"Comp is Down" — Matt Levine Money Stuff
Not sure if anyone caught Money Stuff yesterday, in which Matt Levine dedicated a brief section to the declining sentiment around investment banking as a path to wealth accumulation. Here's a brief snippet:
"But now it is 2024 and things have changed. Corporate dealmaking is dominated by private equity firms, buyout financing is increasingly done by private credit, trading is increasingly done by hedge funds and proprietary trading firms. Those are the places to make a lot of money in finance these days. More broadly, the generic way to get rich these days is in computer technology; the aimlessly well-educated now go to Meta or Alphabet, not Goldman Sachs."
While there's been plenty of talk about low bonuses this year, I'm curious if people on the street really think the IB path is fundamentally broken. Most of the alternatives he discusses aren't available to post-grads, even the cream of the crop. Is this still the place to start your career or has the well run dry?
My guy we make six figures a year out of college. You're going to 'grass is greener' yourself into being miserable. Just find what interests you and you enjoy the most and provided you can make money doing that to support your lifestyle, go for it. Wealth creation is cool, and if that's your only interest then the IB -> investor path is probably for you. But most people aren't made happiest by crazy amounts of money. Make sure you know what you're chasing before you start running.
Walmart managers and mechanics in their 20s make six figures a year and don’t work 90 hours a week. This figure is not a flex the way it used to be.
kinda the main idea here right? Salary is stagnant relative to other industries, bonuses are mid, most bank reputations have taken a hit. Even if your life passion is m&a, you're probably getting better exposure in PE or corp dev... Not sure how this pipeline is going to maintain its appeal in 5+ years
This is so intellectually dishonest / stupid. Hopefully you’re a troll or your LPs are fucked.
This is not as true as you think man. Definitley some outliers, but this is not nearly as common as one would believe.
Six figures is nothing these days… it barely covers your rent for God’s sake. IB can only be justified with 2021 level bonuses. Otherwise, it’s better to go somewhere else asap. Don’t be complacent and compare yourself to the bottom tiers of society
Still a great training ground for anything finance related. Definitely more places to go now outside of IB, and definitely not what it used to be, but maybe that's a good thing?
Right out of school, at the ripe age of 22, for a career in finance or just general business, IB likely still reigns supreme as a first stop.
Rhetoric like this never makes sense to me because for a median career outcome, finance pays more than tech throughout a long term career
Tech is higher-floor, lower-ceiling than a lot of areas in finance. You can easily be a 50-year old individual contributor at a FAANG cashing checks -- obviously less than 50-year old MD would, but you're less subject to pressure to perform / up or out dynamics.
Different strokes for different folks. Tech will certainly net you a more comfortable lifestyle and probably pay better per hour, but finance certainly offers a more direct path up the ladder -- provided you're producing -- than tech can as those entities are currently structured.
That is inaccurate, you get obsolete very quickly in tech. The technologies change way, way faster than any other field and cognitively it becomes harder and harder to learn new stuff and stay relevant as you grow older.
Would argue the opposite — tech is lower floor, higher ceiling. There are many slackers in tech who coast for 200k paycheck for decades and not climbing up. Once you’re surrounded by these lazy slackers, you also become lazy and slack off, that’s why floor is low. Lots of tech people still making 200k at age 50 because they don’t have that innate drive and ambition to go further. Finance people are surrounded by highly-driven people and are expected to keep progressing through the ranks. Slackers don’t exist in finance. So finance definitely has higher floor. As of ceiling, tech has more billionaires and IMO it is the only industry capable of producing new billionaires. Finance produces upper-middle classes, but not billionares
Bro might have missed the mass layoffs at all big tech. Not like PE comp has been blowing out the last few years either. Basically everyone's comp is down.
This^
I think the effect of seeing these sporadic industries / sectors / asset classes (Bitcoin, AI, private credit, etc) has really clouded people’s judgement / logic in terms of incredible career opportunities. It’s always difficult to remain focused on excellent career paths when you have these things thrown in your face every day through social media. IB will always be a great place to start and grow your career.
I’m 28, went analyst to VP, and made ~$600k last year. I’m not smart enough to be some genius engineer at Alphabet, but make more than a lot of the smart engineers from my top engineering school. Banking is still a great path.
How did your lifestyle change moving up? The whole issue is with attrition as a junior
Hours are good now, usually under 70 (even 50-60) and almost always under 80. But analyst and associate years were very rough.
Do you actually enjoy the job or just do it for the money?
Yeah I reasonably like it. I don’t learn as much as a VP now, but fun to not have to get in the weeds now and focus more on managing the process.
600k at 6 YoE, that is a lot more than Alphabet engineers. Alphabet pays peanuts
Are people really still harping on about private credit, I thought that tired meme was dead now.
Yeah I mean, that's just Levine for you. He's always a bit off, presumably because he's under deadline and needs to make shit fit together.
The excerpt that OP pulled is classic Levine . . it's not objectively wrong, but he's always not making sense on some level. "Private equity is where the deals get done" OK Matt but bankers get paid very well to work on those deals, and IB is still the main path to PE so what are we even talking about right now?
I respect the guy's witty humor and his ability to say something insightful every week. The problem is, he publishes daily not weekly. So there's a lot of nonsense that comes with it, and especially so when he's more of a pop columnist at this point. A lot of my law/PR/etc friends read his stuff so they can check the box and not feel like they're clueless on the business world. Same as Odd Lots and Kara Swisher and the All In guys . . this is popcorn business journalism, pros shouldn't glean career advice from it.
Entering IB at the trough has never been a bad idea. Every overpaid, underwhelming MD you've ever met has the same story . . joined in the dot com bust, or joined in the financial crisis, or joined in one of the other recessions when nobody wanted IB. If there's ever a time to get in, its now.
But don’t you think there’s an underlying structural shift as well? The middle man can usually easily get cut out.
Maybe as compared to 1980 there's a structural shift because back then you only had companies buying companies, and both sides needed to rely on a banker to do everything . . the idea generation, the valuation, the execution, the financing. Companies didn't really have that team in-house . . corp dev existed but was more about integration. So banks were a one-stop shop for anything connected to M&A and could charge more I guess.
And then you insert financial buyers (PE) who are less needy of outside help in those areas, and it exposes bankers a bit.
But the rise of PE happened a long time ago, I don't see that there's a more recent structural shift. I think what's driving deal volumes down lately is a tough rate environment and a lot of difficulty valuing businesses because the governments across the world (both central banks and politicians) have infiltrated the economic machinery and nobody knows how to underwrite the future anymore. I suspect that's not a permanent condition.
Not using bankers opens up a lot of legal liabilities.
Also running a process is very time intensive. If your best skill is investing or running portcos, you should be doing that while you pay someone to run a deal process for you. Basic comparative advantage.
Out of curiosity where do you listen in for career advice?
I think forums like WSO are underrated because even though there's a lot of crap, it's not very time consuming to read through an entire thread on a topic you want to know about. Reddit too has some good ones . . I forget the names of them because I happen upon them randomly, but I've seen some good stuff in there.
You said "listen" implying that maybe there's a podcast or column for career advice. I personally don't know of one that's useful, I think goals are maybe too individual for that.
What do you like to read that's not popcorn journalism in finance? Genuinely looking for suggestions.
I should say first of all, that I do take in a lot of popcorn journalism. I just take it for what it is and don't lend it more credence than it deserves.
When I have more time to go deep on things, books on the history behind a company are my medium of choice. Just finished Becoming Trader Joe which was good, and working on an older book called Skunk Works about the Lockheed Martin teams that build the stealth bombers and other major innovations. Other good ones in the past: Shoe Dog, Cable Cowboy and The Everything Store.
Tbf while comp as analyst isn't as impressive (nothing to sniff at $150k+) it takes off once you become an associate. Not many jobs will pay $300k+ to 24 yr olds. Easily earn $500k+ in late 20s as a VP. That's more than what many doctors earn, who arguably have a much more important role.
I can’t read these comments. Floors, Ceilings, etc. The world is shifting under your feet, nothing true from the past is guaranteed.
Do you think things will get worse? Ik comp always depends on the market cuz of bonus but I'd like to hope it'd at least be like pre covid levels
Deals are getting more complex, geopolitical and regulatory factors are reconfiguring normal capital use paths.
Likewise, capital markets are becoming significantly more advanced and Alternatives are functionally becoming unregulated banks.
Banks are the feeding ground for talent.
Fees will be commensurate with complexity
As someone who works at a bank that paid shit bonuses… I think he’s onto something. Fully agree that his logic doesn’t completely make sense (ie IB is the training ground for PE and other lucrative fields, for example). But I do think IB is slowly on the decline.
I do think IB is a great place to start a career and learn lessons in work ethic, finance, etc. The level of drive in finance is on a completely different level from other fields.
However, the pay has taken a significant drop these past few years, and that is a problem. The whole trade off in banking is you tolerate high levels of stress, asshole bosses, fake/unrealistic deadlines for two reasons: learning experience and pay.
The learning experience will always be there (to a degree) but I’m not sure the pay will. At my bank, associate 2’s made on average $260k all in. The average in 2016-2019 was ~330k. A significant number of VPs and directors in my group collected 5-figure bonuses. If this pattern continues, I don’t think the value proposition of IB will make sense anymore. Other industries, even corporate, are catching up in pay, and IB is staying flat or going down.
TBD on whether the pay will bounce back when deal activity resumes, or this will be used as the new shitty bonus m standard going forward. If the latter, Levine’s theory will be correct. People won’t be willing to put up with the negatives of this job without a competitive salary, especially this new generation who strictly views work as work (ie maximize pay per hour).
It will probably be somewhere in between when all the dust settles.
The pay in the industry still is nowhere near as strong as it was pre GFC and will likely never return to those levels again. The last decade has been pretty good all things considered but the pay hasn’t dramatically improved comparatively. Many of the senior people I know say they wouldn’t enter banking if they were starting out today and would go immediately to the buy side if possible if they had to pick a career path in finance.
My guess is stagnant wages, fewer analyst seats across the industry, and a higher floor but lower ceiling on bonuses.
I feel fine having made $400K in 2023 at age 28. Have always felt solid about comp at my age relative to peers. Honestly asking - am I brainwashed / missing something? For example, are people really clipping bigger checks in tech at same level of experience? I just constantly see bankers complain about comp and don’t get it. Maybe I’ve had too much koolaid.
Fully acknowledge we’re all making less than pre-GFC. That ship has sailed so it doesn’t bug me much. Relative earnings still feel good, and a 72-inch 4K OLED TV only costs $2,000 and golf is still cheap.
Life is good (or is it??)
Does nobody here understand cycles or am I crazy?
It's really not some existential high brow thing. Good years = good comp, bad years (like we have been having) = shit comp, didn't think that was complicated.
My point was whether the shit bonuses over the past few years will be used as the standard going forward, or if pay will bounce back to what it was when the markets were favorable. I can 100% see the markets/deals coming back and HR being like “wow look at this your bonus is up 20%”… when in reality it’s nothing close to what it was pre-Covid.
In my bank and my group, total revenue for 2022-2023 was about the same as it was from 2016-2019, and the pay for juniors has been significantly reduced. 2020 and 2021 were left out because they were aberrations, 2016-2019 were relatively “normal” years.
When “normal” years come back, I don’t think the pay will be the same. Certainly not after adjusting for inflation. There is so much turnover that no one will realize how badly they’re taking it up the ass compared to before. Once the shit pay reaches a tipping point, people will no longer be attracted to the value proposition of banking. This is happening already, by the way.
Your opinion is pretty simplified and careless. You clearly don’t work in banking.
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