December 1, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Boutique investment banks make talent grab as larger rivals wield axe: ‘I honestly don’t see us stopping’

Boutique investment banks, which have taken market share from larger rivals in recent years, are hiring dealmakers at an unprecedented rate as Wall Street banks have made their deepest cuts since the 2008 financial crisis.

Evercore, Moelis and PJT Partners are among the so-called elite boutiques to open their doors to senior dealmakers amid a deal drought that has forced larger rivals to cut thousands of jobs.

Both Evercore and PJT Partners pointed to record hiring sprees this year, as the banks have capitalised on the market dislocation to bring in top dealmakers. They join the likes of Deutsche Bank and Santander, which have hired scores of bankers this year as Credit Suisse has battled an exodus of talent this year after its takeover by rival UBS, and Goldman Sachs and Morgan Stanley have unveiled multiple rounds of layoffs.

“The current environment has presented one of the strongest hiring opportunities we’ve seen in the firm’s history,” said Evercore chief executive John Weinberg, during its second-quarter earnings call, pointing to 11 senior hires.

Evercore is hiring for equity capital markets, having recently brought in former Goldman Sachs banker Lyle Schwartz to lead the business in Europe, as well as M&A.

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Boutiques have gained market share in M&A, securing 42% of the fee pool in the first half of 2023, but Evercore wants to break into the top 10 in ECM, where activity slumped by 65% last year and continues to remain challenging.

“We’re going to continue to have those conversations,” Weinberg said of its hiring plans. “I honestly don’t see us stopping.”

PJT Partners now has 67 senior advisory partners, a lot of whom have been brought in over the past two years. Paul Taubman, the former Morgan Stanley dealmaker who leads the boutique, said 2023 would be the “most consequential year ever” for recruitment.

When the world is melting up and all of your clients are active, that typically is not the right time to leave your prior firm and go on the beach for six months

Taubman said that the “friction cost” of switching firms is currently low. When there’s little M&A activity, quitting your current employer and spending months out of the market on gardening leave is unlikely to leave clients hanging or mean missing on big deals that will feed into a more lucrative bonus round.

In 2021, as deal fees surged to a record $130bn globally, investment banks scrambled for talent to gain market share. The result was spiralling salaries, multi-year guarantees and many banks were locked out of an overpriced hiring market. This has completely reversed in 2023 as the deal drought stretched into six quarters.

“When the world is melting up and all of your clients are active, that typically is not the right time to leave your prior firm and go on the beach for six months,” said Taubman.

READ Evercore eyes record senior banker hiring spree as larger rivals cut jobs

“Everyone wants to talk about why [now] is this the best time for hiring? And they talk about [whether] the cost [is] lower? They talk about [whether it is] because some of the big banks are struggling? They talk about the fact that other firms are doing reductions. I don’t think it is any of that, as it relates to our hiring. It’s getting the switching costs down,” he added.

Goldman Sachs has rolled out three rounds of redundancies since September, cutting 3,200 employees in January and a further 125 managing directors in June as the bank has struggled against an ongoing deal drought and pressure from investors to unwind an ill-fated push into consumer banking.

Meanwhile, Morgan Stanley has cut 3,500 roles, Citigroup has stripped out around 5,000 people and 4,000 have departed Bank of America this year.

Investment banking fees, already down by 41% in 2022, have tumbled by another 27% so far this year. While most executives have pointed to a positive shift in sentiment in recent weeks, cost pressures remain across the industry.

Independents have not been immune to the downturn. Moelis posted a $12m loss in the second quarter, while Lazard slipped to a $124m loss for the period and Evercore’s advisory fees tumbled 35% during the quarter.

Evercore’s stock price fell 5% in the early hours of 26 July, when it unveiled its results, while Moelis’ slipped by around 8% since it posted its second-quarter numbers.

Aggressively rebalancing talent

But boutiques have continued to poach senior talent from struggling larger rivals. In London, PJT brought in Morgan Stanley’s head of business services investment banking, Gwen Billon, while Evercore took on Credit Suisse’s former head of Emea investment banking, Giuseppe Monarchi, along with a technology team from the Swiss bank in June.

Moelis, meanwhile, swooped on a team of 11 dealmakers focused on technology from Silicon Valley Bank’s investment bank following its collapse in March. Boutiques are betting on a rebound in deal activity from the second half of 2023.

“The strategic investments we’ve made in talent have been transformative,” said Ken Moelis, the boutique’s chief executive during its second-quarter earnings call. “I believe that the deal backlog feels like a coiled spring.”

Independent investment banks may have opportunistically hired from foundering larger rivals, but they have also been forced to cut their own teams.

Moelis said the bank has been “aggressively rebalancing talent across the business”, which means overall headcount will remain the same this year. Meanwhile, Lazard cut 10% of its employees in the first quarter in a rare example of deeper cuts at the firm.

Ken Jacobs, Lazard’s outgoing chief executive, told Financial News that the cuts have “unleashed a fair amount of ability to invest in talent”, and that it will be adding bankers in key locations such as the US and Europe.

To contact the author of this story with feedback or news, email Paul Clarke