Tuesday, November 13, 2012

The Investment Banking Hierarchy - Managing Directors

This is the final post in my Investment Banking Hierarchy series and will cover those at the top of the food chain - the Managing Directors.  So far we have covered the Analysts, the Associates, the Vice Presidents and the Directors.  This post will cover the role, remuneration, work life balance and responsibilities of the Managing Director at an investment bank.

Overview - Managing Directors

Managing Director is the top title within almost every investment banking franchise.  They are the position that university and college students think and dream of when they apply for the world of investment banking.

They have one role only - to bring in deals and generate fees for the bank.  They typically have years of experience in the markets and are relied on by their clients for their advice in dealing with the capital markets and on strategy for mergers and acquisitions.  Although they are rarely involved in the nitty gritty of the deal - they will almost always be all over the details because they will be the face the client most often sees.  A Managing Director's most important asset are their clients and they protect them jealously.

Like Directors, the name is a little bit of a misnomer.  In regular organisations there is only one Managing Director and it is often used as an alternative title for the CEO.  However in Investment Banks it is a much more common term.  There are many Managing Directors in a global investment bank however they are still top of the investment banking food chain.

Where do they come from?

Almost all of the time a Managing Director will be a promote from a Director within the investment bank.  The process of promotion is a long an arduous one for most Directors and requires them to earn a certain amount in fees consistently for the bank before they are promoted to the role of Managing Director.

I say almost always because there are a few individuals who have so much market experience and so many industry contacts that they are hired into the investment banks directly as Managing Directors.  This is very unusual however I know of one such case and the person was so influential in the market and had such an amazing amount of contacts that there was no way that he could have been hired at any other level.

The Managing Director years

Almost all other points in the Investment Banking hierarchy involve the staff member working towards that next step and developing skills so that they get the next big promotion.  However Managing Directors are at the top of the food chain - their role is pretty static.

To get to the stage of being a Managing Director, one must have a significant number of clients who are already generating fees.  Managing Directors are there to present ideas to clients that would benefit them (and generate more fees for the investment bank).

Typically their days are spent looking over pitches prepared by the bankers in their team (right from analysts to directors), refining them and presenting them.  Although they will rarely get involved in the execution of the deal, they are the communicator for the bank and they will often be involved in negotiations for mergers and acquisitions as the 'face' of the investment bank.

Pay / Work Life Balance / Exit Opportunities

Pay.  Managing Directors get paid an absolutely ludicrous amount of money.  I always knew this though it was always a bit of a guess what the number actually was.  Things float down the grapevine and apparently in a good year they can make between $5 million and $10 million.

Their pay is highly variable and tied to how much they generate in fees.  Although their base pay is high, I can't imagine it is much higher than a Director (though again have never actually got hard figures on this).  Having seen several MD's houses though, it looks like there are more good years than bad!

Work Life Balance.  Managing Directors are ALWAYS travelling.  This may sound very appealing to a college graduate looking to start their career, but if you had a family I imagine it would not be as good.  If I saw my MD in the office for 2 days in a week it meant he was having a REALLY quiet week.

Other than that though their life is pretty sweet.  They are the closest an investment banker will ever get to working 'normal' hours.  They will generally start at 9 and finish at 6 although they may stay a bit later if something is really going down to the line.  If an MD is working 'late' though you know that everyone else is getting absolutely shafted.

Exit opportunities.  Managing Directors are absolutely locked in to the investment bank that they work at.  A large proportion (think 50 - 60%) of their bonus is locked up for 3 - 5 years (depending on the bank) and they lose it all if they leave.  You can do the maths based on the estimated bonuses above with respect to how much they actually stand to lose if they leave the bank.

Within the bank though there is a definite hierarchy of Managing Directors.  They often get promoted into management type positions.  The more grandiose the title - the higher up they typically are on that scale.  You have product heads for countries and regions (e.g. head of M&A for Australia) etc, country heads, regional heads etc.

Outside of this however there is little scope for Managing Directors to move and let's be honest, if you were making that kind of money for those kind of hours and had already put in the years of effort required to make it to the top of the food chain - why would you move?

You May Also Be Interested In
The Investment Banking Hierarchy - Directors
The Investment Banking Hierarchy - Vice Presidents
The Investment Banking Hierarchy - Associates
The Investment Banking Hierarchy - The Analysts
Investment Banking - All Topics

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