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From investment banking to the buy-side and back again

The flow of investment bankers towards the buy-side in China – which was causing such headaches for sell-side firms in the region – is showing signs of reversal. Analysts hoping to escape long hours and earn more in private equity are returning again.

“I’ve got two friends who moved from banks to foreign PEs such as Silverlake or Warburg Pincus,” says a second year analyst at a bulge bracket American bank in HK who himself moved to a PE firm a few months ago. “Both of them moved back to the bank after just a few weeks.”

The hours, he says, could be one reason for the move. It’s a widely accepted perception that working hours at PE firms is much shorter than at the banks, but he came to realize that it’s not the case with a few big names. “The hours are just as bad at some very top private equity firms,” he points out.

This, combined with unfamiliar workloads is causing some former bankers to leave after a short period of time. “There’s so much for them to learn in China’s PE industry,” comments one veteran Chinese banker who asked to be anonymous as well.

Young analysts joining an investment bank are whisked through top-notch training programmes where they receive all the necessary technical training, but they’re still a cog in a machine and given constant guidance and instruction. If you had three years’ experience in investment banking, you would never be expected to originate deals.

PE firms are exactly asking for that, especially some local Chinese firms like China Renaissance and Sequoia Capital China. “Juniors on the buy side are facing the pressure of sourcing deals from quite an early stage,” confirms the analyst.

“They need their juniors to have an acute business sense, to be more proactive in sourcing deals, ” agrees Alina Yang, a consultant at search firm Shanghai Cornerstone Global Partners. “They tend to hire juniors with such potential.”

Even if they demonstrate this potential in interview, not everyone realises it. Yang mentioned a few juniors she has come across recently, all of whom were very bright students in universities with excellent academic records and outstanding skills in problem solving, modelling and logical reasoning. However, they still lack the exact type of business sense that a PE firm is looking for. “In the end they were unable to meet my clients’ requirement,” Yang says.

Ultimately it’s down to the juniors themselves whether they can, or want to, actively manage the transition to the buy-side. “The majority of analysts from the bulge bracket banks more or less have this problem,” says Yang. “If you lack the skills of sourcing and leading a deal, and you don’t want to make the transition either, perhaps it’s better for you to stay with the bank.”

 

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