Jump to Buy Side vs. Career in Capital Markets
It seems like everyone on this forum thinks that the ultimate goal of IB is to make the jump to the buy side. Some of the reasons are:
1.) Higher Pay
2.) Better Hours
3.) As you move up, you are in a decision making role instead of being the client's bitch
Now this is all compared to that of a banker in a typical M&A or coverage role (TMT, Power, FIG etc.) where there is an absolute TON of pitching via unnecessarily long memorandums, hence junior bankers work very long hours up to the VP level, and directors/MD work long hours due to constant travel.
However, I wanted to make a comparison of a career in PE vs. a career in a capital markets role (ECM/DCM and in some firms, LevFin). Here are some buffers I want to point against against the advantages in PE:
1.) CapMarkets still get paid very well - especially in light of the new salary boosts in the analyst and associate levels, a career in banking still pays very well. Sure maybe if you get into a megafund then pay may be very different, but lets face it, a very few of us will get into a megafund, let alone on the Partner track of a megafund.
2.) CapMarkets have relatively good hours - This is a huge contrast to coverage groups where everyone gets worked hard; in CapMarkets groups, hours are generally a lot less - associates usually head home around 8pm or earlier. One of the major reasons behind this is that the materials inputted in a "pitch" process from the CapMarkets group is usually only a few slides that generally describe the market conditions for that particular product, whereas the coverage bankers do the heavy lifting in terms of overview, comparables, financials, competitors, risks, considerations yadda yadda. CapMarkets may still work slightly longer compared to PE (unless you're at a megafund) but your hours are still decent enough to have a life outside of work.
Here are additional points I'd like to point out for Capital Markets:
1.) Less risk - Assume you take the 2 years BB/EB + 2 years PE + 2 years HSW route, there is still a relatively large chance that you will not be able to land a job on a partner track within the PE firm. In that sense, there is a huge risk - what if you don't make it? Back to IB? Guess what, the fellow who was once your equal peer is now a VP when you are a 1st year associate...
2.) Stability within certain Cap Markets groups - I'm specifically referring to DCM and some niche parts of LevFin (ex. DIP financing). Those job areas will be relatively stable because firms (especially financial institutions) have the constant need to refinance in the debt markets, even during a downturn. Likewise, DIP financing would be red hot during downturns, and not be hurt much during good times since DIP financing groups are very small to begin with. Compare all this to PE where there is much higher risk of not just getting onto the partner track but also the fund going down during a recession. Just think of back in 2008, when capital markets groups within banks shouldered the bulk of the revenue generation, when regular coverage groups had run dry (but they still worked their analysts hard in order to pitch and pitch).
With these points in mind, why do people discount a career in capital markets so much, especially relative to buyside jobs? Not trying to be a troll here, but just genuinely curious.
You're pretty close to touching on this yourself, but the work can be pretty boring, monotonous, and ultimately insignificant.
By definition, the role is essentially acting as a liaison between traders and bankers, so at the end of the day, even as a senior guy, you're still stuck in the middle. You don't really have clients of your own - the traders and bankers do, so ultimately you can't make anything happen by yourself. Nothing wrong with that, but you can almost view that as "settling" and most of the types of people going into banking as a career aren't the type to "settle".
Interesting thread. I have toyed with the idea of capital markets myself. I quite like the fact its half way between banking and markets and its more tied into the Macro side of things and how markets are working. I also would not have much of a problem with the work as I actually enjoy doing up market update slides.
With good hours I would be sold but that is the kicker...hours are good in theory but I have never been able to get a conclusive answer on how the hours are in practice....I have heard it varies massively by bank and group and have heard of places where ECM associates work just as much as the coverage group.
It is very difficult to get a handle on hours worked before you join somewhere so I just don't want to take a risk and join and realise I am facing 100 hour weeks with poor exit ops (ECM will never match IB for exits).
But agree with the sentiment that it is overlooked by a lot of people when it can be a very solid career with great prospects and good work life balance.
To add to this, at the bank where I did my SA:
1) analysts worked far less than bankers in my (M&A) group and got the same base pay (smaller bonuses I imagine, but probably not by a ton). Far less = very, very rare weekend work and usually out of the office by 8-9 at the very latest, if not earlier - and they were able to comfortably go to the gym for a nice long workout before coming back if they had to work late.
2) A DCM MD worked less than most other MDs I saw and had a good client base so was making more money than most other MDs there (I would be stunned if less than 7 figures all-in).
So - if you're not concerned with buy-side exit ops, enjoy market-related work and want to stay in banking capital markets work could be a great option.
Ditto on that - one of the 3rd year associates I know in DCM leaves the office at 7pm everyday, and never works on weekends, ever.
Got to caution you on LevFin however because LevFin is really bank specific. Some LevFin groups (ex. BAML LevFin, CS LFO&R, UBS LF&S and I think DB LevFin) focus on origination and you will work typical very long banking hours. However other LevFin groups (ex. Citi, MS, JPM, Barclays) are almost entirely capital markets oriented and is more reflective of the hours-lite career that you mentioned above. So just be careful on that.
Any other views?
Would be interested in hearing from people working in ECM/DCM...especially with respect to potential exits and lifestyle.
Great stuff
Capital markets is pretty diverse and bank specific. I wouldn't say it is any more burning than anything else in finance. And if you augment your experience with some basic modeling training you can easily get into a debt fund. Or if you're in LevFin you could look at mezz funds.
People need to realize that comp is so varied once you start looking at MM firms. Bayside isn't always the best option, especially if your fund is relatively new and is going into a tough fund raising period. You could end up at a dormant fund easily.
The vast majority of people on this site regurgitate the same things and this is why no one talks about staying in banking or doing capital markets. I look at my friends who are or were in banking and more than half have stayed. The majority did the Analyst to Associate promotion also.
I'll say this though, I feel like ECM is a more risky plan than DCM. Most of my cap markets friends are on the debt side. One guy I know doing DCM is in between jobs after hitting VP level. Just one data point though.
Oh, one more data point. My friend did two years banking at a USB type bank and two years DCM. Told me he made more every year in DCM than in M&A. Just one data point.
Did he do the 2 years of DCM after banking? If so, I'd imagine he'd be paid more because he has more experience..
It was after, but he was talking all in comp and still at analyst level. It wasn't by a small amount either.
Makes sense if you figure that M&A can be dependent on the group, bank, and economy. Debt is always being issues. So you have peaks and vallys with one and steady fee churn with the other.
This isn't to say DCM is better, just you won't always make less or significantly less. All depends.
PE is going to be more interesting if you want to be an investor and get behind the numbers more. Banking is going to be more interesting if you enjoy the transaction and relationships. I think people just think PE is the promised land when in reality it all depends.
This is a really interesting thread. It really makes one wonder what is a better place to start a career.
All things being equal, start in M&A. It gives you more options in case you want to go PE. That being said, getting into a DCM role isn't a terminal illness.
haha, I like the way you put that.
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