The Path to Investment Banking: Become a Helicopter Pilot?

Investment Banking: The land of the exit opportunity.

Most bankers don’t go into investment banking thinking it will be a lifelong career. Most are simply using banking for the skills and the exit opportunities.

I’ve discussed the investment banking path to the buy side in the past, but what exactly is investment banking and how do you break in? Fortunately, I have an interview just for you with an experienced Vice President in investment banking who will answer these questions and much more.

Among the topics we tackle:

• How to break in as an undergraduate
• How to break in as an MBA (hint: become a helicopter pilot)
• Learn about the investment banking interview process and “Super Saturdays”
• Investment banking compensation (Hint: it starts high and then goes higher)
• Exit opportunities (No IB discussion would be complete without it)

Everything you ever wanted to know about investment banking, starting now …

Q: Let’s begin the way every interview begins: Tell me about yourself, walk me through your resume.

I spent 13 years as an officer in the Marine Corp. I flew helicopters for the first ten years and spent the last three years as a Marine Officer Instructor. Knowing that I would be stationed on a college campus those last three years, I applied to business school to pursue my MBA with a specialization in Real Estate.

Once accepted, I spent my first two years in the finance/development track focusing on real estate finance/development. Even though business school typically only lasts two years, being on campus for three years I was able to persuade the real estate department to allow me to use my third year to focus on the investment track. That year I had a the opportunity to manage money just like an asset management firm.

While in business school I had a number of opportunities to network and meet industry professionals and “friends of the program.” I wanted to explore my career opportunities outside the Marine Corps and continually tested the waters to see how the real estate and banking industries would feel about someone with my particular skill set.

As a result of those continued discussions, I felt that it would be worthwhile to seek opportunities in the real estate investment banking world. And that’s what led me to where I am in the banking world today.

Q: That’s an interesting background that’s probably not typical. What’s the typical path to breaking in to real estate banking?

There are traditionally two paths for banking, whether you are focused on real estate or any other asset class. Both paths require attending a bulge bracket business school (either undergrad or grad) with an extensive alumni network and reputation for excellence.

One track would be to work for a bank/investment house straight out of undergrad. You could expect to work for two years and 80+/- hour weeks of soul-crushing work as an Analyst in hopes of getting an offer for a third year.

Those who survive a third year in the analyst pool and who demonstrate the ability to grow into continued responsibilities are offered an Associate position with the promise of continued 80+/- hour weeks of soul crushing work.

The more common track is for individuals to receive an MBA, again from a bulge bracket business school with both reputational and networking strength, and apply/take a position as an Associate in the same bank/investment house as the Analyst track I just mentioned.

Both tracks are similar, but the MBA track allows you to skip the Analyst stage of investment banking. Unfortunately, you can’t skip the 80+/- hours per week of soul-crushing work.

Q: What makes RE banking unique compared to other banking groups? Also, I really hope you’ve worked past the soul-crushing work stage. It sounds depressing, but maybe because we haven’t talked comp yet.

There is nothing too different across industry groups other than the asset class and people who you are dealing with. Real estate companies tend to have an entrepreneurial family money component to them. Those people tend to be dynamic and a little more button-down.

I think we were all drawn to real estate for similar reasons, so prospective bankers should try to aim for the groups that interest them the most.

I am beginning to get past the soul-crushing stage, but only because I have done debt/equity workouts for the past two years. That means I am at the asset-level as opposed to the entity-level, for the most part, and tend to feel like I am accomplishing something other than busting out PowerPoint presentations for someone else at a rapid rate.

Q: That’s good to hear. So let’s discuss interviews. What can candidates expect during investment banking interviews?

The interview process for both tracks range from both informal gatherings and information sessions to several rounds of formal interviews with associates, VPs, directors and managing directors.

The informal gatherings and information sessions have the feel of “rush week” at any number of universities across the US. The intent is to provide information about the Analyst/Associate position and to a lesser extent begin to weed out individuals that have a lack of passion for the industry or maybe are unable to pass the “Do I want to spend 80+/- hours each week with this individual” test. While the information sessions won’t land you a job, a poor showing can mean you don’t make the cut for interviews.

Candidates who meet the requirements are usually invited to a “Super Saturday” round of interviews where all the qualified candidates from all the approved schools are flown to the bank’s headquarters for a weekend of interviews. These interviews are with a variety of banking professionals from the associate to the managing director level within the bank.

The interviews usually consist of interviewers remaining in a room and interviewees rotating between rooms for 20-30 minute interviews with one or two bankers. The process usually allows for the same group of interviewers to have time with the same group of interviewees.

These interviews can range from the informal (“Tell me a about your resume”) to the formal (“tell me how to solve for the Weighted Average Cost of Capital (WACC)”) and often dance quickly between the two as interviewers attempt to get a feel for the candidates.

At the end of each interview day, the group of interviewers meets and ranks the that particular day’s candidates and determines who should make it to the next round and who should not.

Banks usually have several rounds of “Super Saturdays” from which to create a highly qualified talent pool who will receive offers.

Q: Sounds like a long slog for anyone making through Super Saturdays. Assuming someone makes it past Super Saturdays, what is an average day/week like in the life of an investment banker?

The upside to banking is that no day/week is the same as the one before or the one after. You could be working on a capital markets transaction one week, preparing client pitches the next and getting assigned to an M&A deal the one after that.

The downside are those 80+/- hour weeks of soul-crushing work – week in, week out. You can expect to be in the office early and out of the office late. If you are on an active deal, not leaving the office at all is common. The work can be interesting, but be prepared for very long hours.

Q: Tell me a little about compensation (how does it compare to other jobs, how are bonuses determined, etc.)

Compensation usually has two components based on experience level: base salary and bonus. As bank’s grapple with the optics of excessive banker pay, the dynamic has shifted from lower base salaries and bonuses that were a multiple of the base to a structure with higher base salaries and smaller bonuses.

The shift ultimately benefited the bankers because their base salary (guaranteed) increased while their bonus, which is dependent on any number of inputs, decreased. Net-net total banker compensation has generally remained the same overall, but now with less annual volatility.

Coming out of undergrad you could expect to earn close to six figures your first year. Expect ~$200,000 the first year out of business school, including signing bonus. As with everything, the amounts above can vary between banks/investment houses.

Salaries will ramp up quickly with experience, as you can see the difference from an undergrad analyst to an MBA associate.

Q: Since bankers spend the majority of their waking hours at work, what’s the work culture like?

This depends to a great degree where you choose to work. Banks (even more so at investment houses) have well ingrained cultures that are difficult if not impossible to change. This is why you rarely see mergers between investment houses. Cultures can range from cordial to cut-throat.

More on hours: You can expect 80+/- hour weeks of soul crushing work even when “nothing is seemingly going on” that can quickly ramp up to 100+ hours/week with an active deal.

Bottom line, this industry is not for the faint of heart. You will not get much coddling or personal attention. You are there for one reason and one reason alone: production of a flawless work product as soon as it is demanded.

Q: How do you advance in the business and what is the hierarchy like?

I mentioned the undergrad analyst path earlier. As far as MBAs and Associates, you can expect to remain so for 3+ years. Your first year, which begins after graduating from business school and includes a training program, is referred to as your “stub” year.

Once you receive your first bonus in early spring you can expect an additional three years as an associate. Then the career track is vice president, director, managing director.

Q: Exit opportunities time! What do you do after real estate banking?

I was attracted (in part) to banking based on what I perceived to be the follow-on opportunities. Analysts and associates are always able to move between banks and from banks/investment houses to PE shops.

As responsibilities increase so do the opportunities to interact with clients. Those continued client interactions allow senior bankers to develop strong ties to senior management of the companies they serve. Those strong ties can often lead to employment opportunities at former clients.

There really are a lot of options available for those that want to exit to other areas of finance.

Q: Great info, thanks. Best of luck with your exit opps!