We get asked a lot of questions about choosing a group when new to investment banking – usually in two streams.
1) I don’t know what group I should go into
2) How do I get into Goldman Sachs TMT?
So first thing is beggars can’t be choosers. Without having an investment banking generalist offer lined up, this group talk is irrelevant – you are going to take any job that they give to you.
All investment banking jobs at reputable firms will give you a far better experience than 99% of jobs out there from a learning and compensation standpoint, whether you work in Healthcare or Food and Consumer. The logical first step is to just get an investment banking job.
Other than for niche groups (Energy in Houston, Tech in San Francisco, Industrials in Chicago) where you are applying for a specific regional market, you will usually be given a generalist offer and have an internal sell day where the groups pitch their product or industry to the new hires and after various conversations hires will be placed based on preference.
Assuming everyone likes you, only now do you have a decision to make.
Congratulations! Now, follow this selection criteria:
Passionate About an Industry Group Within Investment Banking
If you are a video game nerd that spent too much time playing Final Fantasy and League of Legends – are constantly on NeoGAF reading about the latest NPD reports and game release dates for the latest in the Destiny or Call of Duty series, you should be in Media and Entertainment or Consumer – whatever group in the bank covers the space.
Then you will end up making pitch books for firms such as Activision Blizzard and possibly putting together their investor presentation with Orcs and Night Elves killing each other on a page that also includes EBITDA. It becomes very interesting to look at your passion with a different (and far more important financial) lens.
The job becomes so much easier if you enjoy what you are doing – and it is far easier to enjoy what you are doing if there is an additional component that piques your interest.
Likewise, I know many girls who are experts in fashion and expert but are stuck working in infrastructure (which they pretend they really like but are talking about anything but when it comes to brunch on Sundays). How much happier would they be in the luxury subgroup of a consumer discretionary industry team that covers Estee Lauder or LVMH (which of course owns Sephora)?
The best jobs are the ones that you want to talk about outside of work, like starting a finance website. Finance is hard enough as it is – the hours are taxing and the stress is immense relative to a standard corporate gig.
If you love your job, you’ve never worked a day in your life – this cliche is hyperbolic – I can tell you I would never have done investment banking if I were paid $10,000 less per year – but it holds water to some extent and is a big reason why I did not burn out as quickly as many of my vintage (class I started in).
If you develop an expertise in an industry group, you become invaluable and do not need to worry about exits. If you are known in the media space, you will never have a problem exiting to a media focused PE firm or the media arm of a megacap PE firm.
People recognize talent in the industry – if your knowledge can be used to make people money, you will always be in demand. You could end up getting a job in corporate development in one of the companies you admire or lead an industry silo within a product group such as equity capital markets or debt capital markets.
Connections and Family Business Overlap with Industry Group
I have met a lot of people who come from privileged backgrounds where their parents wanted them to come back and lead the business after. A lot of people have their families entrenched in real estate as developers – a job in real estate investment banking and real estate private equity afterwards makes a lot of sense.
Likewise, a lot of acquaintances have disclosed to me that their families have strong manufacturing businesses in China or the broader bamboo network in Southeast Asia – industrials or consumer non-cyclical investment banking may make a lot of sense.
It makes the job that much easier to know that you can monetize your talents later.
You Want to Exit to Private Equity (or Corporate Development)
In this case, we can only really recommend two product groups as ideal – mergers & acquisitions and leveraged finance. Mergers and acquisitions has the best exits and bankers in this division are the most prepared. Leveraged finance also has excellent placements, but the experience varies greatly from bank to bank in terms of what modeling responsibilities are allocated to what group.
M&A simply gives you the best training in terms of understanding valuation and financial modeling (both of which are key to making investment decisions) – and also best suits you for a career in private equity due to the understanding of the deal process from the buy side as well as the sell side. Ideally you will be able to work on both a buy side mandate and a sell side mandate during your time in banking if this is the case.
For certain industry groups that are more niche, depending on how the bank’s M&A division is separated (a group that does Tech Industry Coverage AND a Tech Mergers & Acquisitions Team), M&A will generally get to do most of the quantitative work. However, for banks that separate M&A as an industry agnostic unit, some industry groups will give you good modeling experience as well – especially very technical ones such as healthcare or oil & gas.
You Have No Idea What You Want to Do – What Investment Banking Group?
In this instance, M&A is still the best training ground and gives you the most options going forward. However, we would caveat that knowledge on capital markets is also the most limited in this group – versus an industry group where you may be looking at a debt raise one day, an IPO the next and a merger the day after.
Most people are surprised to know that there is actually relatively little market following in investment banking coverage and M&A – which is ironic because friends and family will always assume that you pick stocks.
Leveraged finance is the best compromise as there is traditional modeling and capital markets experience.
As for those who talk about Goldman Sachs TMT – refer to point 1. Practically 1/20 people who tell me this are actually suited for a TMT analyst job because they have no idea what the other MT in TMT represents nor do they even understand technology beyond having an iPhone.
They want to work in it because they want the prestige associated with the group from a cursory glance at some Wall Street Oasis thread.
Step back for a second and think how unqualified this type of person is, one that does not know where Google is trading or how it makes money, compared to people who have been passionate about tech since high school, read TechCrunch and ArsTechnica frequently, have their entire portfolio in NVIDIA and could tell you why AMD went up 100% in the last 12 months and have read extensively about cloud computing and the internet of things.
So these people should be moved from bucket 1 to bucket 4.