It was the classic year of two halves: it mostly began well and ended badly. But some things ended well too. And they were…
Old-fashioned investment bankers
Forget those fancy derivatives types with PhDs and poor communications skills – 2007 was the year of the traditional relationship banker and his/her execution sidekicks.
While banks lost big time on fixed income products, Europe’s equity and debt capital markets and M&A bankers had one of their best years on record. European investment banking fees exceeded last year’s record of $30.4bn in early December.
Headhunters say there was plenty of senior-level M&A hiring throughout the year, with Credit Suisse one of the biggest builders (it raided Richard Tory from Lehman, Martin Bastian from Goldman and David Livingstone from HSBC, among others). Lehman also continued to hire.
Logan Naidu, a consultant at recruiter The Cornell Partnership, says 2007 was probably the peak of the cycle for recruiting into junior investment banking roles: “The first two quarters were very, very busy. There’s been a slight slowdown towards the end of the year, but we’re still busy right now. It’s hard to tell what next year will bring, but people are cautiously optimistic.”
Sovereign wealth funds
Flush with oil money and US dollars, 2007 was the year that sovereign wealth funds rode to the rescue. Among their most significant feats: Abu Dhabi invested $7.5bn in Citigroup; China invested $3bn in Blackstone and $5bn in Morgan Stanley; and Singapore invested $9.7bn in UBS and is rumoured to be investing $5bn in Merrill Lynch.
What with all that activity, the sovereign funds appear to have had a corresponding need to hire. In something of a first, the China Investment Corporation began advertising for nearly two dozen fund managers and support staff on its website. Dubai International Capital is also hiring.
Forget the little matter of senior bankers found mysteriously drowned in their swimming pools, Russia’s appetite for new banking blood boomed, and there was no shortage of people eager to appease it.
Goldman, Lehman and Nomura all reappeared in Russia after making swift exits during the crisis of 1998. Local firms such as Alfa Bank also continued to lure big fish with tantalizing packages – Ed Kaufman, head of UBS’s Russian operation, joined on a $20m package over two years, according to Financial News.
Olga Selivanova, a Russian-focused consultant at search firm Morgan Hunt, says demand has been strong for corporate financiers, derivatives professionals, equity capital markets professionals and securitization expertise. She adds that Russian speakers are preferred, and total comp is now typically 30% higher than in London.
Like Russia, the non-Japanese elements of Asia benefited from an interest in all things emerging markets. According to Thomson Financial, banks pocketed around $11.7bn in fees in the first 11 months of the year, up 36% on the same period of 2006. Many US banks saw Asian revenues soar while activity on their home territory faltered – after boosting its Asia Pac headcount massively in 2006 and 2007, Lehman earned a record 62% of its 2007 revenues internationally, for example.
Financial services recruiters in the region say 2007 was a huge year for hiring: “All of the areas we search for in Asia have been exceptionally strong this year,” says Guy Roberts, group managing director of Pelham. “Private banking has been very active with established franchises bolstering key relationship bankers and expanding their China businesses. All areas of derivatives were very active; hedge funds and private equity houses continued their push for top talent; equity and debt businesses were building and scouting for a stronger work force; and corporate finance, structured finance and sales and trading were also very actively recruiting.”
Private equity financing may have died a death, but mezzanine is alive and kicking.
Mezzanine debt ranks between senior debt and equity in a company’s capital structure and is becoming popular as an alternative source of debt as banks’ appetite for lending evaporates and CDOs and credit hedge funds disappear beneath the parapet.
In November, Tom Attwood, chief executive of mezzanine fund ICG, said they were seeing “…opportunities the likes of which we haven’t seen for years”.
Little surprise, therefore, that everywhere from Washington Square to Blackstone and Goldman Sachs are raising mezzanine funds for 2008.
Gail McManus, managing director of recruiter Private Equity Recruitment, says mezzanine funds offer opportunities for everyone from leveraged financiers to M&A specialists: “The people we’re recruiting tend to have one to four years’ experience and go into analyst, senior analyst and associate roles.”
2007 was another roaring year for commodities recruitment, with Lehman, Barclays, JPMorgan and Citigroup all adding staff in numbers.
“It’s been immensely active,” says Colleen Quilty, head of commodities at Akamai Financial Markets. “There have been a lot of new entrants and most banks with an existing presence in the market have been hiring in terms of a continued build-out, or reinforcing what they already have.”
“2007 has been really buoyant, with demand particularly strong for oil trading talent,” confirms Justin Pearson, managing director at global commodities recruiter Human Capital. “2008 will start equally buoyant – the credit crunch means banks will place even more emphasis on energy and commodities next year.”
Finally, private banking also had a bountiful 2007, with Barclays Wealth among the big hirers. Research by McKinsey reported in Financial News said average pre-tax profit margins for wealth managers hit 35% in 2007, on revenue growth of 14%.
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