So I came upon an article (link posted below) that states that Goldman Sachs, probably I'm assuming along with other firms, really derive their profits from proprietary trading, not investment banking. If this is true, why is it that on forums like these, investment banking seems to be the most sought after division/group? Is it simply the skillset that working in that division gives you?
If proprietary trading is the real money maker within a place like Goldman and Morgan Stanley or what have you, what specific divisions are these groups in? For example, would Goldman Sachs Asset Management (GSAM, under IMD) be the real cash cow of the firm?
Original Post Continued Below
Why So Many People Start In Investment Banking Division
An investment banking division, in the traditional sense is never the true money maker when compared to the revenue opportunity of sales and trades. It is, however, far more realistic to land a job in the IBD as they tend to hire more. IBD is also a great place to get started as you develop the skills required to move around the financial industry. You learn a base set of skills, think in generalist terms, that are highly transferable to other areas like hedge funds and buy-side whereas starting out in these areas, you gain specified knowledge and experience without understanding the broader perspective in the same way you would with investment banking. Very few people are able to start out in S&T.
This slide by Brian Sudweeks does a great job of breaking down investment bank structures.
User @baddebt88 clarifies:
Trading attracts better academic AND risk taking talent. You need academic chops to be trading CMBS products not spreading comps for your MD. You need risk taking talent when the market is tanking and everyone is hitting your bid not when you are "managing risk" by alt-tabbing to your pitchbook as your MD walks by your desk.People need to understand that there are not that many traders on a trading floor. Out of the X number of people per analyst trading class, maybe 15-20% will end up with their own book. These positions are specialized and are not labor intensive. For example, you have 1-3 traders managing the credit index book which has notional trade turnover measured in billions daily. There are simply few jobs. However, the people that do get these jobs are really, really good at what they do. The market has a way of weeding out the untalented.
This is not to say bankers aren't talented. Their ability to put up hours and handle the deal process is admirable. It's just a completely different (and for trading pretty useless) skillset.At the end of the day, there is a reason why analysts in IBD are called monkeys - anyone with a modicum of intelligence and work ethic can do the job. This isn't how it works in trading.
As to why MBAs aren't popular on the trading floor:
- Business school teaches very little when it comes to a trading context. An undergrad and an MBA has nearly the same applicable trading skillset.
- MBAs don't have the raw academic chops for the complex desks (an undergrad, masters or PhD in math/science/stat is better trained).
- There is a hazing process on the desk. MBAs often feel they are "over" fetching coffee and hustling while the undergrads run circles around them.
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Original Post ContinuedI mention GSAM because I know the private equity group is housed there, along with Goldman Sachs Investment Partners (GSIP), their proprietary internal hedge fund.
I've also mentioned people on here speak about the Special Situations Group within Goldman (SSG), and that being housed under securities (I believe?). Thus, is proprietary trading, housed all over the place within a company like Goldman?
Anyone about to shed light on this would be great.
Being interested in becoming a fund manager in the long run, I'm trying to figure out the best career path and learning experience available. I've continued to be pointed towards Investment banking (M&A) by people familiar with the industry, but if there's somewhere else I should go I'll focus my energy there.
Thanks!
http://www.vanityfair.com/business/features/2010/0...
This isn't an answer to any of your questions but just wanted to point out that the private equity group (PEG) is a FoF in GSAM whereas principal investment area (PIA) is the group that acts most like a real PE group.
IBD in the traditional sense is never the primary money maker for an I-Bank. S&T brings in far more revenue.
I think it is rather common knowledge that investment banking is not the source of the majority of a large bank's revenue.
Of late for Goldman, it has been FICC, Equities (trading), Investment banking (advisory and underwriting), and investment management...in that order, with IB and IM about even.
It's because it's far more realistic to get into GS IBD than their prop desk (now at KKR), GSIP, or SSG. getting into the latter groups is much much more difficult and they take maybe 10 kids a year in total (GSIP took a Rhodes Scholar for example), while a student from a decent school with decent grades and interviewing skills has a solid shot at GS IBD.
if someone had the option to choose between the two almost all would choose the SSG/GSPS desk
This is really interesting.
So on these forums I've seen a major focus on IBD as opposed to say IMD within Goldman. I've also seen private wealth management within a place like Goldman be shunned on, yet the pay is probably great, no?
From reading these forums it just became clear to me (at least I thought) that the real money machine within the investment banking industry is investment banking, not investment management (private wealth management and alternative investment management etc), or sales and training as an alternative to investment banking but as a trade off being more cut throat.
I'm assuming that the competition for investment banking within a place like Goldman is the learning experience and exit opportunities that aren't comparable to doing something like private wealth, despite the pay being roughly equal?
Really appreciate all your input by the way. Thanks!
Blankfein's own son entered GS as an IBD analyst, so it is probably the best entry-level position.
.
Think of pure-play investment banking (M&A, equity issuance, debt issuance, etc - at Goldman M&A is not a separate service, by the way) as the investment bank's military: the generals (Partner MDs and MDs) call all the shots and have an army of colonels and lieutenants (EDs and VPs) at their disposal, who manage the utterly expendable ground troops (corporals - associates, privates - analysts, and cadets - interns) that do the heavy lifting. Most of these ground troops "die" or are "honorably discharged" (ie. they quit, they go to the buyside, they go to f500, they go to b-school) and some of them make it to officer class. I should mention that sure, within the military you have some groups that are higher regarded (say, the Marines, who could be TMT at Goldman or M&A at MS or the old Financial Sponsors at CS, what have you) and perhaps some that are less (perhaps the communications guys who work with the Air Force and the Military, being perhaps the equivalent of Capital Markets). Nevertheless, the military is at the heart of the investment bank's brand, it's where many of the oldest relationships are, and it's where much of the culture has been forged - dress code, speaking code, etc. No matter what happens to the investment bank, there will always be the investment banking division. It's the military.
Now, the military could find itself eclipsed both in terms of bad-assness and in terms of budget. When we focus on the latter, we get to Sales & Trading ("Securities", in Goldman's case). Think of Sales & Trading as basically the Air Force and the Navy (you could choose to assign Equities to one and FICC to the other, or Sales to one and Trading to the other - doesn't matter). The beauty of being in the military is that you're a generalist war machine - and thus the beauty of being in IBD is that you're a generalist financier. But with S&T, as with the Air Force and the Navy, you are a specialized instrument of war - whatever skills you develop in on an aircraft carrier or piloting a jet or working on ballistics... is best applied in precisely that arena. The Air Force and the Navy are extremely capital-intensive (think of just how much one F-18 costs both to build and to maintain, or one drone, or one aircraft carrier, or one submarine) and frankly, are responsible for a huge chunk of the overall borrowing (look at what war does to the national debt, and S&T to a bank's leverage). And their operations consist of vast swathes of support folk - technicians, radar specialists, engineers, mechanics, strategists, intelligence monitors, etc - who support the front-line fighters in the jets and what not. And in S&T, you have operations, research, quants, risk management, IT etc - all working for those guys who man the phones and the Bloombergs and make the hay. S&T has a much more confined domain than IBD, but it's a hungry, growling, aggressive money-machine - much like the Air Force and the Navy are purpose-built, complex gas guzzlers that are absolutely crucial to the overall success of the mission, or profitability of the bank.
Then you get to the various kinds of special forces: SEALs, Army Rangers, Black Ops, etc – think of these as the internal hedge funds and the in-house buyside within the investment bank. For each one of those, link them to Goldman’s SSG or Morgan Stanley’s PDT. You get more blow-ups with the bank’s in-house superstars (ie. Howie Hubler) than you often hear about with the special forces, but publicly-listed companies have a greater disclosure requirement and financiers have a more porous relationship with the media than you’d find with the armed forces, so that would partly explain the lack of “elite SEAL makes tactical blunder, results in the death of countless US army personnel and innocent civilians, generals and commanders distraught!”. Nevertheless, these special forces pick the best performers from the regular ranks of the ground, air and sea, much like the elite in-house buyside teams at the banks do. You know, not quite "sealless brown envelope left on your desk with an unsigned invitation" or "anonymous telegram informing you to shoot the messenger after reading it" etc, but this is selective amongst selective.
Then you get to the Asset Management side of a bank, which in most cases (especially GSAM, less so the proper brokerages like Smith Barney) has a bit of an identity crisis, not being fully accepted by the rest of the institution, who view it (rightly or wrongly) as a kind of financial backwater-meets-marketing. Many of these folks make a perfectly good living (and there’s a lot to prefer in the life of a senior wealth manager than an investment banker) but many others wind up here sort of by accident; it’s almost like you train for a career in the armed forces and end up working in the recruitment office, liaisons with Treasury or infirmary. Anyhow, this part might be misunderstood.
Hope that helps and also hope it didn’t offend anyone, this should clearly be taken tongue in cheek.
Man, there's nothing more to say to this. Awesome writeup.
What I've always wondered is why the banks don't mind that their arguably best talent is going into IBD instead of S&T, prop trading etc. where they could make the firm a lot more money?
i'm curious as why you think the best talent is just in IB work ethic =/= great trader
Wrong, misguided, and misinformed.
First, the top individuals of any incoming class will make more money and have way more responsibility at a mega HF.
-There are a handful of highly competitive intelligent individuals who summarily skip the jailhouse/drop-the-soap dynamic you must endure in IB, and go into the buyside, and ignore the structured IB bs path to make 600k by the time they are 24/25.
-Let me preempt the toolish "but Durban, that's like 1 in 20 kids" by saying-- so fucking what? We are talking about who the creme of the crop is. Those kids are the creme of the crop. It's widely known that kids who skip IB path to go directly onto HF buyside roles (which also exist within banks, e.g. GSIP) have to exhibit superior academic and professional attributes, light years above "talented" IB candidates.
Second, even if a kid goes into IBD and he's a superstar, he's not going into IBD over S&T because IBD is the shyt.
-He's going there because in our society IBD exudes more of a pedigree-based stamp of approval than anything else in an investment bank, a good launching pad - nothing more nothing less.
-These highly competitive/super-achieving kids are above structured training programs, can learn 2x as fast on the side on their own...most jump ship IBD gig for HFs that will double (sometimes triple) their comp.
Third, there isn't a wide enough sample for you to know what you're talking about on "true" talent in IBD vs. S&T, it's moot. Just know that there are kids who are going to be outstanding PMs, who shoot for trading desks because they are very confident in their abilities. Take a look at many Mega HF founders' backgrounds you'll know what I mean.
Lastly, these individuals you are not aware of don't post on online forums asking if they should wear high-heels or ballerina shoes to their IBD SA gig, and which summer dress floral patterns are most appropriate for a golf outing with their MD...
You killed it with that last paragraph...well done sir.
Also considering you haven't even worked yet in IBD your statement is ridicoulus.
I disagree with some of the other posts arguing that the smartest go into hf directly. This is not neccessarily true as going into the buyside directly carries significantly more risk(this excludes starting at the top 10 hfs globally out of undergrad/ starting at kkr directly) as going into either S&T/IBD first, hence it is also a function of risk aversion.
This is a silly question. You are completely ignoring the importance of the profits to employee ratio. By your logic, "the place to be" isn't the 10 man company that pulls in 10 billion in profit annually but the 40,000 person firm that brings in 30 billion.
Also, you aren't going to make nearly as much money in pwm as you would in ibd. I'm not even going tongo into the night and day difference in skills learned and exit ops.
Talent for trading/ markets is needed for S&T, if you can call it that. There is no talent for IBD, you just need to be well rounded, relatively intelligent, hard working, socially able etc. That does not mean that there are no market/math/logic talented people in IBD, just that they don't really need it in IBD, but can come very handy to get ahead of others if you know how to leaverage it.
I think I have what it takes for S&T but I'm probably not going into it, because I know many other future traders will be better than me and my trading talent is not my strongest relative competitive advantage. Ricardo screwed me out of trading.
In terms of academic performance and work experience the people who do IBD seem to be way better than the guys from S&T. At least that's my experience. Everyone I know of wants to do M&A, whereas the competition for S&T seems to be lower. Just compare the number of posts in the Investment banking forum vs. the traders train on wso. It just seems a waste to put the best talent in M&A. IBD accounts for like 20% of profits of a typical investment bank. M&A is just a fraction of IBD profit, as most profit is earned in fixed income. I think the problem is historical. Back in the days M&A was really a key driver for investment banks. The banks have failed to convince the talent that their is other great jobs in investment banks.
[Deleted! No longer relevant.]
Highly misinformed. It is probable you had just read some 1980s S&T memoir and took what amounted to a mental dump on this forum. Most sellside shops TODAY have trading floors full of individuals from top schools. The best equity and distressed desks on the street are full of highly competitive individuals who love excelling in everything they do, school, sports. Everything is a competition. You think those desks want some tool with a 2.1 GPA to manage their book?
What you MEANT to say is that high performers who go into trading may have more self-confidence in their own ability to carve a path, and feel less trust in an institutionalized structured career path to appropriately reflect their fair value.
Im guessing you are heading to IBD with those reasoning skills...
This is so far off the mark. Academically the people on a trading floor nowadays are light years ahead of the people in IBD.
Please go to any trading desk dealing derivatives and they will have better raw academic talent than any IBD group. This isn't the 80s where high school drop outs became MDs. Get involved in this industry.
The reason why you see so many posts on IBD and many people wanting to go into IBD is because most people at top schools are actually risk-averse. There is a reason why every other post is one about exit opportunities.
Trading attracts better academic AND risk taking talent. You need academic chops to be trading CMBS products not spreading comps for your MD. You need risk taking talent when the market is tanking and everyone is hitting your bid not when you are "managing risk" by alt-tabbing to your pitchbook as your MD walks by your desk.People need to understand that there are not that many traders on a trading floor. Out of the X number of people per analyst trading class, maybe 15-20% will end up with their own book. These positions are specialized and are not labor intensive. For example, you have 1-3 traders managing the credit index book which has notional trade turnover measured in billions daily. There are simply few jobs. However, the people that do get these jobs are really, really good at what they do. The market has a way of weeding out the untalented.
This is not to say bankers aren't talented. Their ability to put up hours and handle the deal process is admirable. Its just a completely different (and for trading pretty useless) skillset. At the end of the day, there is a reason why analysts in IBD are called monkeys - anyone with a modicum of intelligence and work ethic can do the job. This isn't how it works in trading.
Edit: As to why MBAs aren't popular on the trading floor:
Why deal with that when you can grab hungry BS/MS/PhDs?
I'd be shocked to find a non risk-averse student from a top school. Usually when things are going great there is no need for more risk. Only when you're fucked to begin with, risk becomes good and volatility works in your favour.. No reason to expect people making career choices any different than they would investment ones.
There are non risk-averse people. There are people who have wanted to be involved in trading since high school and have gotten exposure through internships to know this is what they want to do. There are poker players (my school has a ton). There are a lot of academic science/math folks who go into trading for the challenge, not to maximize PV of earnings (which is what most IBDers in training wish to do).
Nice option valuation analogy.
I was not so familliar with invest. I try to save money . I think shopping online is a good way of saving money.
Durban you guys are essentially saying the same thing...
Only in the last 20-30 years has trading matured into the same "pedigreeing" as banking...
It's not "the same"
re-read my post
First, thank you everyone for your input.
So, in short, there are plenty of other areas within an investment bank one can seek out if their interested in investing other than IBD, but it's just extremely tough.
Hope these places have SOMETHING in LA :/
all I got was a lot of bias and a few straw men. jtbbdxbnycmad's analysis is actually a very good breakdown.
no one is making an argument against this point... that's barely debatable at best. S&T nowadays requires a different skillset and attracts different types of individuals. If you're talking about risk-aversion that is one platitude. The other parts are pretty much BSDurban give me a break. I'm from Germany and maybe I was focusing too much on my own experience. Although I go to a target no one in Germany goes to a mega HF, regular investment banks in London are the best you can deliver. I barely know anyone who does S&T and the few guys I have met weren't that convincing, but maybe that was just due to chance.
Well then Mein Freund kleines Mädchen maybe you need to stop spreading false concepts with no hard data and your Kuh Kochnische achter all over the Gespinst der WWW ist ein Netz der HTML Dokumenten die miteinander verbunden sind. Verstehen ?
God, your German is awful ;) You know that there are Americans, who speak perfect German. Now you may say "But Il Cavaliere that's like 1/20", but guess what we're talking about the crème de la crème!
Wovon man nicht sprechen kann, darüber muss man schweigen. Ich weiß, aus dem Zusammenhang gerissen, aber trotzdem geeignet...
BB Prop Trading Group > BB S&T > BB IBD. It is simple.
Agreed, but do correct the typo, you meant
[quote=thor1000]Agreed, but do correct the typo, you meant BB Prop Trading is superior to S&T and IBD...
admirably observant
I think there's close to a 1.0 correlation in this thread of people with "ST" next to their name arguing that S&T people are smarter and people with "IB" next to their name arguing for IBD. Honestly, who gives a fuck...DO WHAT YOU ENJOY DOING. They are different career paths, both of which are the "FO" jobs which everyone wants to have. Sure, IBD might be for the more "risk-averse" and S&T might "pigeonhole you" into S&T for the rest of your life, but that is BY NO MEANS always the case...isn't that what everyone says b-school is for?
I may not know as much as some of you since I'm still in college, but honestly the fucking bias in this thread is unreal...why the has this turned into a FO pissing contest? The bottom line is if you're in IBD OR S&T out of college, you're doing better than 99% of people in the world, and have better "exit opps" than 99% of the world...
Yeah, S&T may have some outliers like Jason Strasser, but it's not like he came out of school with a 3.0 and broke in...he made fucking BANK playing poker and proved he was quantitative enough to handle the trading floor. The bottom line is that nowadays, breaking into BOTH requires a high GPA and pedigree, if you are going to try to do it out of college without extraneous circumstances...
Nice work LevRAGE...spoken truth.
in terms of risk -- accounting
You're all so funny on this continuous S&T vs. IB bullshit. It's all meaningless banter. It's not about IB vs. S&T anymore. Cavaliere - The reality still is that the best and brightest skip sellside to work @ top HFs and PE shops. Look around LinkedIn you will see the most insane resumes. Sellside paths are overvalued.
In all the top UK unis, the guys I know going for IBD are mostly Germans and Nordics, while the Brits seem to prefer S&T. I've never understood why that is.
This is true, everyone in IBD I met was freakishly tall for some reason and a disproportionate number of them were Nordic.
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