Thursday, August 16, 2007

Where will this investment banker be in ten years' time?

So, the jury is out. You’ve been running around the bank, asking everyone where they thought you would be in ten years’ time. A great strategy, you thought to yourself, given the fact that you don’t have a clue as to what you will be doing and who you will be doing it for. After all, investment bankers are the some of the (self proclaimed) best brains around - the best and brightest – the world’s leading corporations jump at the opportunities and ideas the investment banking world throws at them, so why not leverage these great minds and let them decide your future for you. After having asked hundreds of keen intellects (well, 422 to be precise) about where you will be in ten years’ time, the results are rather puzzling, if not a little unsettling. Topping the list, one hundred and sixty four of them thought you would end up in a mental institution, ninety two said private equity, sixty four said you would make MD at the firm, fifty seven said you’d end up in a hedge fund (and hopefully one that doesn’t fold) and a generous forty five thought you would be retired.

Hmmm. The majority think mental institution eh? Well, the majority in 2000 also thought the boom bust cycle was a thing of the past. The majority also never saw Long Term Capital Management folding. Grateful as you are for everyone’s contribution, you take comfort in the street’s unprecedented ability and track record in getting things wrong and dismiss the mental institution idea.

Letter to an Investment Bank's Shareholder

From: The firm's management committee

Dear shareholder,

We would like to take this opportunity to provide you an update of the recent trading performance of the firm.

As you may already know, the overall market conditions, both on the debt and equity side have been rather challenging of late. We take this opportunity to explain to you, our fellow shareholder, the firm’s exposure to this market environment as well as the active steps your management team is taking to ensure your investment continues to deliver the high returns you expect.

Over the past twelve months, we have taken active steps to augment shareholder returns and deliver greater returns on your invested capital. We have identified strong growth areas in the market of alternative investments (hedge funds, private equity, etc) as well as augmented our business practices and divisions with strong exposure to these.

We have beefed up the headcount of highly motivated (and thus remunerated) managing directors in our leveraged finance and financial sponsors teams. Whilst this has been a significant short term cost to the firm in terms of hiring costs and guaranteed multi million dollar pay packages, these investments have positioned us to take full advantage of the private equity boom in the market. Unfortunately, the debt markets have not been doing as ell as we hoped, and the clients of our financial sponsors group are not doing any deals, so these expensive teams are now put on hold (the technical term for this is “TTT” – Twiddling Their Thumbs”). Also, our prime brokerage teams are in TTT mode owing to no activity from the hedge funds they were hired to serve.

Despite these temporary setbacks, our other divisions are well positioned to deliver strong revenue growth. Our equities division, for example, is ready to kick in and more than make up for the revenue lost by (and higher costs at) our financial sponsors, leveraged finance and prime brokerage divisions. Only problem is, and we are convinced once again that it will be of a short term nature, is that equity markets aren’t doing all that well, and our clients are pulling IPOs left, right and centre.

However, not to work, as we are a forward-thinking, strategic planning organization, and are actively planning for how we will dominate the market in the imminent recovery. As testament to this, we have this summer hired our largest analyst class for the investment bank, and it is the largest class ever. It might be that these analysts will be in TTT mode for some time now, but still, they will ensure we have the deep bench of associates for the next boom market that we will need to stay number one.

In short, we are happy to report that despite our share price performance (which has tanked, and with it, the retention ability of our rainmaking MDs, whose options are now all but worthless), our missing revenue targets and exceeding costs is of no relevance as we are looking to the future, and the future is indeed bright. Trust us!

Your management team.

Monday, August 06, 2007

Hedge Funds

For your viewing pleasure...

Wednesday, August 01, 2007

Born to be an investment banker

You wake up all hyped this fine morning, as a revelation passes in front of your eyes. You don’t need to have Rupert by the cojones in order to make your way up the firm’s structure. We live in efficient markets, as you discovered on your coffee break, and there seems to be little you can (legally) do to go round that fine point. But hey, as with all rules, there are even finer ways of twisting them to get them to work to your advantage.

Remembering the priceless advice on posturing you were given, you decide that it’s time to take the game up by a notch or two. This is something that a Mont Blanc pen and a good suit alone cannot solve. This calls for creativity, out of the box thinking, and the use of your entire investment banking skill set. This will be where your financial modelling skills will come into play. All those hours spent sitting in front of your computer screen, negotiating with your excel spreadsheet in order to make a lemon look like a peach. All those hours are finally about to pay off, as you run through your genus plan.

Much like the fact that selling a company has very little to do with the crap shape it may be in today, but the promise of a wonder once the lucky buyer has acquired it (and gets stuck with it), your progressing up the investment banking ladder has nothing to do with you being a good banker. It actually has more to do with the perception that you are a good banker. And good bankers are in strong demand, so you must demonstrate that you, being the great banker that you are, are fighting offers for employment left, right and centre.

Now this has nothing whatsoever to do with the fact that you have none of these wonderful offers, nor are you close to getting one. However, just like a guy in a good suit is automatically an investment banker, a guy in a good suit coming late to the office on a regular basis, must be interviewing left right and centre. By the same token, if said banker is interviewing left right and centre, there must be people calling him for interviews and thus he must be in demand.

And if said banker is so highly sought after by the competition, well, the firm must do everything in their power to retain him and make him happy. The fact that the firm has not really found the said individual to be of such exceptional superstar fabric is of little relevance, as what is more frightening to any investment bank than making the wrong call, is if their competition makes the right call at their expense.

So, cutting a long story short, pretending to interview, and subtly dropping hints in the right place, at the right time, will get you junior support, an early promotion and the ability to cherry pick the deals you work on. All that, courtesy of the firm’s fear of erroneously having thought that you aren’t really that good.

To make it even better, the fact that you won’t really be interviewing, but still will be showing up late to work as if you had been interviewing, will mean that you will have reduced the amount of hours spent in the office! Bonus.

You smile quietly, amazed at the sheer genius of your plan. You also think yourself rather silly for having entertained the thought that you may not exactly be top tier banker material, for anyone devious enough to concoct a deception of this magnitude, was born to be an investment banker.