And we finally reach the final entry of my series on the Investment Banking Hierarchy. I have been working my way through the Analysts, the Associates, the Vice Presidents, the Directors and now the Managing Directors in order to give you a better idea of what the different roles in Investment Banking involve.
This post will cover the lives of the Managing Directors…who are they, where do they come from, what do they do and what is their life like?
Who are the Investment Banking Managing Directors?
The Managing Directors are the big cheese within the Investment Banking hierarchy. They are the ones who have the relationships with the big clients, who bring in the big fees and who get paid ludicrous amounts while at the same time having a pretty awesome work life balance. They are deal makers and are the face of the bank.
I should not note that ‘Managing Director’ is just a title in an Investment Bank. It is not used in the traditional sense of the word – they are not a member of the board nor are the CEO and they don’t even ‘manage’ very much. There are also many Managing Directors within a large investment bank – and even small regional office may have 2 or 3 Managing Directors.
What do Investment Banking Managing Directors Do?
Managing Directors have only one role – to bring in deals and generate fees for the bank. They typically have years of experience and relationships in the industry and markets where they work and their clients typically trust and rely on them for advice on capital markets and strategy for mergers and acquisitions (unlike Directors who are trying to build this trust and these relationships)
On a day to day basis Managing Directors spend far more time trying to win deals rather than execute them. They will typically:
- Touch base / schmooze with their existing clients just to make sure they aren’t thinking about doing anything
- Go to meetings set up and prepared by Directors to lend ‘gravitas’ to the meeting (and hopefully get any fees from the deal assigned to their balance sheet)
- Come up with ideas (typically very high level) which they will delegate to junior staff to research
- Get the junior staff to pull together presentations and pitches for their ‘pet clients’…that is clients that only the Managing Director is allowed to talk to and deal with
- Be present (although not do a lot) on existing deals so that the client occasionally sees the person they thought they were signing up to do the deal
As you can see from the list above, Managing Directors actually have remarkably little to do with completing a deal once the Investment Bank has won the mandate. The execution is typically led by the Directors and has every other layer of the Investment Banking Hierarchy working on it.
I confess that this surprised me when I started as an Investment Banker, but it shouldn’t when you think about how they are compensated. Managing Directors’ bonuses (which are ludicrously large) are derived purely from the revenue that they drive. Once you have won the deal, if you can trust your team to complete it, your efforts are much better spent trying to win more deals (and thus generate more fees).
What is the work life balance of a Managing Director like?
Managing Directors have the best work life balance of anyone in the bank…but unfortunately there are some downsides. Managing directors are constantly travelling. If my Managing Director was in the office on two consecutive days he was having a pretty quiet week.
Other than this though their life is everything that makes college and university students clamour to become bankers. They start at 8 or 9 am in the morning and are done whenever they feel like it (normally around 6) and long lunches are the norm. There are occasions where Managing Directors work late or on weekends and if this happens you know as a junior banker that your life is going to be hell…because it means that the deal is huge and it really is coming down to the line.
Where do Managing Directors come from?
Managing Directors have typically been directors at the same investment bank where they are promoted for several years. There is no standard process for becoming a Managing Director at an investment bank but typically you will need to be nominated by other Managing Directors within the bank who will then argue your case for you. You also typically need to have carved out a space for yourself and generated fees consistently over the last few years (think $20 – $30m in fees a year).
Very occasionally there are individuals that lateral in from other industries and typically have so much clout in the industry in which they work that their relationships in that industry outweigh the fact that they have no Investment Banking experience (and they are so senior that there is no way known that they would be hired at any other level within the hierarchy). These cases are exceedingly few and far between (I only ever saw one example).
Why would you want to leave when you finally got to the very top of the Investment Banking hierarchy?
Realistically Managing Directors almost never leave by choice. They are locked into the bank that they work at. A large proportion of their bonus (50 – 60%) is locked up for 3 – 5 years and they lose it all if they leave. If you had $5 – $10m locked up I don’t think you would be in a hurry to leave.
Sometimes Managing Directors do move to other internal positions within the Investment Bank. They may go from being a deal maker to a more ‘managerial’ position such as regional head or product group head. They are then responsible for managing other Managing Directors and there is less emphasis on them winning deals.
Occasionally Managing Directors will leave for other reasons. Often when banks are suffering and Managing Directors can see that they are not going to be paid significant bonuses for a few years to come they will switch banks (and other banks clamour to get experienced Managing Directors). Others are pushed out due to cost cutting…however this is quite rare. Investment Banks rarely cut the people that are actually winning them fees. Some Managing Directors also leave to retire early and do all those things they wanted to do while working their way up the Investment Banking hierarchy.
The end of the hierarchy…
Hopefully the summary of the Investment Banking hierarchy has given you some sort of idea what the different roles in the Investment Bank involve. It’s a long process to get to the top, but the rewards are definitely there if you can last the distance. As a reminder here are some of the other Investment Banking Hierarchy posts