Monday, September 22, 2008

Bulge Bracket vs. Boutique

In general my full-time interviews were actually less technical than my internship interviews. I think the type of interview you get (technical vs. fit) is very dependant on the interviewer and what type of mood they are in. In pretty much every place I've interviewed I've had a mix of interviews where some were very technical and some were not. As a general rule, the more senior you go, the less technical the interview will be. My toughest technical interviews were all with analysts or associates.

I want to make a quick comment about the whole boutique vs. bulge bracket issue. I've interviewed with and received offers from bulge brackets and top boutiques, and I think it would be helpful to look at the pros and cons of each.

Bulge Bracket Banks
Obviously the past week has drastically changed the landscape for bulge bracket banks. The positives of working for one of the uber-bulges is that most banks (and, based on this weekend, even Morgan Stanley and Goldman) will have a capital base to support their actions that is more steady than it has historically been. In other words, it's good to work for a place like JP Morgan because they have such a huge balance sheet that they can be a part of any deal, regardless of the size.

Bulge brackets are generally well-established and have very structured training programs and procedures in place. Everything is already planned out for your next two years. You'll be one of many thousands of employees, and the bank has learned how to best teach you the ropes.

Your bulge bracket experience will give you the opportunity to try out many different products (be it M&A, debt/equity offerings, IPOs, etc) and you will generally get a very broad experience. One downside to all of this is that you might feel like another cog in the machine. It can be hard to feel like you are making a significant impact when you have 14 people on a deal team. Sometimes your deals will involve people from many different groups across the bank. One deal I worked on this summer involved our industry coverage group, the M&A team, and the lev fin team. Each team played a part, and we all had to collaborate a lot to get the book across the finish line.

At a bulge bracket you are part of an analyst class that likely contains over 100 analysts. You build a huge network and if you are proactive you can make connections across the firm. You won't have a lot of "senior exposure" (although I think it's kind of overrated anyway) because there are so many levels between you and then MDs. This summer I don't even think I spoke to any MDs more than three times, let alone working closely with them on a deal. As an analyst you will work extensively with associates and some with vice presidents.

Boutiques
Boutiques are a different story. Most boutiques are relatively new (Lazard, if it qualifies as a boutique, being a notable exception). They don't have lending or trading platforms but focus solely on advisory work. Many of the top boutiques focus specifically on M&A and Restructuring. So you won't get a chance to model out a debt offering or an IPO, but if you are looking to go into Private Equity, it's M&A experience that will get you the job anyway.

The training programs at boutiques will typically not be as structured or long as the BBs. You will still receive training but will be required to learn more on the job than in the classroom. This is why many boutiques tend to favor analyst coming in with some kind of finance background or experience.

Deal teams at a boutique will usually be 3-4 people. There will typically be an analyst, associate, VP, and MD. There might be a few more people, but not usually. The analyst will typically "own the model," meaning that the analyst builds the model and makes any changes along the way. At the boutiques I talked to, the analysts told me that they build models from scratch, whereas bulge brackets tend to be more prone to using templates.

Boutiques have an analyst class of 10-25 analysts. Analysts are given significant responsibility on deals. The risk of boutiques is that deal flow is determined by your MDs more than the name of your bank, whereas at a bulge bracket like Goldman Sachs, sometimes you win deals based on your name and not so much on the MD.

Exit opportunities at the very top boutiques are generally very good (comparable to Goldman or MS). While at a bulge bracket you would generally need to be the top analyst in your group to get interviews at the top PE shops (unless you work in Goldman TMT or Morgan Stanley M&A), if you perform well at a top boutique you can get those same interviews.

So in the end there are risks/rewards with every decision. At a bulge bracket you have a large capital base and do deals with many products, while at a boutique you are focused exclusively on advisory work. Bulge brackets have large analyst classes and well-structured training programs, while boutiques have small classes and lean deal teams, forcing you to "learn as you go." Exit opportunities are similar, but are probably a little easier to come by if you can get into a top boutique as compared to a relatively strong group at a bulge bracket.

4 comments:

Anonymous said...

Great blog and posts!

Did you end up accepting your offer with the firm you worked for this summer? If so, how have you played it off when you interviewed with other banks and they ask about it. Are they concerned that you accepted an offer and now are interviewing with them?

THE ANALYST said...

WBB -

I actually haven't accepted the offer with the firm I was at during the summer. I think given current markets they are kind of assuming that everybody is interviewing around. That said, I have been pretty careful about how I interact with my summer firm. You don't want to send the wrong message ya know?

Anonymous said...

Quick Question,

What are the five valuation methods? I only know three

DCF
Comparable Company
Precedent Transaction
?
?

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