1. What Exactly are Boutique Investment Banks?
Since they are “boutique”, does that mean they have got something to do with “small”? Small size? Small deals? Small range? Even small compensation?!
Well, it is not always the case, but here is a simplified version if you need one.
|Definition: A boutique investment bank can be broadly defined as a firm that DOES NOT offer FULL-SERVICE investment banking, but AT LEAST ONE investment banking financial service. Being an employee at boutique investment banks means you will mostly work on Mergers & Acquisitions or Restructuring instead of Equity Capital Market and Debt Capital Market.|
2. Investment Banks: Boutique vs. Bulge Bracket vs. Middle Market
To get a better sense of where boutique investment banks are in the banking industry, we first need to know the number of types of investment banks. As a matter of fact, every classification consists of more or less subjectivity. This one is no exception.
People can have as many types of investment banks as they want, but at the end of the day, a bank is either:
- a bulge bracket investment bank, or
- a boutique investment bank; but if it doesn’t fit both, then it’s
- a middle market investment bank
2.1 Bulge Bracket Investment Banks: The Superstars
Bulge Bracket Investment Banks are the household names that everyone recognizes. They are the global titans of the financial world with thousands of employees and hundreds of locations distributed worldwide.
Give me some really big names then!
- Goldman Sachs
- JPMorgan Chase
- Morgan Stanley
- Credit Suisse
- Deutsche Bank
- Wells Fargo
- UBS Group
- Bank of America Merrill Lynch
If you are a fresh investment banking graduate, getting a job offer from any of these 10 banks is definitely your dream-come-true. Multibillion-dollar deals and Fortune 500, if not Fortune 100, clients are the words you hear most often about them. Whatever financial service is desired, they can satisfy.
2.2 Boutique Investment Banks: The Rising Stars
Turning down a job offer from JP Morgan or Goldman Sachs for a smaller bank? That sounds completely CRAZY! But it only sounds crazy until the ascendancy of boutique investment banks.
In the aftermath of the Great Financial Crisis in 2008, rising unemployment and dwindling faith in banking giants inclined numerous high-profile senior bankers in bulge bracket firms to leave and establish their own boutique banks. At the same time, the outsourcing of all non-core aspects thanks to technological advancements makes it easier for one or few individuals to run a boutique bank.
Putting the history aside, is there anything so unique about boutique investment banks?
Well, sometimes, LESS is MORE. Boutique investment banks:
- provide fewer services, but they are more specialized and industry-focused
- are small in size, but some of their deals are huge cash
- are not international, but they are regionally recognized
Yet, in general, if deals of bulge bracket banks are usually worth $500 million or above, the majority of boutique banks often handle deals worth $50 million, with a few worth up to $500 million.
2.3 Middle Market Investment Banks: Not That Big but Obviously Not Small
People usually want a clear-cut division between big and small, but the reality is not always just black and white. That is why middle market investment banks exist.
A simple definition of a middle market bank is an investment bank that lies between a bulge bracket and a boutique bank. They offer more services than just Mergers and Acquisitions and Restructuring, like Equity Capital Market and Debt Capital Market, but their deal sizes are worth less than that of a bulge bracket one (normally from $50 million to $500 million).
Some more distinguishable features, please!
- Middle market banks have a firm reputation in their home countries with offices spanning across multiple regions, but their international reputation is nothing compared to bulge bracket banks.
- The service range is wider than boutique banks, but the diversity and strength are not as good as bulge bracket banks either.
- Sales and Trading and Equity Research are their most significant services besides investment banking product groups.
- Exit opportunities, although brighter than boutique banks, are still somewhat limited with entry into small or mid-size private equity and hedge fund firms. Corporate finance, however, is a good fit for this category.
3. Is There Only One Type of “Boutique”?
Of course, the answer is NO!
Since any bank that offers at least one type of financial service can be classified as a “boutique”, there are thousands of boutiques out there. Thus, three major categories of boutiques that everyone should know to enter the banking industry are:
- Elite Boutique Investment Banks (EBs)
- Industry-specific Boutique Investment Banks (ISBs)
- Regional Boutique Investment Banks (RBs)
There are, for sure, some overlappings in this classification, but each category does possess a clear set of different specifications.
3.1 Elite Boutique Investment Banks (EBs)
Many founders of these elite boutiques are senior bankers from bulge banks, so they can leverage their expansive network and great expertise to focus on the areas of their strengths.
- EBs are called “elite” because their deals are AS BIG AS the bulge bracket banks. (over $1 billion to up to the tens of billions of USD).
- While bulge bracket banks have thousands of employees, the employee pool of elite banks is much smaller.
- Despite having operations in multiple regions, they are usually stronger in some regions than the others.
- Similarly, they might provide a full range of services but are strong in only one or few services.
3.2 Industry-specific Investment Banks (ISBs)
Industry-specific boutiques are simply banks that work on multiple deal types but specialize in a specific industry.
- Their clients are usually companies in the same industry and work on an ongoing basis
- Headcount, geographic location, and deal size are much smaller than EBs and bulge bracket banks.
- Due to their small size but great expertise, they are attractive acquisition targets for big banks to scale or offset their weaknesses
Big and common industry groups include:
- Energy and Power
- Consumer Products and Services
- Media and Entertainment
- Real Estate
- Government and Agencies
3.3 Regional Boutique Investment Banks (RBs)
When experts talk about “boutique”, most of the time they mean “regional”. If industry-specific boutiques (ISBs) operate industry-wise, then regional boutiques (RBs) operate region-wise.
- Headcount can vary from 5 – 50 employees to a few hundred, but the scale is still very small
- Operating regionally means they only have 1 or 2 offices
- Their deal size is at the bottom of the broad (usually under $50 million), and exceptions are rare.
4. How Can I Distinguish?
It’s hard to remember all of them. Is there a shortcut to decide which category a bank belongs to?
|Elite Boutique IB||Industry-specific Boutique IB||Regional Boutique IB|
|$1 billion or above||$50 million – $500 million||$50 million or below|
|M&A or Restructuring||M&A or Restructuring||M&A or Restructuring|
|Multiple||One or two||Multiple|
|5 or more offices||Less than 5 offices||Less than 5 offices|
|50 – 250 employees||50 – 250 employees||Under 50 employees|
|90 – 100 hours or more||Varies (as high as 90 – 100 hours or as low as 50 – 70 hours)||50 – 70 hours|
|Highly prospective (Private Equity/Hedge Fund)||Limited/Unclear||Limited/Unclear|
5. Top Boutique Investment Banks: Give Me a List Then?
Just looking at the table above, you can conclude that the top boutique investment banks are usually elite boutique investment banks. However, ranking them is not that easy.
- First of all, there is high volatility in the spectrum of boutique investment banks. While the general assumption is that top boutique investment banks – or elite boutiques – process M&A deals with similar dollar volume as the bulge bracket banks, the number of total deals can range from under 100 to a few hundred.
- This implies that a few big deals can toss the entire ranking. One firm can skyrocket a few tenth ranks from one year to another.
- For example, Dyal Co ranked 52 in 2018 but landed in the 19th rank in 2019
- Secondly, consistency matters. Judging from the M&A League Table over the past 10 years, there are only a few names that can keep its place in the top 10 on a global scale. They are Evercore, Lazard, Centerview, and probably Rothschild. Others just fluctuate year from year.
- TD Securities barely made it to the top 20 in 2019, but the firm was nowhere to be found in the League Table in 2018.
- Moelis & Company secured its spot in the top 15 banks globally in 2019 but did not make it in 2018 as it only ranked 22.
- Thirdly, longevity also matters. New firms like Dyal Co, LionTree, or Robey Warshaw might have advised on big deals which resulted in massive revenue growth and a boost in ranking, but they are too young to prove anything.
- LionTree was founded in 2012 and Robey Warshaw was founded in 2014 while Dyal Co is just 4 years old ( founded in 2016)
- Lastly, ranking by total deal volume is not always the best measurement.
- Greenhill and BDT Co, for example, got themselves quite large of a deal (more than $1 billion), but they barely landed in the top 20 globally.
6. Elite Boutique Investment Banks vs. Bulge Bracket Investment Banks
Maybe, maybe NOT!
Be it bulge bracket or elite boutique, the first qualification you need to successfully apply for both categories is an extremely competitive profile.
Once this requirement is satisfied, elite boutique investment banks are highly desirable because:
- Cash Compensation Can Be Much Higher Than Bulge Brackets: even as an analyst, the total compensation (base + bonus) of elite boutiques are higher than bulge bracket banks as they are mostly private companies with no intention of using stock as payment or defer compensation to senior managers like big banks.
- The more you climb up the investment banking ladder, the wider the difference between the bulge bracket and the elite in terms of cash
- We all know that global banks like Goldman Sachs or Bank of America pay big cash and bonuses, but they are nothing compared to William Blair and Jefferies. In 2018, Goldman Sachs’ and Bank of America’ base salary for Vice President were $188.3 and $213.3 thousand respectively, but Jefferies’s was almost $300 thousand, almost 40% higher.William Blair was extremely generous when paying double the amount of bonus for Vice President ($370 thousand) compared to Goldman Sachs and Bank of America ($166.1 and $146.3 thousand)
- Bonus for an Analyst in PJT Partner was even higher than base salary and bonuses of all bulge bracket banks (except for USB Group)
- Great Exit Opportunities: when it comes to exit opportunities, brand awareness is always the first criteria. Being the top in their areas, elite boutiques can make you a competitive candidate for future entry into private equity and hedge fund roles.
- “Niche sector teams line up very nicely for juniors to move into private equity and venture capital,” said Michael Pringle – a former head of equities at Citigroup
- Deal Experiences Are More Exciting: smaller teams usually equate to bigger responsibility for each member in a deal. You will work less with boring administrative tasks like putting in weeks of work on deals that are never even looked at but still required by bulge bracket banks’ “volume of data is king” model. The majority of time will be spent on execution and origination is much more valued.
- Politics-free Culture: putting work-life balance aside, working in smaller team sizes means a closer-knit atmosphere and more human-to-human, not cog-to-cog, interactions with one another.
- Higher chance of getting a full-time offer: the chance of interns getting a full-time offer from an elite boutique bank is surprisingly better compared to a bulge bracket bank. Imagine fighting so hard for both banks, but one is more likely to let you go than the other, which one will you choose?
- While 90% of interns received the offer from Perella Weinberg Partners, only 80% received a full-time offer from Wells Fargo. -> This is 10 more spots supposing there are 100 interns!
Great as it may seem. Working at an elite boutique investment bank is not as fabulous as it looks because:
- ZERO (almost) brand awareness outside the finance industry.
“I’m fed up with finance! Let’s explore other industries.”
“What if I want to work in a tech company?”
“What about government jobs?”
- Well, you had better get yourself great connections to land one in those industries.
- Limited Alumni Network: 10% of 100 is surely much smaller than 10% of 1000 or 10000. The depth and breadth of your network at a small-scale bank will not be as great as that in a big bank.
- Average Deal Still Smaller: as one or two mega-deals can tweak the whole ranking, the likelihood of advising on multiple less significant deals is still bigger than working in bulge bracket banks. The easiest way to confirm this is to look at elite boutique investment banks’ “Recent Transactions” pages.
- New York City Working Experience is great! But there is no guarantee you will get the opportunity to work there. Conditions in regional offices or low-volume industries are extremely variable and unclear in elite boutiques.
- Few hiring and hard interview equal extreme competition to win internships, let alone getting a job offer. Since their scales are small, elite boutiques can afford to hire only a few hundred entry-level employees worldwide while bulge bracket banks can hire thousands or more.
- Losing key people is a potential risk as they are the heart and soul of the banks. Without their network and expertise, deals flow might be on the rocks.
If you are competitive for neither, let’s not worry about that and start with a solid foundation of networking and banking 101.
7. Pros and Cons of Working for Boutique Investment Banks
- Timing: even though it is you must start early on your way to secure an investment banking position, boutique investment banks are more lenient if you happen to be late or change your mind during your career path.
- Working hours: the likelihood of having a deal that is due the next 24 hours is much less compared to big banks while you might even have the privilege of working more like a human with a 60 – 70 hours working schedule
- Culture: internal politics is something you hardly ever have to deal with in boutique investment banks. If you cannot stand the bureaucracy, this might be your place.
- Exposure: early direct access to executive levels and clients are what entry-level employees can get as they usually take on more responsibilities and challenging roles than newcomers at a big bank.
- Sometimes, a whole project is YOURS!
- Exposure: direct exposure to clients is not always better if deals are small and simple. If the scale is too small, you will not gain much experience or technical skills.
- Alumni network: is actually just as important as when you first apply for a job. Boutique investment banks, due to their small size and scale, cannot provide you with connections in multiple locations.
- Compensation: is complicated and unclear. For some, if you close many deals, your cash compensation can be higher than at large banks. But most of the time, bonuses are significantly lower.
- Exit opportunities: reputation and experience with big deals are the main criteria when it comes to exit opportunities. Without big names like elite boutique investment banks, your chance of getting into Private Equity or Hedge Fund firms is minimal.
- Highly variable and unclear: is the word best for describing boutique investment banks’ culture, hours, experience, and salary.
- QUICK FACT: It’s HARDER to find information about boutiques than big banks.
- Job Security: There is no 100% guarantee of job security. Bulge bracket banks, however, have greater ability and resources to move employees around thanks to their global scale and diversified divisions worldwide. In times of hardship or financial depression, boutiques usually have no choice but to downsize or even close their business.
8. Are Boutique Investment Banks for Me?
If You Are an Early Bird with Excellent Networking Skills, then
- Probably NOT! Why go for something less if you can head for bulge bracket investment banks first
- Research, practice, and prepare yourself with a full and comprehensive investment banking package to land a prestigious internship that can lead to full-time offers
If You Are a Late-Starter and Badly Want to be An Investment Banker, then
- YES! This is your golden egg!
- Recruitment for a boutique investment bank is much less competitive than bulge brackets, of course except for elite boutique investment banks.
- A small tip: Aggressive cold calling and emailing is the way to go for winning interviews and offers if you have ZERO internship experience or are late in the networking game
If You Are Tired of Dealing with the Politics in Bureaucratic Firms and Wanting a Better Lifestyle and Independence, then
- YES! Life in boutique investment banks are more breathable with fewer working hours and fewer people means fewer workplace drama to deal with.
If You Are Climbing Half-Way in the Investment Banking Ladder (Associates, Vice Presidents, or Directors), then
- Probably NOT!
- A small pool of employees and few owners equate to no vacancy for a top position.
- The compensation varies a lot with no guarantee of a promotion due to mostly “profit-sharing” plans
- Simple and small deals also mean no big cash or big reputation
- Unclear and limited exit opportunities is not a good sign for that much efforts you have poured in
That’s said, whoever you are, it’s never enough to equip yourself with the best knowledge before making the final decision!