2016 has been the year of the boutique investment bank. Specialist M&A shops run by a handful of senior investment bankers have been taking advisory work off the bulge bracket banks, while the so-called ‘elite’ boutiques with a few hundred staff – think Houlihan Lokey, Evercore and Moelis & Co – have also been moving up the league tables.
In the first nine months of the year, boutique investment banks generated close to $2bn in M&A revenues, according to data from Dealogic. The top-ranked bank, Evercore, made $516m during this period – more than Deutsche Bank. As well as the more established smaller shops like Robey Warshaw and Centerview Partners, senior bankers are kick-starting their own corporate finance boutiques with increasing regularity. Not surprisingly, perhaps, more investment bankers are moving from bulge brackets to boutiques.
Ziad Awad spent 20 years working for bulge bracket investment banks. He started out at Goldman Sachs in 1993 as a fixed income trader, before moving across to its debt capital markets division in 2001. He moved from London to Dubai in 2006 to head up Goldman’s DCM division in the region, but was headhunted by Bank of America Merrill Lynch in 2007. He stayed in numerous senior investment banking jobs there until 2013 when he started his own boutique investment bank, Awad Capital. It recently hired Gokul Mani, a former BAML investment banking director, as a partner and managing director and is currently recruiting for analyst and associate positions. This is what he says you need to know about working for a boutique bank versus a bulge bracket.
What are the main differences between working for a bulge bracket bank and a boutique?
“In a bulge bracket bank, you’re in a huge team and you will be given a very specific piece of work for a very specific part of the deal cycle. Analysts do the modelling, associates check their work, VPs check their work and by the time you get to ED or MD you start to interact more with clients.
If you’re a junior in a boutique, you have less supervision by the senior people. On the one hand, that’s a positive thing – you get to see more of the deal lifecycle and your learning curve is incredibly steep as a result. But, you also have to be incredibly detail oriented because there could be less or even no VPs and directors checking your work.
You also get more access to clients.”
What specific access will you have with clients at a boutique?
“You’ll get to spend time with clients during the drafting of due diligence documents, or marketing documents. You may also get to participate in some negotiations between buyers and sellers. It’s unlikely you’d get that at a bulge bracket firm.”
What about moving up the ranks?
“If you’re in a larger institution it’s not always easy to get recognised. On the one hand, you’re likely to be siloed in one particular sub-culture in the bank – whether that’s an industry or product group. But the other factor is that promotion and pay decisions are taken by managers who don’t always have the clearest view on who is most deserving. People end up relying on politics – internal cliques, groups and associations to protect pay and secure promotions.
There’s no real room for politics in boutiques. They are meritocratic organisations owned by principals or a handful of partners and there’s little separation between the ranks. If you’re in a senior role here, you’re supervising everybody’s work because it ultimately lies with you. This means we put a lot of effort into recruiting and retaining the right staff.”
Presumably, it also means you have nowhere to hide in boutiques?
“Yes, it might be harder to get noticed in a large institution, but it also means that the system is organised to allow some mediocre people to survive longer. The upside is very strong in boutiques for high performers, but there’s no room for mediocrity.”
What about pay?
“Regulatory pressures mean that large investment banks pay a lot less than they used to. When I started out, your base salary was a relatively small, but your bonus could be very generous indeed. Now, large banks are restricted in what they can pay in bonuses, so have upped the fixed salaries to compensate.
Boutiques still keep salaries relatively low to ensure that their cost bases are not too high during lean years when deal volume declines. That said, in a good year, bonuses can be bigger because there are less restrictions and bands to go by and the shareholders are generally also the managers taking these compensation decisions.”
So, why are more people signing up to boutiques?
“The motivations depend on your rank. As I said, juniors are generally interested in being more involved in the full deal lifecycle from pitching to execution. They’re also looking to escape the politics for an organisation with a flatter structure. Also working hours – I’m not saying the hours aren’t long here, but it’s usually productive working hours, rather than staying in the office until 2am to score points with your manager.
At the senior end, it’s more a natural selection process. You can get paid more at a boutique, so the senior bankers with the right relationships who have the confidence they can deliver deals at a boutique are moving over. If you’re good enough, you should move.
It’s not for everyone. We have no shortage of applications for our jobs, but senior guys without the ability to turn their relationships into deals usually switch back to being employed by the bulge brackets after a couple of years.”
Why are more deals going to boutiques?
“I think there are a couple of reasons. Firstly, there’s a desire for unbiased advice by someone who has skin in the game. Boutiques will not try and sell you hedging, or trading or any other products and services. Strategic M&A advice is their only capital. What’s more, they are entirely accountable – the only thing they have is their name and reputation. They simply cannot afford to give anything but the best possible advice – closing a transaction for the sake of getting the deal over the line could ruin them.
In a large investment bank, you always have the hierarchy to protect you. It wasn’t my decision, my manager in London overrode my decision on this etc. In a boutique there’s much more accountability.”