Sunday, July 15, 2007

The conundrum continues

I wrote to my Kellogg alum interviewer about my consulting / i-banking dilemma. He strongly advised me not to go into i-banking, unless I didn't really want a life or didn't like my girlfriend too much. Moreover, "you don't really learn anything useful besides selling and of course Excel and Powerpoint".

He has a point. None of the i-banking books I read refute this, and I vividly remember asking an i-banking couple at Kellogg how much of "Monkey Business" is true. Their response: All of it.

Yes, the pay and coolness factor are luring, but --

1. Compensation in the first three years in consulting is actually pretty competitive with banking. Bonuses can tip the scale toward banking but these are subject to economic conditions, industry performance (which, as far as I understand, is under serious pressure in the post-Glass-Steagall era), and stellar individual performance. I'm sure I can survive at Goldman Stanley, but as a non-Finance hire I think I have to assume I will not be the top 1% performer.

Even if you were to assume generous bonuses, compensation per hour seems to be higher in consulting than in i-banking.

2. Kellogg is not a Finance school. At DAK, Kellogg students spun this as an advantage, because 'competition between students is less intense than for example at Columbia or Wharton', but I'm not sure I'm buying this. Yes, the bulge bracket firms allocate spots between the top-7 schools and competition for these spots is less at Kellogg than at other schools, but on the other hand Kellogg gets fewer spots than the other schools. Moreover, if this were really true, people would come to Kellogg because it would be easier to get into i-banking, and they don't.

3. I doubt if I can physically handle 100+ hour workweeks for months straight.

4. I do care about my girlfriend.

So, right now my cards are on consulting. Friends warn me for the incredibly hard work at the top consultants but, compared to i-banking, the 60-70 hours per week for consulting are actually light-weight.

Hidden door number three

My Kellogg interviewer works in an industry that is currently steaming hot: private equity. If you get in and do well in PE, compensation can make a Goldman Sachs MD look like a bum.

But there are other compelling reasons to consider PE. An investment bank has to do deals. A PE firm has to do good deals. I can certainly imagine that if your own money is at stake, your standard for what constitutes a sensible acquisition goes up a notch. And once the investment is made, you have to actually realize those synergies that looked so good on paper. In other words, becoming a good B.S. artist will not get you very far.

Of course, there are also plenty of downsides to a PE career. Positions are incredibly tough to obtain, especially for people without a finance background. Few if any PE firms recruit on campus, and the leading PE firms seem to consider only top performers at Harvard and Stanford. But, to quote Aleksey Vayner, "impossible is nothing", and through relentless networking it is possible to land a job.

But what worries me perhaps more than anything is the possible end of the current PE bubble. Influential publications like the Economist keep warning that the end of the private equity boom may be near. Rising interest rates are making acquisitions more expensive and debt-laden companies more vulnerable, regulators are trying to reign in these greedy asset strippers and bring an end to tax advantages, and successful PE firms are piling up cash with only so many deals in the market. In the 1980s it took one massive deal to go sour for the LBO craze to end. Who will be the RJR Nabisco of the 21st century?

I'm hardly qualified to judge, but I do know that I don't want to bet on job prospects in an overhyped industry. In the late 90s, the top i-banks and consultants had difficulty recruiting at the top business schools because everyone wanted to go into high-tech. Are PE firms the dot-coms of this decade?

I don't know. If someone does know, please tell me.

Meanwhile, I guess my conundrum continues...


sjj said...

Ah, Private Equity. The truth about the industry is only to be found out when on the MBA. As in - do the jobs exist beyond their own placed employees? Does it require 2-3 years IB experience? Is it just basically IB in disguise, but on balance sheet? I have my doubts if it is attainable to many of us, but it is well worth keeping an eye on.

Anonymous said...

Hey MBADutchie,

Thanks for leaving a comment on my site. Unfortunately I wasn't able to go to DAK (haven't even visited the campus at all) I was really interested in reading your commentary on the whole DAK weekend.

Very nice post on your concerns about i-banking. I've been thinking along the same lines as well. And after a lot of bottles of scotch, I have finally decided on going for consulting. what a cop out. haha

Drop me a line at if you want to discuss further. See you in Evanston