The following perspective on the 2016 investment research recruiting outlook is from Oliver Rolfe, who heads Spartan Partnership, a London-based executive search firm specializing in equities recruiting.
I have been skeptical about how much investment research will change in the wake of MiFID II, and now that the latest rules that have been leaked indicate that the impact will be much less than originally expected.
Before writing this piece the topic was going to be focused on the new regulations and what it could mean in Europe – but we can all see that change is coming and in some banks in Europe, the change has already come, even if you did not realise it.
There seems to be a shift, a change in the winds that has come from MiFID II and the new regulations. The market is changing, banks are changing and so are we. We have seen the likes of Liberum, Numis, Oriel/Stifel and Canaccord all make strategy changes. Some changes are big, some small, and one resulted in a CEO moving on. Additionally we have seen the likes of Jefferies and Exane BNP making cuts within the past month, and this will continue ahead of bonuses in other banks. We already have strong rumours of Deutsche & Barclays looking to shed a few festive pounds from their equities operations in the coming months.
The winds are changing but it is not for the worst. For years I have been beating the drum on being a specialist — delivering the best service and not following the pack. Finally I believe we are getting there. Banks are focusing on what they are good at, rather than where they believe they can make a good profit. The Tier 1 will still be the one stop shop for many but those with a pure focus and niche will really see an uptick in clients in the coming years.
Whilst the final MiFID II rules are still to be uncovered, it seems that the fear of over regulation has had more of an effect then MIFID II itself.
The hiring trend toward research analysts with established franchises is an enduring one, especially with the Tier 1 banks. JP Morgan, BoA-ML, Morgan Stanley, Citi to some extent, and especially UBS are focused on recruiting strong senior analysts. UBS have also hired Derek Capanna who moved to London from NYC to head global distribution from Deutsche.
This is not universal, however, because some of the smaller banks are following the Sanford Bernstein model of having a handful of stars with a number of juniors and some outsourced assistance. The star analysts keep the banks competitive, while the juniors keep the costs down and give opportunities for the best to rise to the top, and quickly, whilst the others could be destined for a life of being the bridesmaid and never the bride.
The mantra remains ‘do what you are best at doing.’ RBC has been streamlining its franchise after a small reshuffle which ended in Mark Sartori (Head of EU Equities) leaving the bank. Macquarie has been struggling to hire well in recent years and are slowly getting it right. If they can continue to do so then they will be a player on a global scale, although that is a fairly big IF at this stage. They have lost a number of their staff last year, including Anthony Bray (Head of Trading) and a number of analysts. Some of the commodities-oriented firms have belatedly woken up to the changes but may be too late to the game.
Compensation levels are still down from where they were pre-crisis even though hiring volumes were strong in 2015. The differential between the compensation offered by a Tier 1 bank and the compensation at lower tiered banks and niche boutiques has narrowed to the point where we are seeing phenomenal people going to boutiques. Especially when you consider a cash in-hand bonus over one that is differed between 3-5 years with clawbacks of up to, and above, 12 months. We have been involved in a number of instances over the past 6 months where we have moved star hires from the Tier 1’s to niche players as the packages are extremely compelling, the life balance is better and you can have much greater upside in the future.
The boutiques can offer deep industry expertise, which is attractive to the best and brightest analysts. Take Mediobanca, for example. They have the horsepower to attract top talent in their niche and with Mediobanca’s strong primary business they are a house I strongly back and having been backing for some time.
Boutiques also have the advantage of a more entrepreneurial environment, without the red tape associated with the large investment banks.
We are seeing a very strong crop of VP level talent, or at least we hope they are strong for everyone’s sake. This is a generation that was hired as juniors right after the financial crisis, and because the organizations were very lean, they had to come up the learning curve very quickly.
Pre-crisis, the organizations were very hierarchical, with the seniors mentoring the VPs and the VPs training the juniors. Post-crisis, the juniors were working more directly with the seniors, and the best are stronger for it.
Many of the VPs now have their own franchises and are hot tickets. A good example is Simon Toennessen who was hired to head Berenberg’s Captial Goods team in May from Credit Suisse where he had worked for five years. Berenberg also hired Rizk Maidi, a VP from Barclays Capital, to expand the team.
Every firm is leaner and probably more focused than they have ever been, but most firms are still hiring at least somewhere. Cash equities may not be highly profitable, but you cannot run an investment bank without it. Without research, you cannot do primary deals. Research has always been the bedrock of banking, and now we are seeing why. Cash Equities should wash its face, but it should also generate revenues throughout a bank/business that is very difficult to specifically quantify, hence the stigma attached to equities. They all believe that money is there just because of their efforts, not because of the larger organization. You can’t blame them though.
Our specialist firm is going into the new year with 25 to 30 retained or exclusive mandates, and that doesn’t capture all the mandates out there at the moment. 2015 was a busy year for recruiting, and 2016 is looking even busier.