Investment banks and private equity firms battle for 'elite' junior bankers

Everyone wants a good junior investment banker these days. Unfortunately for any analysts and associates assuming that they’re hot stuff, both banks and private equity firms are only fighting to recruit and retain a select few.

Despite reports of rapidly rising pay for junior bankers and a red hot job market, there’s a huge amount of disgruntlement among analysts and associates in investment banks – largely centred around bonus payments.

While first year analysts are generally paid on a par with each other, second and third year analysts and associate level employees are divided into buckets dependent on their performance. According to recruiters and three analysts we spoke to, the top bucket is becoming an increasingly select band of people, while those who feel they’ve been underpaid is growing.

“In years gone by, we could attempt to headhunt 100 junior bankers, 20 would have taken our call and maybe five would have been serious about moving. Now it’s more like 50% who are interested to talk,” says David Archer, director at headhunters Circle Square. “There’s a surprising amount of inequality at the junior level, which has left a lot of people open to new opportunities.”

Figures from recruiters Dartmouth Partners suggests that average bonuses for analyst level two in investment banking were £32k ($54k) in 2013 and £42k ($70k) for analyst level three. However, sources suggest that the top bucket received over $60k at analyst level two, while the middle bucket was $35k and the bottom a token figure. At associate level, average bonuses were $100k in New York and $77k in London, according to data firm Emolument.

“Our research suggests that across the board, bonuses for junior employees at investment banks has remained relatively static, despite an improvement in job market,” says Logan Naidu, chief executive at Dartmouth Partners. “This year, there is an expectation that pay will finally increase.”

The cream of the crop

The life of a junior banker is more about surviving than thriving, with the analysts we spoke to suggesting it was largely about being compliant and subservient to the requests of superiors – as well as being painfully accurate – so getting to the top of the class isn’t always an obvious path.

However, if you want to get paid a top quartile bonus as a junior, you now need a combination of entrepreneurial spirit and commercial nous, says Archer. "When a junior looks at a deal these days it needs to be from a strategic perspective – what the price drivers are, a fair market appraisal – rather than simply producing an investment memorandum and a valuation. The demands are so much more. It’s that ability to see the wider commercial context that sets junior bankers apart.”

There’s another good reason for developing these skill-sets for the benefit of your career longer term – getting into private equity. The route from investment banking into private equity is, of course, a well-trodden path, but the buy-side usually wants to hire the same select band of second and third-year analysts the investment banks are hoping to retain.

“Private equity firms want to hire people who can see where the opportunity lies in the business to create value, who can crunch the numbers, but remain sceptical of them,” says Gail McManus, managing director of Private Equity Recruitment. “This commercial awareness gets them to the top in investment banking and these are the people private equity firms want. Considering banks already hire the top graduates, you’re talking about a very select band of people.”

In the short term, it may be necessary for junior bankers to take a pay cut in order to move across to private equity anyway. When getting bumped up to associate, most banks tend to increase pay to £75-80k, says McManus. If you get a job in a large private equity firm, they will probably match this, but a mid-market fund will pay 25% less, she says.

Another method to gain the sort of skills that will set you apart from your peers is to move into a boutique. Smaller firms are struggling to hire junior bankers, says Archer, with more senior staff taking on a lot of the grunt work. Actually, despite the lack of a big brand name on your CV, it can be a steep learning curve, he says.

“In the IB boutiques which are around 10-30 people,  junior bankers have a broader range of responsibilities and get to face clients a lot quicker,” he says. “Two to three years in a boutique will nurture these commercial and entrepreneurial skills and make candidates very appealing to private equity firms.”

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