Private equity has been the dream job for some investment bankers for a long time. The top firms in the bulge bracket have long since made their peace with acting as a glorified finishing school for private equity juniors, and most of them no longer make more than a token attempt to stop analysts from interviewing for private equity jobs practically the moment they get through the door. Increasingly, though, even bankers at the very top of the tree have been tempted away.
Jennifer Davis, for example, must have been one of the best paid bankers on the Street; she’s been a partner at Goldman Sachs since 2016 and was head of retail and consumer coverage at GS, with a number of significant deals to her credit in the last year. Given the overall pay environment, it wouldn’t have been unreasonable to speculate that she would have been heading into eight figures for the most recent bonus year. Nonetheless, she’s left to go to Bain Capital.
It's not too hard to guess why, either; the money is even better. According to the remuneration gurus at Alan Johnson Associates, pay at buyout firms “dwarfs” anything available in the banking industry, to an extent that really wasn’t true ten or fifteen years ago. The FT reports that big private equity firms recorded an average of $2m of compensation expense per head for the last year, almost double the amount at Goldman, Morgan Stanley or the investment banking division of JP Morgan.
The numbers might not be exactly comparable, as the staff cost in the published accounts is not the same as the amount of cash the employees bank each year and the accounting rule is fiddly. In an investment bank, deferred compensation hits the accounts in the year in which it’s paid out, rather than when it’s awarded, meaning that when a great year follows a mediocre one, the number in the accounts understates the “sum of bonus letters”. In private equity, conversely, a lot of compensation takes the form of “carried interest” which is locked up in the funds they manage – in peak cycle years, the valuation of these funds might be quite a bit more than the eventual payout.
It's unlikely, though, that technical accounting issues could cause a difference of 100% though. What we’re seeing here is that the last couple of years have seen a boom in dealmaking, but it’s a private equity boom with the investment banks as beneficiaries, not an investment banking boom. And the working conditions are significantly better, too.
When you’re on the buy side, you’re on the other side of all those requests for models to be rewritten and documentation checked over the weekend. Investment professionals at Blackstone have been told that it’s crucial to their team culture to be in the office five days a week. According to Litquidity, this was not a particularly popular move, but at least it means what it says – unlike their counterparts left behind in the investment banks, they’re not then doing the other two days working from home.
Elsewhere, you would have thought that investment banking analysts, given that they’ve received so many salary increases over the last year, would be able to get last minute reservations at New York’s flashiest restaurants simply by showing up and waving high-denomination banknotes around. But apparently not. Three finance bros instead decided to set up a complicated system of alarms, alerts and multiple accounts on reservation app Resy in order to book slots within minutes of their being released, and then distribute them via WhatsApp to a private list of contacts.
Why bother? Perhaps they were spending all their money on overpriced condos in Manhattan. Perhaps waving banknotes around isn’t even a thing anymore in these days of contactless payment. Or perhaps they weren’t quite so well established on the gravy train – the perpetrators are described as “former” investment bankers and since they're anonymous it’s impossible to search LinkedIn to see whether that means private equity, fintech or unemployment.
Just as likely, though, was the sheer thrill of gaming the system. According to a restaurateur, something like this happens “about as often as another generation of interns arrives in the city thinking they have a new idea” and gets busted every time as soon as the restaurant trade learns about it. It’s probably better that their ingenuity is directed toward annoying front-of-house staff than more destructive forms of market manipulation.
David Solomon says Goldman Sachs will always have an in-office culture, even if the office is in a low cost location like Jackson Hole, Wyoming. (Bloomberg)
Something which has been suspected on Finance Twitter for a while has now been endorsed by the US government – intelligence agencies have accused finance gossip website ZeroHedge of passing on Kremlin propaganda. (Bloomberg)
Goldbuddies? Credit Sweethearts? JP Morganisms? BNP Paripals? Thankfully, no bank has yet ordered its employees to adopt a cringeworthy collective nickname, as announced to the “Metamates” of the company formerly known as Facebook by Mark Zuckerberg this week. (Daily Beast)
From the “nice work if you can get it” files, the head of the Strategic Research Unit at Schroders explains how he persuaded his boss to let him work a four day week, and how he’s managed to fit the same amount of strategic research into 80% of the time. (Financial News)
JP Morgan has a virtual lounge in the metaverse, set up by its Onyx business unit as a showcase for its blockchain initiatives in Decentraland. There’s a virtual tiger roaming around, a presentation on the crypto economy and a small portrait of Jamie Dimon. (Bloomberg)
Bored Apes are out, Crypto Punks are out – the latest most valuable collection of NFT cartoon drawings are “skaters of the internet” called Azuki. (Business Insider)
Carl Icahn is apparently “absolutely stand-up comedy level of funny”, according to the director of the new HBO documentary about him, and although “he’s absolutely obsessed and driven to make as much money for Carl Icahn as possible”, there are “surprisingly profound philosophical principles” behind this. (Hollywood Reporter)
Of all the ways it’s possible to get banned from the securities industry, this is surely one of the oddest; Chitra Ramkrishna was apparently sharing the National Stock Exchange of India’s business plans and financial projections with an “unnamed spiritual guru in the Himalayas”. (BBC)
Photo by Tomek Baginski on Unsplash
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