Top-tier investment banks are categorized into two groups: bulge bracket investment banks and elite boutique investment banks. The size difference is significant but the prestige is the same. You still have a chance to gain exposure to the similar big deals and mostly get paid a higher salary than working in bulge brackets.
1. What is an Elite Boutique Investment Bank?
Elite boutique investment bank is defined as a firm that does not conduct a full investment banking business but solely focuses on specific investment banking financial services, such as M&A advisory or restructuring. Compared to a bulge bracket, elite boutique is smaller in size, but usually advises on deals worth as much as the ones of a bulge bracket.
In the wake of the financial turmoil of 2008, former senior executives from bulge bracket banks moved out to build their own firms. The founders of famous elite boutique banks are typically reputed-banking experts on their specialization from bulge brackets.
Though the term goes along with “boutique”, the deals are not small. By contrast, they serve a wide range of large clients in their portfolio, with some deals worth up to $1 billion or greater.
That said, many of the renowned elite boutique banks were founded by top Wall Street bankers who decided not to work for too-big-to-fail firms to retain relationships with clients. Below are some top-tier elite boutique banks and their course of foundation:
- A group of Wall Street professionals including a former UBS banker and a former Morgan Stanley banker found Centerview Partners in 2006. Notwithstanding not having a long history of development like bulge brackets, Centerview Partners is in the top 10 most-coveted banking firms now, according to Vault.
- Liontree Advisors was another elite boutique bank founded by two UBS veterans, the firm focuses on media-related advisory.
- PJT Partners was named after Paul J.Taubman, an ex-Morgan Stanley banker. Although their biggest deal – Time Warner Cable-Comcast didn’t pan out, they have been handling various deals worth up to hundreds of millions of dollars.
2.1. Advantages of elite boutique investment banks
Elite boutiques are specialized investment banks. These firms are founded by bankers who used to work within an industry group or a product group at a larger investment bank for several years and saw an opportunity to provide better services that larger banks cannot offer. They differentiate themselves hinged on less complicated political culture, independence, and high-specialized attention due to the small number of deals.
Wanting to learn more about product groups and industry groups, check out this article: Investment Banking: The Industry Overview 101
#1. Structure: Elite boutiques are bound by less regulation and supervision
Since they do not offer a wide range of services impliciting a risk of conflicts of interests, they are rarely stringed by regulations and supervision to which a bulge bracket is subject.
In terms of personnel, learner teams and less multilevel supervision allows deals to go more smoothly than a bureaucracy laden bulge bracket. This explains why they often function more efficiently than a bulge bracket when it comes to a single deal.
#2. Independence: Elite boutiques are independent from a vast array of conflicts
Elite boutique banks solely offer advisory but don’t engage in sales and trading activities. Thus, they rarely struggle to weather a vast array of interest conflicts like large banks, hence the objective and unbiased opinions.
Despite the self-claiming “Chinese walls” of large investment banks, traditional bulge bracket banks which provide both financing and trading are considered to create conflicts of interests when involved in M&A advising.
#3. Advisory-specialized: Elite boutiques has higher specialization
Elite boutique banks mostly focus on M&A advising, so the specialization is higher. To maintain clients, they need to take every client seriously since their reputation is largely based on the performance of every deal.
From the perspective of clients, elite boutiques can provide them with advisory to the greatest extent. Unlike bulge brackets where human capital are assigned a handful of tasks, attention to advisory is a strength steering elite boutiques through fierce competition with bulge brackets.
2.2. Limitations of elite boutique investment banks
Though deemed the new stars on the rise, challenges and limitations await them as well.
#1. Undiversified services: Elite boutiques offer a narrow range of services
It is difficult for elite boutique banks to fulfill the promise to jump to the next level due to its specialization focus. They do not conduct a full range of services as bulge brackets do. At this point, their specialization means limitation.
Elite boutiques can be strong in M&A, but they don’t have sufficient capabilities to handle debt capital market and equity capital market, sales & trading, and equity research. In other words, they don’t have the same strengths elsewhere.
Some large clients want investment banks to act as professional underwriters, rather than just advisors. Underwriting means investment banks can provide services helping clients achieve two main objectives: advising on strategic transactions and distributing their stocks/companies to prospective buyers/investors. This is not what an elite boutique bank can do. They often seek help from large banks for very big deals. It’s more of a relationship benefiting both in the long term.
#2. Less global presence: The size prevents elite boutiques from having a presence in the global context
Most famous elite boutique investment banks are in the US. It’s difficult for them to set foot outside the US markets given their limited geography and confinement to specific industry sectors.
Outside US markets are still predominantly played by bulge bracket banks. With that said, elite boutiques can be very strong in a single specific industry and region, but hardly to become an all-star due to its size and structure.
#3. The risk of decision making is not diversified
The employment hierarchy involves way fewer employees and the reputation of the firm is largely built on the reputation of its owner. The deals going more quickly can put the bank at stake because of the undiversified decision making mechanics.
A bad decision can be devastating to the bank since it is based on the personal relationship between the partners and clients.
3. What Do Elite Boutique Investment Banks Do?
Elite boutique investment banks purely focus on advisory on strategic transactions, primarily doing M&A and restructuring. Compared with bulge brackets, elite boutiques are less sophisticated, without functions like sales & trading, asset management and wealth management. They are founded with several certain industry groups in which they have expertise.
If you want to learn more about the structure of a full-fledge investment bank, check out our article: Investment Banking: The Industry Overview 101
What elite boutiques do is the best definition you might have of how the original investment bank operated, before they became global financial titans as nowadays.
3.1. Elite boutiques wholly focus on M&A and restructuring
The two product groups of elite boutiques including M&A and restructuring are considered as the best teams, directly competing with bulge brackets.
Looking at the list of investment banks ranked by M&A deal volumes, Evercore and Lazard are in the top 10, despite the very much leaner teams and operations compared with bulge brackets in the list.
The top 3 elite boutiques including Evercore, Lazard, and Centerview often advise on M&A deals worth as much as billion dollars, but the total of deals are fewer than that of bulge brackets.
3.2. Elite boutiques handle very little financing and IPO advising
Strong as they are in particular product types as said, smaller teams prevent them from handling financing and IPO advisory. They do not have a strong capital market teams to advise on debt and equity issuances, or sales & trading division to fulfill underwriting deals.
In contrast, bulge brackets have it all. That’s why you never see a single elite boutique firm as the lead underwriter of the IPO. Most of the big IPOs in the US are still led by a syndicate of bulge bracket banks.
The three most prestigious elite boutique firms always in the top 10 are Evercore, Lazard, and Centerview, followed by PJT Partners, Qatalyst and LionTree. In reality, irrespective of where their rankings are, these firms are desired destinations of many target students and top MBA graduates due to the high compensation and the deal exposure.
Due to less global presence, an elite boutique can be very well known in a specific region, but will be less popular in other regions. Take Rothchild as an example, it’s a renowned elite boutique firm in Europe, but their activities in the US are limited, making it less well-known outside the EU markets.
Below is a list of most prestigious elite boutique according to Vault (the list consists of all types of banks but only elite boutiques are included)
- Evercore (#4)
- Centerview (#5)
- Lazard (#6)
- Moelis (#7)
- PJT Partners (#8)
- Perella Weinberg (#12)
- Rothschild (#17)
- Qatalyst (#19)
5. Elite Boutique Investment Banks Salary
On average, the base salary of a first-year analyst at an elite boutique bank starts at $95K a year. Moving up to associate level gives the banker 20% – 30% higher salary, at $120K – $130K. Elite boutique banks use a greater percentage of the deal fees to pay their employees, making an elite boutique banker’s salary higher than the bulge bracket’s.
Note: Many bulge brackets increase their base pay for junior levels such as analysts and associates. There’s still no data available about how elite boutique banks react to the increase. We’ll keep you posted once the data is available.
Put 10% higher salary aside, another key advantage of working for elite boutique investment banks is that they do not have the intention of deferring a large part of your bonus and using stock-based payment. That said, they are less bound by regulations and restrictions because they are “independent investment banks” or ”privately held investment banks”.
In contrast, most bulge brackets – publicly traded investment banks – use stock-based bonuses, partially to incentivize you to stay longer at the firm, and partially for regulatory reasons.
If you want to learn more about the salary topic, check out our following articles:
6.1. Pros of working for an elite boutique investment bank
- Better pay with 100% cash bonus: Elite boutique banks often pay 10% to 15% higher than bulge brackets at the analyst and associate level. In terms of bonus, they pay 100% in cash without an intention of paying the bonus in stock like bulge brackets.
- More interesting deal experience: Elite boutique banks have very fewer employees compared to bulge brackets. The teams are leaner and smaller, which means you have greater responsibilities for your deal and analysis. The specialization is higher and you do not need to spend much of your time on grunt work and various manual tasks.
- Growth opportunities: Your road to partner is less crowded. The career path at an elite boutique involves fewer mid-level people. You have more opportunities to directly work with higher levels at an elite boutique. This can be good for your growth.
- Great exit opportunities: You can exit to prestigious paths in the finance industry including mega fund private equity, and hedge funds. Or you can choose to stay at the bank to move up the career ladder with less mid levels in the hierarchy, which was elaborated in the previous bullet.
6.2. Cons of working for an elite boutique investment bank
- Weak brand name: Outside of the finance industry, elite boutiques are less well known. They also don’t have a variety of offices scattered in many regions. It can be your challenge if you no longer want to work in finance with the intention to switch to other industries.
- Less exposure to other deals rather than M&A or restructuring: An elite boutique only has expertise in a specific industry because that’s what their rainmaker specializes in. You might not be involved in as many industries or deals like bulge bracket people.
- Long working hours: You should expect to work around 70 to 90 hours a week just as bulge bracket people work. Since you have more responsibilities, your working hours might be worse than a bulge bracket banker.
- Fierce competition to win an offer: Smaller size means fewer job vacancies. Unlike a bulge bracket, an elite boutique hires far fewer people. The minimum requirements are usually: getting a very outstanding GPA, studying at target schools or top MBA programs, completing a handful of finance-related internships and starting early to win a spot here.
- Highly variable environment: The growth and deal flow of the firm are driven by the rainmaker while the succession plans seem less-systemized than bulge brackets. If the founder leaves or shifts focus, it can change the firm’s trajectory.
7. Should I Work for an Elite Boutique Investment Bank?
There will be a lot of factors to decide which types of firms fit you the most, but:
- If you are an undergraduate applying for an analyst position, a bulge bracket firm will be a better choice. Out of school the firm’s reputation will matter the most. Unlike bulge brackets, elite boutiques lack international recognition and presence. This can be challenging for you to work outside the finance careers, where most people have no idea of what elite boutiques are.
- If you are an MBA student applying for an associate position, then go for elite boutique firms. Assuming that as an MBA student, you acquire enough knowledge and skills to survive the employment, so the firm’s reputation will be less influential to your career. Working at elite boutiques gives you a higher salary with a 100% cash and bonus, allowing you to pay off your loan you have for the MBA program and to accumulate wealth more quickly. Note that you will not be tired of the political culture of bulge brackets because of less levels involved.
Of course, it’s just a reference. Choosing one over the other involves a lot more things. It’s still too soon to say which one you favor but it’s not soon to get prepared since getting into both types of firms is not an easy task. As long as you equip yourself with the best knowledge and skills, you will stand a higher chance of passing and selecting your favourite one.