Unless they’re just hanging around for a couple of years’ socialising and resume-building before heading off to private equity, young Goldman Sachs bankers tend to aspire to the small and elite teams which make investments with the firm’s own capital – “special situations”, “merchant banking”, “principal strategic investments”. You have all the fun of working at Goldman, plus all the fun of making investments – what’s not to like? Except that David Solomon has pledged to get rid of you.
Or at least, he’s said that he wants to substantially reduce the proportion of Goldman’s earnings which comes from these areas. Shareholders have this prejudice against gains on investments, seeing them as volatile and unsustainable. In the last quarter, the bank had the champagne problem of being unable to achieve progress toward this goal, as in a hot market with plenty of IPOs, the gains on Goldman’s portfolio were growing faster than they could be realised. But there is apparently “visibility” on a lot more disposals, and given that analysts are more or less stripping the gains out in calculating Goldman’s performance, it’s easy to see why the management might not value them.
Which isn’t to say that they don’t value the employees in these teams, of course. Quite the opposite. The aim for the last two years has been to try to convert the principal investing businesses into a sort of “mini-Blackstone”, managing money for outside investors. In principle, this would have the accounting effect of converting them from generators of “one-off gains” into highly prized “fee income”. And economically, the performance fee structure of PE funds could leave Goldman with nearly all of the upside that these divisions currently generate, but much less exposure to losses when things go down.
What’s not to like? Well, the difference between making investments with your own money and managing money for clients is … the clients. However hard Goldman tries to retain the opportunistic and entrepreneurial style that must have made these jobs so great, the fact is that “outside money” tends to come from allocators. And allocators have needs of their own with respect to documentable processes, diversity & ESG goals, reporting and other fun sponges.
It gets worse. Outside money means marketing, and marketing means time spent away from the interesting part of the job, going through Powerpoint slides in offices in places you’d rather not be. Every asset management firm tries to protect its dealmakers from excessive marketing operations, and every time the marketers manage to find a way around and ask for one “tiny little favour”.
Of course, there are worse problems to have; nobody in the Goldman principal investing teams is likely to need to fear for their job, and in any case it’s a blue chip resume builder if you want to work somewhere else. But it does feel like it’s turning into more of a normal job; in a few years’ time, old hands will be reminiscing about how it used to be so much better.
Elsewhere, according to some headhunters, the scramble for junior M&A bankers has now reached the point at which second- and even first-year analysts are being offered promotion to the heady rank of Associate in order to attract them to move. It’s not quite clear how much this is happening, but it’s more or less unprecedented and the potential to cause chaos shouldn’t be underestimated.
Age differences matter much more when you’re young. For example, a twenty-four year old Analyst who took a gap year before college and was in the second year of the program might not take kindly to suddenly finding they had a 22-year-old boss. Added to which, it will surely be difficult for senior executives to make the “apprenticeship” argument for everyone needing to be in the office all the time if they’re saying that half of the learning that separates an associate from an analyst can be done over Zoom and the other half skipped completely.
Like a glass of water rippling on the dashboard, or hearing that Doctor Doom has bought up half the world’s manganese, some developments give you a sense that something’s gone wrong, without necessarily adding many clues as to what. JP Morgan’s 10-Q included a new disclosure that it was “engaged in certain resolution discussions” with “certain of its regulators” in connection with employees’ use of unapproved communication channels. (Bloomberg)
Unlike bankers, M&A lawyers have a genuine option of going away and doing something else instead, and so it’s proving even more difficult to persuade the juniors that the burnout that they’re feeling is all for their own good in the long term, or to recruit. According to one lawyer “My cynical view is people who have come from smaller, regional firms look at the pay and think ‘even if it’s horrendous I can get a deposit [for a house] after 18 months work and go back to Scotland or Ireland or whatever” (Financial News)
Unlikely that anyone expected otherwise, but Lazard has confirmed that it will also be raising junior bankers’ basic salaries to $100,000 (Bloomberg)
Meanwhile in asset management, headhunting firms are building “ lift-out units” to facilitate the moves of entire teams; this is sometimes a tricky area as the companies being recruited from tend to get very angry about it. (Institutional Investor)
Credit Suisse is still hiring to rebuild – Aly Alibhai is joining from Citigroup to lead the global media and entertainment M&A group. (Reuters)
Giles Thorne of Jefferies explains the thinking behind his decision to take equity research out from behind the desk and to stand around outside delivery firms’ warehouses counting motorbikes. (Financial News)
The brief and slightly embarrassing pause is over – Albert Chang and Derek Chung are now on the books of Deutsche Bank in Hong Kong, so it now meets the regulatory requirements for “IPO principals” and can go back to doing deals. (WSJ)
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