Public Finance Investment Banking

1. What Is Public Finance Investment Banking?

Public finance investment banking refers to an industry group in the investment banking division. Its focus is on the public sector: state & local government, publicly-owned companies, and non-profit & educational institutions. Public finance is one of the most specialized groups in investment banking, working with very specific clients on equally specific deal types. This leads to some differences in scope of work and exit opportunities.

Clients of public finance investment banks are governments trying to find underwriters for their bonds, government-owned enterprises and non-profit & educational institutions looking for advisors to finance their debt and projects.

2. What Does a Public Finance Investment Banker Do?

Public finance investment bankers focus on three areas: underwriting municipal bonds, project finance and utilities & infrastructure. The areas are separate from each other, with their own groups and teams, but all encompass the same scope of work: public sector and tax-exempt entities.

Therefore, public finance bankers will not do “conventional” banking work like valuation and modeling, but will mainly work on bond underwritings. M&A deals are also limited, sometimes non-existent, because takeovers are rare in the public sector.

2.1. Public finance bankers underwrite government/municipal bonds

Investment banks help local governments underwrite debt required to build roads, bridges, airports and other public assets, or to refinance existing debt. The scope of work is similar to a debt capital market group, albeit with different clients.

Bulge bracket banks are sometimes underwriters for treasury (government) bonds, thanks to their scale and reputation. Smaller boutique banks mainly underwrite local (municipal) bonds for the local governments.

2.2. They also work in project finance…

Project finance involves the public funding of infrastructure and other long-term, capital-intensive projects. These projects are funded by both debt and equity, and the banks may serve as advisors or lenders to the deal.

Project finance is not strictly for tax-exempt entities. Sometimes banks deal with private sector clients. That is why project finance is usually a separate group.

2.3. …and utilities & infrastructure

Investment banks advise utilities & infrastructure companies on M&A and underwriting debt and equity. Similar to project finance, utilities & infrastructure groups can work with both public and private sectors.

This group is the most similar to a normal investment banking division, with regular deals, valuation and modeling for the private sector. For the public sector, you will work only on debt underwriting.

3. Salaries & Compensations for Public Finance Investment Banking

Salary for public finance investment banking positions in bulge brackets starts at $100k for first-year analysts, with up to 100% year-end bonuses, bringing total compensation to $150k-200k. For associates, annual base pay starts at $150k, and total compensation ranges from $250k up to $400k. 

VP positions can earn as much as $1 million annually, and for MD, that number easily goes to the multi-million. 

Bonuses for public finance banking tend to be lower than normal investment banking because of lower fees. For political reasons, the group receives only about 10% fees compared to other industry groups. Government can pay high fees, but doing so may cause public disapproval.

Hours are slightly better compared to normal banking, but you will still work 70 hours a week with occasional weekend work.

Here’s a table to sum everything up:

4. Exit Opportunities for Public Finance Investment Banking

Public finance investment banking exit opportunities are limited since the group is extremely niche. Hedge funds, public sector, government bodies or other investment banking industry groups are the most viable choices. Standard exits like private equity or venture capital are uncommon, due to the difference in work nature

With all the knowledge from bond deals and bond underwritings, fixed-income hedge funds should be the best exit for public finance bankers. Other funds that trade municipal and sovereign bonds are also decent choices.

Joining your client in the public sector (government-owned enterprises) is also good if you are looking for new experience. If you want to focus on policies, government bodies like central banks and the department of treasury/finance ministry are possible exits. However, this path is only possible if you have held senior positions.

Federal Reserve chairman Jerome Powell was an investment banker in the 80s

Rishi Sunak, Chancellor of the Exchequer, worked for Goldman Sachs from 2001 to 2004

Debt capital market investment banking is another choice if you want to continue pursuing IB, since you have already worked with bonds a lot in public finance. 

Other standard exits like private equity and venture capital are possible, but uncommon, because the underwriting deals you do in public finance IB do not align with M&A and LBO deals on the PE and VC sector. You can still get into these industries if you work in utilities and infrastructure, which give you more exposure to normal IB deals.

5. Top Public Finance Investment Banking Firms (2021)

Public finance investment banking league table:

1. Goldman Sachs
2. Morgan Stanley
3. JPMorgan
4. Bank of America 
5. Citigroup
6. Barclays
7. UBS
8. Oppenheimer
9. Hilltop
10. Piper Sandler

Bulge bracket banks are still the top public finance investment banks thanks to their size and reputation. Goldman Sachs, Morgan Stanley, JPMorgan, Barclays all have dedicated public finance groups.

Middle market and boutique banks also hold a certain number of deals. Oppenheimer, Piper Sandler are the most involved with the public sector. Hilltop is one of the few names that specialize only in public finance, calling itself a municipal investment bank.

Other than these big names, numerous public finance investment banks are local/regional boutiques, serving only in their respective regions.

6. Pros and Cons of Public Finance Investment Banking

6.1. Benefits of public finance investment banking

The pros of public finance IB can be wrapped as:

• Good to break in government organizations
• “Slightly” better work-life balance
• Easier to break in with a large number of firms

Public finance investment banking is a good entry point if you are looking to get into civil services. As mentioned, after banking, you can move into finance-related government bodies like the Federal Reserve, or the Department of Treasury if you are interested in policies. 

Work-life balance is slightly better than normal banking, but not by that much. You are not going to work a 9-to-5 like in the public sector, though the pay is obviously higher.

Also, since there is always demand from local governments to issue bonds or finance new projects, there are numerous public finance boutiques. They can be a good place to start your banking career.

6.2. Drawbacks of public finance investment banking

The cons of public finance IB can be wrapped as:

• Limited exit opportunities
• Lack of deal variety
• Work scope can be boring compared to normal investment banking

Public finance only guarantees you exits in debt capital market investment banking, fixed-income funds and the public sector. The choices are much more limited than what you would get from traditional investment banking divisions.

You will also work mostly on debt issuance and bond underwriting, which can get boring after you have done it for so long.

7. Public Finance Investment Banking Career Ladder

In public finance investment banking, you will start as an analyst. After two or three years, you are promoted to associate. Spend two to three years more and you get to the vice president level. There, with excellent performance, you might be able to reach the director or managing director level.

In more junior levels, your job will be mainly on the administrative tasks such as tracking buyers and sellers, managing the data room and deal documents, and responding to requests from clients and potential clients. The hours are also the worst. Expect to work anywhere from 70-80 hours, though public finance IB can get a bit easier on time.

As vice president, you’ll truly get to work on deals. You get more exposure with clients and communicate directly with directors and managing directors. Most bankers reach vice president and never move up to directors. 

As you move up the ladder, your work/life balance also gets easier. You may have time for other personal ventures.

GS MD Jim Donovan is an adjunct professor at the University of Virginia School of Law

GS CEO David Solomon is a part-time DJ. He dubs himself DJ D-Sol

8. How to Get Into Public Finance Investment Banking?

Getting into investment banking is a long and enduring process. You have to do everything from tailoring your resume, gaining relevant finance experience, to networking past the screening round. After all of that hard work, the interviews are your final obstacle between you and that dream job. You will spend months, even years to prepare, but with hard work and determination, anything is possible.

Step 1: Gain finance-related experience

Getting public finance experience is rather difficult as an undergraduate, since not many government-owned enterprises or finance-related government bodies offer internships, so you should focus on relevant experience from investment banking or fixed-income fund internships. Attending public finance-related classes and joining banking student societies also help.

As a recent grad, you will need a full time job that is related to finance. For MBA students, if your full-time experience is not related to finance, then you should do a pre-MBA internship before the MBA begins.

Step 2: Build an investment banking resume

The resume round is where 60% of candidates are eliminated, so tailoring yours to make you stand out is a crucial task. Bankers only spend a few seconds scanning a resume, so find what the bank wants, and show that you possess the attributes of an investment banker. Normally in your resume, show that you have:

• Proof of academic excellence: You went to a target school, had great GPA, graduated with honors
• Qualities of an investment bankers: You have strong numerical and analytical ability, have great teamwork/leadership and communication/interpersonal skills
• Interest in finance: You’ve done finance internships, did multiple finance courses, earned finance certifications, traded stocks, participated in finance competitions, etc.

The key to get your resume passed is to make it stand out. For more on that, visit BankingPrep’s article on how to write a banking resume here.

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Step 3: Network to pass through the screening round

One of the most important parts of networking is to push your resume through the screening round. There can be thousands of resumes just like yours: Ivy League, 3.7 GPA, Honors, etc. Knowing someone personally from the bank can really make a difference.

Try to focus on your school’s alumni first so both have a connection. Find them on LinkedIn and your school database, and email them to ask about the recruitment process or conduct informational interviews. 

Cold calling and cold emailing to ask directly for a job can work, but should only be used as a last resort. 

Start your networking effort as soon as possible, since now the recruiting process is so accelerated it’s crazy how early you have to get ready for it. You might even have to decide from year 1 if you want to pursue banking or not just to catch up with recruitment.

For more networking tips, visit another BankingPrep’s article here. 

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Step 4: Complete the interview process

You will face two rounds of interview before getting an offer: the HireVue and the Superday. HireVue will focus on “fit” questions like why public finance investment banking, why us, your strengths and weaknesses, etc. Try to be professional, articulately answer all the questions and you should be able to proceed to the next round.

The final interview round is called the Superday (Assessment Center in Europe). This is where your technical abilities and your mental stamina are tested to the limit. Candidates will have to get through an intense interview day (simulating real working pressure of a banker) with a myriad of questions hinged on their respective division. You may have to face up to 10 interviews in just one single day, so be well prepared for that.