In most areas of an investment bank today it's become difficult to distinguish how much of what you produce is down to you personally and how much is down to the "franchise". In sales and trading, for example, success is highly related to the strength of the bank's infrastructure and its risk appetite. In M&A, it's often as much to do with the bank's willingness to provide funding as to the skill of individual advisors. In equity research, however, this is less the case.
Success in equity research is about individual researchers labouring alone (or with a team of pliable juniors) and impressing clients with insights they have generated in the process. Lead researchers who make startling insights that are proven correct with time, and which clients are able to make money from, rise to the top and become "ranked." These are the researchers banks will want to employ when they can charge for research under MiFID II. And because researchers' output is mostly down to them, and not to the bank, banks will have to pay them very well indeed.
Just how well is indicated by Morgan Stanley's decision to charge $2,500 an hour to clients who want "private meetings" with its stock analysts. Needless to say, only a fraction of this is likely to find its way into the pockets of equity researchers themselves, but even if the researchers only see 20% of the private revenues they generate, their hourly pay will be extremely generous compared to their colleagues'.
Of course, working in equity research is about more than expounding investment theories in private rooms. You also have to write research papers, and this will be less lucrative. Bloomberg says Morgan Stanley quoted a small client $25k a year for five private meetings and "basic equity research access." The $2.5k an hour meetings are the icing, not the cake.
Even so, as equity research headhunters have been arguing here, it looks like equity research pay is about to rise a lot. In the process, already stressful equity research jobs may become even more stressful, but they're still likely to pay more than the average $455k total compensation package for an MD-level equity researcher cited by Bloomberg. They will also afford an increasingly rare opportunity to "own" what you produce and to become your own personal franchise. What's not to like?
Separately, Goldman has set up a "brain trust" to pitch, "creative deals to big, complex clients," in an effort to revitalize M&A revenues. Known internally as the Innovation Lab, it's led by M&A bankers Brian DeCenzo and James Morris and will aim to come up with "out-of-the box ideas" and to tie recommendations to things like the impact of rising oil prices. It's all very exciting, but as the New York Times points out, it's unlikely to distract from declining revenues in Goldman's core sales and trading business, where Morgan Stanley analysts are predicting a near 30% drop when Goldman reports its third quarter results next week.
The problems in Spain mean bankers might not want to move to Madrid after all. (Bloomberg)
Activist hedge fund pay: Elliott Advisors' 79 employees earned £835k on average last year, up from the £729k average earned by its 72 employees in 2015. (Financial News)
Seems Bank of America is planning to have up to 1,000 staff in Paris. (Bloomberg)
Parag Shah, head of marketing at Bridgewater, has stepped aside. (CNBC)
Github CEO - there won't be any coding in future. (Business Insider)
Why do you hate your job in six words? "Bros call shots, women stuck executing." (Vice)
— Tracy Alloway (@tracyalloway) October 11, 2017
Abbreviations for company emails: TL;DR - Too long; didn’t read. (McSweeney's)
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