act up). As such, banks are a total cluster fuck from an IT perspective, which is one of the primary reasons fin-tech is such an interesting space.
I explain this so you get an idea of the sorts of jobs 'quants' did even 10 years ago. Two decades before that, there were no 'quants'. A lot of the older traders when I was an analyst used to tell stories about how they started on the desk before there were computers on the floor. The used to tell me about the Quotron machines they had to use, and how even those were novel at some point. Some of these guys are still in the markets. Some of them run big banks. They're fucking dinosaurs, but they haven't yet gone extinct.
The era of quants only really started about 10-15 years ago. Before that, most computers didn't have the processing power to handle much at all. You have to realize that most closed-form solutions for most option structures were only worked out in the 80s and 90s. The Black & Scholes paper on option pricing came out in 1973, with Merton's method arising in 1974. Jump risks weren't well understood until the 1980s. But all of this was done by hand. Vanna-Volga models only really started being used in the markets in 2007-2008, but weren't fully adopted until a year or two later.
In any case, quants weren't really useful before about 15 years ago. And 'the path' at that time was to begin your career in the markets, establish yourself on one of the market-making desks, take more proprietary risk over time, and then launch your own fund (typically with the assistance of the bank itself). Back then, the Prime Brokerage would help you set up your fund so they could keep their best talent within the bank. In addition to capital introductions (intros to investors within their private bank or asset management business), they would also help out with all of the back office nonsense that no trader really understands (all the stuff the desk COOs deal with). But the Dodd-Frank Act changed that with the Lincoln Amendment, barring banks from owning more than a small percent of PE funds and HFs as a percent of the bank's overall assets. This essentially destroyed the path-to-market for most HF manager aspirants, since the capital raising and operational aspects of launching a new fund require different knowledge and connections than most traders possess.
On top of that, making money in a prop book trading off the bank's balance sheet and having a P&L worth mentioning is not the same as having a track record benchmarked against an index. This is an important point, because in the past 10 years, investment consulting has become significantly more mature as an industry. Even a decade ago, the majority of pension funds, endowments, foundations and family offices did not use an investment consultant. Now, they all do. If someone like Albourne, Mercer or Cambridge Associates (who seem to get no love on this website, but have a LOT of power in the alternative investment world) doesn't 'cover' your fund, you're not going to raise institutional money. Thus, the 'path' for people in the market has become a lot less clear.
It's annoying to people like me because I get tired of having to listen to the supposed wisdom of guys 10 years older than me who just happened to get in the markets at the right time. Not only are they not cleverer than anyone else in the markets, they're also not clever enough to understand most of what I just wrote. This means they don't understand how much serendipity played a role in their success. They were able to launch funds before institutional investing became as regimented as it is today. It's much harder to do so now because it's very difficult to establish a track record trading real money in real size.
In any case, I don't trade any longer. I invest in technology and services businesses, but some of my reasons for leaving the markets are highlighted above. Hopefully, this helps you choose your own path.