Thursday, 24 January 2013

The Investment Banking Hierarchy


Now that you know what investment banking is and what bankers do, the question arises as to which stage you will fit in and what you will do. Without further ado, let's jump right in.

So which level monkey are you?

The IB hierarchy is well defined and rigorously imposed. There may be minor differences in naming at some banks, but the generally accepted designations are as follows: 

  •  Analyst – Also known as entry level monkeys. They’re at the bottom of the pecking order and do all the grunt work for the higher ups. Their work mostly involves Excel modeling, working on pitch books and memorandums and work allotted on ad hoc basis by their seniors. Working 100 hours a week is quite common at times of live deals (yes, you read that right – calculate how much that translates to per day). 
  • Associate – Senior monkeys. They may be IB veterans of 2-3 years or recruited fresh out of business schools. The work still involves a lot of modeling and pitch books, but it’s mostly supervision of the entry level monkeys and making sure that the VP’s instructions are carried out properly. Slightly better life than Analysts and lesser work load, but not by much. But they do get to dump most of the grunt work on the newer monkeys. 
  • Vice President – This is where it starts to get blurry because VP’s can have experience of anywhere between 5-10, even 15 years. Thus, there are VP’s and “Senior VP’s”. Compare VP’s to middle management – they’re in charge of making sure that the operational part of strategy/deals devised by top management is carried out perfectly. Hence, they act as the conduit between MD’s and Associates. 
  • Director – This is where the fun starts and it actually starts feeling like you have some control on your life and work. A Director is in the limbo between VP and the king of the jungle, the MD. The only reason for staying in a director role is to get to the cherry at the top of the cake – getting to add that “M” before “Director”. Also, the Director level is where you really start bringing in business. While VP’s may also be responsible for clients sometimes, it’s here that your promotion will depend mostly on your dough-generating capabilities. 
  • Managing Director/Partner – The undisputed king of the jungle. No definable upper limit on remuneration, luxurious lifestyle, jet-setting around the world in business class or even private jets. They have one job – making dough by bringing in clients and generating deals. This is the reason it is difficult to assign a limit to their remuneration – both lower and upper limits. It’s because the money they earn is so closely linked to the number of deals they are able to generate.

The same hierarchy is used in Private Equity also, with perhaps fewer and less rigidly defined designations. The reason is that unlike IB, PE firms do not need significant manpower. I know of firms with an AUM (Assets Under Management) of up to $750 million whose teams consist of less than 25 people. Similar reasoning applies to IB boutiques – number of people involved is much less.


But wait...

I have a feeling that many of you trailed off after reading the part about “luxurious lifestyle and private jets”. Hence, a cautionary reminder – most of the people who get into banking do not reach the MD level. Or you’d find nearly as many MD’s as analysts.
The reason being, “high finance” is a cut-throat world and very, very few people have the strength and calibre to stay on despite the extremely demanding nature of their work. Hence, you’ll find many people who started as IB analysts but turned to Corporate Finance or even entrepreneurship as they moved up the ladder. It’s an extremely small percentage of people that get to the top.

So, you’ve been warned... Feel free to comment and ask questions!

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