Bull Bear Report Feb 01 2011

Don't Smoke, Get an MBA, Become a Billionaire

By julie steinberg

If you want to retire by 40 and are willing to work nights and weekends during your twenties, the two-year analyst program at an investment bank is a great starting point.

With hard work, the right moves and a little luck, you'll be on track to become a managing director, go to a hedge fund, or join a private equity firm. These are three common career trajectories for those who have launched their careers from coveted analyst positions. Here's how you follow them.



Getting the Analyst Job

Before you design the furniture for your corner office, you've got to put in your time as an analyst.

To get the job, it helps to graduate from a top university where firms recruit, but at the very minimum you'll need excellent marks in finance, accounting, economics or even liberal arts subjects. Don't worry if your undergraduate degree is in semiotics with a minor in literary theory. "We have hired people without a finance background, but they have to have something very special," said Jeffrey Werbalowsky, the co-CEO of Houlihan Lokey, a Los Angeles-based investment bank. "They also have to have the potential to succeed in a very quantitative undertaking."

Related: How to Become an Analyst



Follow the Managing Director Track

According to Ross Baltic, managing partner at Mercury Partners, a New York-based executive search firm, you'll typically join the firm for two years as an analyst, get your MBA -- or not -- then spend three years as an associate, three years as a vice-president, three years as a director, and then make the leap to managing director if you're the best at what you do. That's eleven years to MD, if you go the route without the MBA.

It's the time between the analyst and associate positions that causes the most debate when it comes to moving up the ladder: Is it worth getting the MBA or not? The short answer is, it depends.

"If you're committed to being an investment banker and you have broad level support within your team, then you don't need to get it," said Dan Ryan, a partner at Heidrick & Struggles, a Chicago-based executive search firm. "But if you do decide to get one, you'll be in a stronger position if you come back to the group."

Werbalowsky said that at Houlihan, it depends on the track the analyst is interested in. In the financial advisory services group, which houses the valuation program, there are no MDs without MBAs. In the restructuring group, the majority do not have them -- though many have law degrees. In the corporate finance group, it's a mixture, though the majority have MBAs.

When it comes to clinching the MD title, there are a few basic elements all recruiters and bankers agree on.

The first is to do a fantastic job. At a minimum, to move up you'll need to be a great performer in your line of business. The second thing you'll need to do is position yourself as an ambassador for the firm, whether that means serving on panels, attending industry leadership events, or recruiting.

Promotion committees, or the people who decide whether you'll get that title and pay raise, also want to see a global perspective, according to Ryan of Heidrick & Struggles. "You need to demonstrate access to cross-border deals and global clients," he said.

Many believe that you have to hop from firm to firm in order to climb the rungs, but that's not necessarily the case. "The most successful bankers come up within one organization," Ryan said. "If they go to another firm, they go in a big group so their mentor moves with them."

Werbalowsky suggests developing a "huge curiosity" to show your superiors you're passionate about what you do. "There are so many different things that are thrown at you," he said. "It's important for you to be able to say, 'let me learn about pig farming. Let me learn about steel manufacturing,'" when working on a deal.

One final piece of advice to getting that MD title? Don't smoke. "It's stupid," Werbolowsky said, "It's self destructive and it shows a lack of discipline."



Heading to Hedge Funds

You've done your two years as an analyst and are craving something different, something that will allow you potentially better hours. If the buy-side piques your interest, here's how you end up like John Paulson, the hedgie who brought home more than $5 billion in 2010, or Stevie Cohen, the master of SAC Capital who's worth about $6.4 billion.

Getting into a fund needs to be done at the beginning of one's career, according to J. Patrick Gorman, co-founder of iFind Group, a New-York based executive search firm. "Funds want a very specific background. They want investment banking analysts who come out of UBS or Barclays Capital or another top firm," he said.

It's preferable if you've worked in a sector that corresponds to what you'll be working with at a hedge fund, like energy, industrials or healthcare, for example, or if you've done a stint in M&A, said Adam Zoia, CEO of Glocap Search, a New York-based executive search firm.

You'll start at the fund as an analyst and do research and modeling. Next, you'll become an idea generator and start to suggest names of companies to go into the portfolio. The next step after that is portfolio manager, at which point you'll decide what actually goes into the portfolio. There's no set amount of time it takes to reach the top when it comes to hedge funds.

In order to reach portfolio manager level, getting an MBA during your hedge fund career isn't absolutely necessary, recruiters say. "It's not particularly sought after," Zoia said. "Most hedge funds aren't going to business schools to recruit."

Robert Banker, managing member of Highwood Capital, a concentrated fund of funds, agrees. "I don't think you need the MBA," he said. "I've seen plenty of portfolio managers run successful businesses without the degree."

Other degrees have cropped up in the field besides the MBA, Baltic of Mercury Partners said. He's seen many portfolio managers armed with a CFA, for example.

Unlike in investment banking, there's no set number of years it can take to reach top-dog status at a hedge fund. Zoia stressed that the environment at funds isn't comparable to the "up-and-out" phenomenon in which you must be promoted or you leave the firm. Instead, the timeline hinges on performance and your preference for the type of job you want to do. Some employees prefer to stay in equity research, for example and don't necessarily want to take on a portfolio manager role.

Some decide not to wait for promotion and simply start their own fund, Gorman said. To do that, however, traditional wisdom dictates that you'll need a minimum of five years experience so investors will take you seriously.

Related: Hedge Fund Hiring Outlook 2011



Preferring Private Equity

If you couldn't put down "Barbarians at the Gate" and you've got your two years of i-banking behind you, private equity might be your bag.

While at the investment bank, you should make sure to focus on M&A and leveraged finance, or get experience in industry groups. You want exposure to the most robust deal-making so you can see how all the moving parts fit together, said Brian Korb, the other co-founder of Glocap.

"Your experience would be discounted if you were an equity researcher," he added. "You're not buying companies. You need to know how to structure a buyout." That means less research, less capital markets and more M&A.

Like hedge funds, private-equity firms are harder to break into the longer you wait. You should ideally join the firm after your stint as i-banking analyst, serve two years as an associate, get an MBA, serve as senior associate or vice president for three to six years, principal or director for another three to five years, and then reach partner level. The whole process can take at least ten to fifteen years.

So how do you get your foot in the door?

For Gail McManus, founder of Private Equity Recruitment, a U.K.-based recruiting firm, it all comes down to one simple test to demonstrate "commerciality." When she recruits for various firms, she says to candidates: "You go to a restaurant and order your meal. Before the first course arrives, you've counted the tables, worked out the average price of the meal, looked at the margin, worked out the number of staff, the profits they're making, who's going to steal from the pot. If you've never thought about what the turnover is, or any of the above, you should never bother to apply for a job in PE."

What's the reasoning behind this test? "You have to love how a business works even in the grubbiest situation," she said. "If you've never thought about how the money works, you're in the wrong business."

You'll start as an associate and do a little bit of everything from lots of different transactions, McManus said. By the time you have three to five years experience, you'll be doing most of the items on one transaction. You'll need to be able to deliver a good deal and find it as well. The people who succeed are those who get the deals before everyone else.

Should you get an MBA? Most signs point to yes. According to Korb, the majority of the largest funds have very limited upward mobility without an MBA. At a large firm, it's expected that you'll do two years as an associate, get the MBA, and either return to where you worked before or return to the summer internship you did while in business school.

While that's the case at most big firms, smaller firms tend to look at it differently. Andrew Bursky, the chairman of Atlas Holdings, a Greenwich, Conn.-based private-equity firm, says he doesn't hire MBAs.

"I think MBAs serve a purpose, but I have never found an existence or lack of existence as a predictor of success in my business," he said. "I'd rather have someone without a lens already in place because the danger is you begin to think about the transaction, about the numbers, and you lose sight of the world is really about -- the relationship between companies and customers and their suppliers."

At Huntsman Gay Global Capital, a Palo Alto, Calif.-based private-equity firm, associates are expected to serve two years, go to business school, and return to get on the partner track, which takes about nine years, said Judy Frodigh, managing director and chief administrative officer of the firm.

Huntsman Gay doesn't like a lot of turnover, Frodigh says, so the firm invests early on in its associates to put them on the right track. That means constant coaching, peer learning and feedback to ensure you'll reach partner level, a decision that's discussed at least two years before it happens.

McManus of Private Equity recruitment said the key to making partner is bringing in the deals. "You'll have increasing responsibility for making investments happen, managing the due diligence process, and managing the younger analysts. You do and more of the process until you lead them."

Related: Private Equity Hiring Outlook

Write to Julie Steinberg




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