Investment Banking Exit Opportunities

1. What Are The Exit Opportunities for Investment Bankers?

After investment banking, the eight best careers you can get yourself into are: private equity, hedge fund, venture capital, corporate finance, corporate development, the public sector, start-up and MBA. Most of these post-banking jobs have better work-life balance and better pay, though that might not be the case for corporate finance and corporate development. The best possible exit opportunities are only available if you’ve worked for either a bulge bracket or an elite boutique bank.

1.1. Exit option 1: Private equity

Private equity refers to investment funds that raise capital from limited partners such as pension funds or insurance companies to invest in matured companies, typically those in distress in traditional industries. PE firms often buy majority stakes (>50% ownership) of said companies, restructure them to improve profitability, then sell them for profit through an M&A (total exit) or bring them public through an IPO (partial exit).

Private equity is the standard exit for most bankers, mainly because PE firms recruit directly from large banks through on-cycle recruiting, which starts a few months after you start your job as an investment banking analyst. However, private equity firms would most prefer bankers with M&A backgrounds.

Your asset to succeed in private equity: The extensive deal experience you have since the banking days will be your most valuable asset, especially if you work in the investment banking division. This is also the same reason why PE firms themselves seek out new recruits at investment banks.

Your challenges in private equity: The job scope is much wider. You have to manage multiple operations, from financial modeling, working with portfolio companies, to deal sourcing and execution. As you move up the ladder, you are also responsible for tasks like deciding on deals, and managing limited partners’ relationships.

But why private equity?

#1. Private equity folks earn higher salary plus carried interests

On average, you’ll earn some 20 – 30% more in private equity at equivalent levels, not to mention the hefty carry you receive from successful deals (though this only comes at senior associate levels). This is the main reason why bankers move to private equity in the first place. Here’s a salary table so you can get the idea:

If you want to know more about PE salary, visit BankingPrep’s article here.

#2. The working hours are better but…

Work-life balance in private equity is somewhat better than investment banking, but it’s not a drastic improvement. You’ll usually spend some 70 hours per week at work instead of 80 – 100. The best part of private equity is that you’ll have less pending work on weekends, which is not the same thing you can say with investment banking.

#3. You get to seriously work on deals

In private equity, you now truly get involved with deals, from the early processes like deal sourcing, scouring places looking for companies to buy, to modeling, valuation, due diligence, strategy, to the eventual exit. You will also work directly with the portfolio companies over time to improve their profitability. The work on the buy-side is much deeper than on the sell-side, and you’ll get a better sense of involvement in every deal.

#4. Advancement is less of an issue compared to investment banking

Private equity firms have fewer staff, so politics is less of an issue unlike big investment banks. Your performance will be the most significant factor. The hierarchy is also flatter, and you’ll get to work with seniors right from the start. Perform well and impress them, you can easily move up the career ladder.

But why not private equity?

#1. Private equity is quite hard to get into

Private equity is basically reserved for analysts at top investment banks, and firms rarely hire anyone other than those. It’s even harder if you are a late-starter or a job hopper. So if you’re looking to move to PE from boutique or middle market investment banks, your path will be rough, especially if you’re aiming for mega-funds. Middle market funds? Your chances are okay, but not necessarily good.

#2. As you move up, you have to invest back in the firm

This is called co-investment, and is why senior positions earn so much in carry. You have to put your own money back in the firm to have “skin in the game” (which basically means you are directly involved with the firm, and are liable if it is failing). So if you do well and bring profit, you’ll also earn a lot, if not, then your money also goes down the drain.

#3. Private equity doesn’t offer many exit opportunities

Though private equity itself is an exit option, if you don’t feel like working in the industry anymore, you can join others like venture capital, hedge funds, corporate finance, or study for an MBA. You can even move back to banking if you like.

1.2. Exit option 2: Hedge fund

Hedge funds are investment funds that raise capital from limited partners to invest, trade and speculate wide ranges of liquid assets, such as stocks, bonds, currencies and derivatives. They use complex algorithms and well-tested risk management techniques to secure the highest rate of return regardless of the market conditions. Hedge funds’ investments are mostly short-term, to take advantage of market inefficiencies

Hedge funds will be very different from what you do in private equity: You are not dealing with entire companies, but rather a small, liquid part of it. Experience in trading will be helpful, because that’s what you will primarily do. More specifically, you’ll take advantage of arbitrage markets and price discrepancies to make the highest returns.

Your asset to succeed in hedge funds: Though deal experience won’t matter, your analytical skills and knowledge about the financial markets will push you far in the hedge funds careers. Market sensitivity and experience in investing/trading will also help. Each hedge fund will also have its own strategies, and will favor candidates suitable for those.

Your challenge in hedge funds: Your deal experience won’t help you go far in hedge funds because hedge funds’ investments tend to be very short-term (a few months, even a few days, instead of years). Hedge funds also favor people with trading/investing experience on the market, so if you haven’t traded/invested, you may struggle to get used to the way hedge funds operate.

So why hedge funds?

#1. Paydays are even better than private equity

In hedge funds, you can earn anywhere from 300K to 500K right at junior levels, much higher than private equity and investment banking, because salaries are based on your performance. The more money you bring in, the more money you take home. Very simple.

#2. You get to deal with different asset classes

In investment banking and private equity, you are mostly dealing with companies, or more specifically, equities (sometimes with bonds, if you’re in the debt capital market in the IBD). In hedge funds, you can get exposed to a much wider range of assets, from equities, bonds, to currencies, commodities and derivatives.

#3. Easier advancement compared to investment banking 

Hedge funds are usually very small, and not as structured and bureaucratic as investment banks. It boils down to performance once more: The better you do, the faster you progress. Getting to MD in a few years is possible, as long as you do well. But don’t expect moving up will be easy. There are hundreds of people just as promising as you are, but only a few portfolio managers.

But why not hedge funds?

#1. Very high stress level

You have to constantly monitor the markets. For most of the time, that means staring at 5 different computer screens with various charts and graphs. Some markets also operate 24/7, so expect long hours. And there’s little room for error, or else you’ll face significant consequences.

#2. Limited exit opportunities

Yes you can stay at hedge funds forever, but what happens when your fund just fails, or you don’t like working there anymore? Your choice is to either move to another hedge fund with similar strategies, start your own hedge fund, or an asset management firm, and that’s basically it. Hedge funds are extremely niche, since they employ different tactics, moving across one another is already a challenge. Your deal experience is also limited, so don’t expect PE or VC firms to take you in. 

And here’s something to remember: most hedge funds go bankrupt after 7 years. Some types of hedge funds, like currency hedge funds, are already a dying breed. So yes, the pay is amazing, but job stability? Not so much, unless you work in mega-fund hedge funds.

1.3. Exit option 3: Venture capital

Venture capital is a type of private equity funding focusing on start-ups. Venture capital firms provide financing and technical or managerial expertise, in exchange for stakes in a company. Venture capitalists will nurture a new business, then sell it later for profit. With venture capital, start-ups can access the capital market in early stages even without much asset.

Venture capital is basically private equity, but you’ll be dealing with start-ups instead of mature companies. Your job will be very similar: searching for potential deals, and once the companies have reached a desired size, you sell them for significant returns. To get into VC, the one thing you need is a passion for start-ups.

Your assets to succeed in venture capital: Just like in private equity, deal experience should be your most valuable asset. You can also leverage on certain experience if you’ve previously worked for product groups such as technology or healthcare, the industries with frequent start-ups.

Your challenges in venture capital: Portfolio management may get tricky, but that won’t come until later. But in VC specifically, you’ll have to learn to admit defeat, because lots of those portfolio companies will fail, and the only thing you can do is move on. Other than that, boosting your firm’s performance can be another challenge, since 62 out of 100 VC firms fail to exceed public market’s returns. 

So why venture capital?

#1. You have a passion for bringing up start-ups and want to make changes to the world

To be fair, venture capital is more or less the last “truly good” finance career left. You are actually doing something better for society, helping start-ups that can potentially change lives. That’s not something you can say about other finance careers. 

Let’s take a look at some others. Banking? Questionable ethics. Just look at the 2008 financial crisis and you’ll see why. Hedge funds? Notorious for bringing others down for their gains. Just ask any short sellers. And the 1997 Asian financial crisis was partly caused by mass currency shorting from hedge funds. Private equity? The way PE firms operate is quite brutal. In case they fail one of their massive LBO deals, it’s the acquired company that is paying the debt. The firms walk away, free of charge.

#2. You want easier lifestyle

Working hours in venture capital are much more relaxing than banking or private equity: you’ll only work about 60 hours every week. But of course, the pay is usually 20 – 30% less compared to banking or PE.

But why not venture capital?

#1. Venture capital’s pay are lower compared to banking or private equity 

Compared to investment banking, private equity or hedge funds, venture capital doesn’t pay that much, about 20-30% lower, though the job can be just as stressful since so much money is at stake. You’ll only make big paydays if you reach more senior levels, and it’s not easy getting to those.

#2. Your work may get difficult to handle:

You will be saying no to a lot of start-ups, working with struggling portfolio companies, and it will take a few years to assess your performance.

#.3 You don’t have many exit opportunities: 

Exit opportunities are limited. You will only exit to other venture capital firms or to one of your portfolio companies. Moving to private equity is possible, but hard, because the types of company you work on are not the same.

1.4. Exit option 4: Corporate finance

Corporate finance is a role within a corporation that involves funding, capital structure and finances of a corporation. The role of corporate finance is to maximize shareholder value in short and long terms through financial plannings and implementation of corporate strategies.

In corporate finance, you are no longer dealing with clients, working on deals, or speculating liquid assets anymore. It’s all internal affairs: you’ll be planning budgets and working on your company’s finances. You will commit to the long term growth of the company.

The ultimate goal of corporate finance is to reach the chief financial officer position, where the money truly comes.

Your assets to succeed in corporate finance: Your ability to work under pressure, work across different departments, and, your experience across multiple disciplines such as finance, accounting…  will certainly help you go far in corporate finance.

Your challenges in corporate finance: No more deals, so the strongest aspect of all those investment banking years are basically wasted. You’ll have to adapt to a different kind of work, which may take some time. And the road to glory, the CFO position, is very hard and takes a long time to get to.

So why corporate finance?

The pro of corporate finance is great work-life balance. You are more likely to work around 50 – 60 hours, instead of 80 – 100 hours every week, so a great leap in lifestyle, perfect for people looking for an easier life, or having a family to look after. You’ll also like corporate finance if you want to work for a company in the long term.

But you won’t be earning as much as IB, PE or HF. Salaries vary among firms, but expect to earn some 30 – 40% less than investment banking and private equity. This is the trade-off for the easier lifestyle you have. 

1.5. Exit option 5: Corporate development

Corporate development is a group within a corporation, focusing on mergers & acquisitions (M&A), divestitures, joint venture deals, and partnerships. The work is quite similar to the buy-side M&A deal at an investment bank; but now you work at one single company and contribute to its long-term success.

Remember the M&A deals in banks? In corporate development, you are directly involved in mergers & acquisitions as buyers and sellers, not an intermediary.

So if you still want to work on deals and long-term projects, but also want an easier lifestyle, then corporate development is perfect.

Your asset to succeed in corporate development: Just like private equity and venture capital, your experience in M&A and deal sourcing, deal execution and paperwork will come in handy. Corporate development in some ways, is just investment banking revamped, and you’ll feel right at home.

Your challenges in corporate development: The road is pretty smooth in corporate development, but you still have to get used to working on deals as a buyer, not as a middleman. Also, like corporate finance, the road to director level is crowded, and you will have to spend a long time to reach senior levels, which is where the money goes.

Why corporate development?

#1. You are more involved in deals rather than just selling a service

In corporate development, you get to work on deals in longer terms, which means now there’s much more responsibility than just being the intermediary between companies, so work scope is much more interesting and challenging. You are doing it for real, your job gets much more practical, and now has consequences.

Back in banking, all you want is to close the deals and jobs done, how the deals go after that is none of your business. Now, you are the buyer, if the deal fails, it’s on you. You and your company will face consequences. This adds another layer of challenge to your work, and maybe, makes it more interesting.

#2. You enjoy a better work-life balance

Like corporate finance, you’re more likely to have a normal job instead of working day and night in an investment bank. But of course, the trade-off for that is lower pay. It is still a decent choice as you get older and your health doesn’t allow you to burn through banking hours anymore, or when you have a family to look after.

1.6. Exit option 6: Public sector

Bankers who want to make the biggest contribution for society will choose to pursue the public sector, especially public finance. Many ex-bankers have achieved high political roles, such as chairman of the Federal Reserve Jerome Powell (former Dillon, Read & Co vice president, a now-defunct investment bank, absorbed into UBS), and the Chancellor of the Exchequer Rishi Sunak (former Goldman Sachs analyst).

Your assets to succeed in the public sector: Your knowledge about the financial market will be the most valuable assets if you want to break into the public sector. Other than that, the relationships with corporations will also help you go far.

Your challenges in the public sector: Problems in the public sector tend to be more complex and have massive impacts on the entire system. The issues are wide and not just simply “find a solution” kind of work, there’s lots of politics involved with different conflicts of interests. Just take a look at how the Fed handles monetary policies, then you’ll understand why. Bankers may take a while to get used to these societal issues. 

So why work in the public sector?

#1. You want to contribute the fullest to society 

This is also the reason why most bankers, especially senior ones, move to the public sector. They want to make an impact on society with what they have. And many former bankers have also reached high positions in government agencies.

#2. You want better work-life balance 

You’ll be more likely to work a 9 – 5, and most of the weekends will be free, but of course, pay in the public sector is almost always lower than in corporate, at least in the short-term.

But why not?

#1. Lower pay, at least in the short-term

Public sector is synonymous with lower pay basically everywhere in the world. So don’t expect investment banking compensation. To be fair, most bankers moving to the public sector have made enough money for their lives, so the move is not about money, it’s about making an impact.

But as you move up the ladder, work gets more political, and for most of the time, politics involves money (lobbying and stuff, just saying), so maybe, the longer you work, the more you’ll earn.

#2. Lots of stress 

Don’t think that a 9 – 5 won’t be stressful. What you do may affect the entire financial system, so it’s best that you do it right, or mistakes won’t be appreciated.  

1.7. Exit option 7: Start-up

Start-up is a rather modern choice for bankers. There are two ways to go this path: start your own company, or join another start-up. However, your skill set doesn’t serve you very well in starting your own start-up, because a new company barely has anything financial, so the best way is to join a maturing start-up.

The pros of start-up is that you have freedom of your own career. You can be whoever you want, work whenever you want, and basically determine your life. You’ll learn a lot of leadership and management skills since the scope of a startup is beyond just finance. You work on human resources, capital management, business opportunities, etc. 

The cons of start-up is that you are most likely to fail. It’s a sad reality that most start-ups don’t live long enough to see themselves become big, but if somehow, against all odds, yours just happens to be the one, then you will become very, very successful.

1.8. Exit option 8: MBA

Investment banking is one of the easiest ways to get into an MBA at a top business school and boost your career, thanks to the prestige the industry has. So if you want to take a break from the enduring hours and restless nights, joining a full-time MBA is a decent choice.

Why join an MBA?

The pros of an MBA is that it boosts your career forward. With an MBA, many other senior positions open up, with better pay, and better life. You can also use your MBA time as a networking opportunity to meet professionals from different industries. It’s always good to network.

Why not join an MBA?

The main cons of an MBA, especially full-time MBA is the financial loss. You are paying a hefty amount: Total cost for a program at a top business school can be as high as $200,000. You are also getting no income whatsoever. The opportunity cost of that is 2 years of working, and maybe a promotion. But if you are willing to pay the price, then an MBA will be a great boost in the long term.

2. Is It Worth It to Leave Investment Banking? 

There are usually three reasons for investment bankers to quit their jobs: (1) compensations & benefits (lots of time bankers can get a job with even-higher pay than investment banking), (2) work-life balance (not all bankers can endure working 100 hours a week, so they move to a different job with better hours), and (3) personal preference.

• After spending a few years in an investment bank, bankers are equipped with the best financial skill set, from modeling, valuation, to market knowledge. They can work for virtually any financial institution, and earn much more than they did as a banking analyst.
• The intense hours is another reason why bankers quit. Not all can handle a hundred hours sitting at the office per week, so they just walk away and find something with better work-life balance.
• Others leave because they just don’t feel like doing banking anymore. Investment banking can be a great boost to your career, but many will find that the industry is not suitable for them, and they can have a more promising future elsewhere.

However, don’t be so obsessed about leaving investment banking. Though the brand name of large investment banks is a big advantage, the most important thing is what you’ve learnt from working in the industry. But it can be denied that with the investment banking experience and brand name under your belt, the transition to more prestigious careers is much easier compared with others.