Showing posts with label Analyst Angst. Show all posts
Showing posts with label Analyst Angst. Show all posts

Monday 29 March 2021

Investment Bank Analyst “Angst” – Bootcamp It Takes a Team (Preferably in Person)

Borstal Investment Bank UK
Had Greater Success with More Cohesive Teams


Having called out those who offered theories why IB analysts were experiencing angst, today I’m here to offer my own theory. Kettle meet pot.

In an earlier post, I described the employment “life” of IB analysts as composed of three elements: audition, apprenticeship, and bootcamp.

A military bootcamp is designed to break old individual “molds” and create a new communal one.

What does this mean?

The prioritization of a single shared mission over personal identity, individual goals, ways of thinking, whatever.

In the military “national defense” is the replacement priority mission.

The civilian is turned into a soldier whose primary goal is to fight and perhaps die for the country.

Bootcamps are generally grueling. Not particularly attractive experiences.

50 for 50. Fifty pound backpacks for 50 mile hikes. Physical and military arts training.

Some of this well required by the needs of the apprenticeship – developing the aptitude and attitude to “do the job”.

But if you look closely, much of it is of doubtful direct use in a military situation. 

Soldiers who can make their beds so tight that a quarter will bounce when dropped on them are not generally more effective than others.

Soldiers whose boots are polished to a blinding shine and whose uniforms are crisply ironed don’t necessarily do better in war than those clad in black pyjamas or wearing flip flops.

The goal of these practices is psychological.

To “break” the civilian and once “broken” turn him into soldier.

An important element in this is making the individual part of a team.

Mission first, the team a close second, individuals third,

There’s a similar process in Investment Banking.

With similar “character redevelopment” going via the process. Long hours, face time, etc.

Here the communal mission is the priority of the deal. It takes precedence over everything else.

The team is created “We are Morgan Stanley”.

This poster approved by HMG.


As in the military, there is another function to the team.  To lessen the strains of bootcamp.  To make team bonding stronger.

First, misery loves company.

When you’re working long hours, it’s comforting to see someone beside you slogging away as well. Or to hear that another team worked 36 hours straight without a break. Someone has it worse than you!

Second, hardships become badges of honor and rites of passage.

Team B may have worked 36 hours in a row, but your team has worked 37. 51 for 51.

Third, the team offers a sympathetic ear to release one’s frustrations.

They say there is grumbling in the sergeants’ mess about more senior officers.

No doubt the O-1s and the O-2s grumble about those whose O’s have higher numbers.

In the IB world one can complain to one’s peers about the behaviour of one’s team leader, the more senior chap whose dithering or change of mind caused work to be delayed or redone, the last minute “Richard” (more familiarly known as “Dick” to analysts with a few months under their belts) who came up with apparently meaningless revisions to the pitchbook extending the time to completion.  

It's "us" against the "world".

Fourth, at times the unit may be rewarded or individual team members’ distinctive services reognized and honored. 

A timely “pass”. A bump up in rank. Recognition!

In the IB world, in-house dinners are usually provided for evening work. Some times the “usual” pizza. Sometimes, depending on the team leader, more elegant fare.

It is claimed that at some firms some team leaders have non-official “bottles” from which team members would take a libation after the slide deck was finished to “seal the deal”.

A “black car” to take one home – an indication to one and to all those who might see about the importance of one’s position as well as generally being more convenient.

A team leader mentioning your name in front of your fellows. “Nice work on the slide deck. The MD making the pitch mentioned that he especially liked the graphic on the transaction structure. Kudos to you, Rupert, for the suggestion.”

A liquidity preference function – ideally the day before one of those rare off-days.  Either team member organized.  Or hosted by the team leader.

An off-campus off-day celebratory meal -- “somewhere nice” when a particularly big fish was landed. Billed (or attempted to be billed) as team development: “Lessons learned from the [Name] Pitchbook.” (Let's chip in and buy "Dick" a trip to Bosworth Field).

When there aren’t opportunities for these sorts of in-person interactions, bootcamp is even more difficult.

It's also harder to develop the sort of camaraderie among one's fellow rookies over Zoom as one would in person together in the trenches.    

Additionally, unlike a military bootcamp where one's team is all rookies, at an IB the rookie joins an existing team members of which have existing relationships with one another and the shared history of "past battles".  

Over Zoom one is on one's own among the other rookies and the veterans. 

I think that explains a good deal of the angst. 

As well, there is the human factor.

Some bosses don’t know when to lighten the pressure.

Some folks aren’t a “fit” for the demands of IB. That’s nothing against them or AA.

A note on terminology. 

“Slide deck” always sounded to me like the cruise ship deck for kids. Perhaps, it was as well that it carries the connotation of three card monte. 

“Pitchbook” sounds more congenial and substantial.  It's not a collection of slides, but a book.  

With a bit of athletics involved.  Sports is a beloved business metaphor.

And, if one had a particular rough experience preparing one, one could always “pitch” it against a convenient wall.


Sunday 28 March 2021

Investment Banking – Why is It the Way It Is? Part 4 The Nature of the Analyst Position: Audition, Apprenticeship, and Bootcamp


 

Analysts are generally hired for a fixed period.

At the end of which depending on performance and need, they are either invited to remain with the firm as associates or are bid adieu.

One can think of their stay as a prolonged audition.

As we know from watching shows like Britain’s Got Talent, competition is intense. Sometimes the judges can be direct, even cruel. 

And here there are no “golden tickets” or “buzzers” for contestants. 

It’s often an uncomfortable experience, especially since many are called but few are chosen


The process is designed to turn “kids” into deal generating machines.

See Part 2 of this series about the pitch intensive culture. 

Think bootcamp for an elite military service

It is also a crash course whose goal is to endow the analysts with the experience and skills to discharge their tasks with greater rapidity and competence. 

And at least a feigned indifference to demands on their time.  

Coming soon IB pathologies explored and explained.

Investment Banking – Why is It the Way It Is? Part 3 Marketing a High Priced Intangible Product

 

You'd Probably Find an IB Pitch
from this Duo Unconvincing

IB’s sell high priced professional services.

If you’re in the market for a car, you can nip down to the Maybach dealer and kick the tires. And then continue over to check out the latest offering from Geely. Take a test ride.

IB’s products aren’t hard physical items. 

Usually they act as intermediary between two parties in a transaction.

They help you to find buyers for that unwanted division of yours. 

Or help you find just the new division you’re looking for. 

And negotiate the “best” price.

Or investors for your debt or equity issue at the “fair” or “market” price.

By expanding the geographic or sector range of investors they may be able to lower the price. Or though nifty new instruments. 

That applies even if they underwrite because they don’t underwrite until they have a good sense of their ability to place the deal and a price range.

Success in these endeavours depends on their "smarts", experience, range of contacts as well as their ability to persuade other parties to participate in a transaction. 

So you’re looking for professional, competent, self-assured, experienced, persuasive bankers.

If they can prepare “flash” presentation materials (a “pitch book”), deliver a convincing (verbal) sales pitch to you, all the time maintaining a professional appearance, you're more likely to have confidence that they will be able to perform these same tasks with the transaction counterparties you need to have convinced.

Pin-striped suited bankers will make a better impression than the same presentation team in Hawaiian shifts. Thought the latter may make a better impression when pitching a movie idea to an entertainment conglomerate.

In other words: horses for courses.

McDonald’s pitches its offerings with a clown. IB’s don’t.

While past performance is no guarantee of the future, a track record of success (league table positions), a brand name, a team with documented experience are also selling points.

Often IB’s cut prices on megadeals – to garner market share stats. That’s why sometimes you see a plethora of banks on a deal even though they are not all really needed.

Not only is the cut of their jib important, but also the appearance of materials associated with the sale.

When you buy a Rolex, it doesn’t come in a cardboard box lined with plastic foam.

Nor is that pearl necklace you just bought at Mikimoto handed to you tucked into a handy Ziploc plastic bag.


Investment Banking – Why is It the Way It Is? Part 2 Compensation Structure: Bonus Drives Behaviour

(Investment Banker Charles Wellington III)
He's Got His Mind on His Money
and His Money on His Mind

Like other businesses IB’s are in the business of making money.  As much as possible. No surprise here.

So what’s the difference from other firms?

Investment banks largely but not exclusively compensate an employee for his or her personal revenue generation.

While investment bankers have relatively high salaries, their yearly bonuses are often multiples of the base. And thus can easily dwarf the base salaries.

Few other industries are as generous.

The more revenue one generates or is seen to have generated the higher one’s bonus.

Promotion depends on revenue generation. Those in the higher realms receive bonuses based on their team’s revenue generation along with any “rainmaking” of their own.

Generating transaction volume and favorable publicity also generates bonus “credit”.

Bosses are therefore motivated to ensure that they “pitch” as many clients as possible. So are those with their eyes on the higher rungs of the corporate ladder.

All of them are also motivated to ensure that no opportunity to pitch is lost because of “bandwidth” problems. Not enough people. Just work the ones you’ve got longer hours. And yourself - ideally.

Woe betide the boss whose team misses a marquee deal.

There is another motive: self-preservation.

In most firms, each banker has a minimum target of annual revenue he or she must generate. An amount that depends on his or her “level”. 

Miss that target and you may find a target of another sort on your back. 

And the target meter resets to zero revenue with uncomfortable regularity. 

It's not what revenue you brought the firm in the past, but what revenue you will bring today.

Investment Banking – Why is It the Way It Is? Part 1 - Introduction

 

Like Bob Cody AA Says What He Means
and Means What He Says

Recently there’s been a lot written about the plight of investment bank analysts. 

Long distance psychological diagnoses have been performed on both analysts and those who manage them. Paging Senator/Dr. Bill Frist!

Various economic theories have been trotted out and fingered as the culprits.

Deep societal analysis has shown. The weakness of youth. The enlightenment of youth. The end of the American Dream.

What I haven’t seen is a look at what are the fundamental drivers that affect how investment banking operates.

Not all industries are the same. There is no one organizational or management style that fits all. And even within industries there are differences.

Corporate organization and management style have a direct impact on how an organization behaves or doesn’t.

One more introductory comment. 

When there’s talk about “investment banking”, the names Goldman Sachs or Morgan Stanley usually come to mind.

Just to be clear: these and similar firms do more than investment banking.

What are some of the other activities?

Global client and proprietary trading. Asset management. Investment vehicles/funds. Securities research. And (shudder) now even retail banking. These all have different characteristics than investment banking and operate differently.

Broadly speaking what then is investment banking?

Capital (debt and equity and hybrids thereof) raising and placement. Mergers and Acquisitions. Structured Finance. Derivatives. And more.

In the posts to follow, I’ll look at two key characteristics of investment banking and the role/purpose of analysts with a firm. And use some of the observations to explain IB behaviour or misbehaviour.

All this meant to be descriptive not normative. 

Or, if you’d like, explanatory not exculpatory.

The three topics that I think are relevant to how IB’s operate are:

  1. Compensation Structure
  2. Product Characteristics
  3. The Role and Purpose of Analysts