Commercial Banking Career Path - Which loan group?
Hey guys, I'm at a bit of a crossroads with my career. Ultimately, I'd like to either keep working my way up at my commercial bank (it's a super cushy lifestyle for how little we actually work), or move into a credit focused/distressed/turnaround PE fund.
I'm in our bank's rotational credit training program, and will be able to apply for relationship manager roles pretty soon. I'd like to get some thoughts on which direction I should go. We have numerous speciality loan groups (energy, environmental service, tech, etc.), but I think that middle market is probably the way to go. The issue is that our middle market teams are divided into lower middle market groups (generally $3MM-$30MM for us), and groups that handle pretty much all other middle market companies.
I was pretty set on moving into the upper middle market group since they get to work with a lot of PE funds on leveraged deals. Additionally, a lot of our leaders internally started their careers in these groups. However, the advancement was just made considerably slower in those groups (you now have to move into a portfolio manager roles for a couple of years and manage existing clients, which is generally not a fun job and doesn't really add much to my skill set). This got me thinking about the lower middle market groups.
While the transactions tend to be much simpler with the lower middle market clients, you have a lot more interaction with the people running the businesses. Most of the upper middle market companies already have finance staff, and we tend to deal directly with the PE funds more than the companies on the leveraged transactions. Plus, due to the size of the deals, you have to source and close a higher volume of deals to meet your goals. While this sounds like a bad thing, it effectively means that you are rarely expected to be in the office and should be out entertaining prospects.
So, pros/cons:
Lower MM Pros: quicker progression to relationship manager, more autonomy, less time in the office/more client calls (golf), more interaction with business owners/clients are more reliant on you since they tend to not have in house finance staff, more likely to be able to move into a CFO position (if one of your clients gets big enough to need one, you're probably on the short list)
Lower MM Cons: Smaller deals usually means lower pay, need to find more deals to meet goals, you generally don't get to work on more complex deals or with PE firms (though this may change as the lower MM group is starting to move a little more up market), less representation in upper management
Upper MM Pros: Interaction with PE Firms, experience on highly leveraged transactions, goals met with fewer deals, easier progression to upper management
Upper MM Cons: Slower progression, takes longer to build a quality pipeline, more time required in the office
What I'm not sure of is which would be better for building a resume to work at a PE firm. My initial thought was that the experience of working with the PE firms directly would be more beneficial. However, it seems that there is some value in working directly with business owners and being able to identify the companies and managers that can make it to the next level (that's essentially the job at PE firms). Most of the companies I'd be working with in the upper middle market group are already there, so I wouldn't really be able to build that skill set. Also, I'd think that most of the PE firms I'd be able to move to would be targeting lower middle market companies, as most of the larger firms that go after upper middle market companies tend to hire more from the IB side of the world. So, I think I'd get more experience working with and looking at the type of companies that would be targeted by the PE funds I'd move to in the lower MM group.
Any thoughts or advice would be greatly appreciated. Thanks!
Has your group seen many exits to private equity? I'm sure it's possible, but my understanding is once you start working in credit, it's very hard to shake the risk-averse label and move to a risk-seeking role. If that's ultimately where you want to be, I'd think about making that move asap rather than trying to get a lot of experience under your belt in hopes that makes you more attractive for PE. It may have the opposite effect entirely.
If you're not hell-bent on PE and could see yourself staying in lending, starting as a PM and gaining underwriting skills could serve you well in the long run. That's probably required by your upper MM group because it'll train you to look for the right things in terms of deal structure, which makes you better able to have those conversations with clients. I'd also suspect that if you ever wanted to leave, the upper MM experience would open more doors, whereas breaking out of the lower MM space could be more challenging.
Thanks, that's good advice about the risk adverse label, I hadn't thought of it that way. To me, credit training is about being able to quantify the risk and charge/value transactions accordingly more than it is about being risk averse. While commercial banks can certainly be very risk averse, I've always felt that it was more due to the policy/model of the institutions rather than the skill-set of the people. Most of the lenders I know would do riskier transactions if they were allowed to, but it's just not in the business model.
We see people leave for IB/PE type roles occasionally, but I don't get the sense that many people are interested in or trying to leave for that kind of role. Analysts and lenders tend to leave to take other commercial banking roles and a lot of the lenders go work for one of their clients (this happens quite a bit in the specialty loan groups).
One thing I would like to clarify here is that the PMs don't actually do any underwriting here. I will not gain any additional underwriting experience when I leave the analyst role. PMs are there to free up the lender's time and mostly deal with things like coordinating with the underwriters on maintenance requests, certifying covenant compliance, and that kind of work (most of which used to be done by lending assistants). It's a new role for us, and not one I'm keen on taking. I get that the work needs to be done, but there are plenty of people that don't want to take on the sales aspect of being a RM and are happy to do the work, so I just don't agree with forcing those of us that are on the lender track to take the positions.
Historically the junior lenders did some of this work as they were transitioning from the analyst role, but they were still lenders and they only had to do it for a few months. Now there isn't a clear timeline for moving into a RM role from the PM role, and while it may be difficult to move as a RM, I think it would be almost impossible to move as a PM (even to another bank, as they typically want you to bring clients).
Yes, there's a wide spectrum of risk-taking for credit, but that's not what I meant when I differentiated between risk-averse and risk-seeking. Credit analysis is, by definition, only focused on the downside. There's no bonus for a lender when a company takes off - you either get paid back or you don't, so the analysis is 100% focused on the risk of not getting paid back. This is fundamentally true for all lenders, including those with the very riskiest portfolios.
A PE company is focused upside, and they typically want to add as much leverage (ie, default risk, from a lender's perspective) as possible to boost their returns. They're looking for home runs, not singles. A lender is just trying not to strike out. It's the difference between "tell me why they'll grow" and "tell me why they won't fail." Some people might have the skills to do both well, but the perception is the two require very different personalities. Credit: Cautious, skeptical, prefers certainty. PE: Courageous, optimistic, imaginative. Once you're labeled as one, convincing someone that you're the other is hard.
As for your comments on the PM role, that sounds pretty administrative and I agree, you're wasting away on the bench waiting for your opportunity if you go that route. It actually seems like step backwards from underwriting, where you at least get intellectually challenging work. If you take the lower MM RM role, is there a reasonable chance you can stay in touch with the upper MM group and try to move over after a year or two?
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