"The Pulse" --#28

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Next week we will be interviewing a BIG name in finance. Shoot us questions you’d like us to ask related to recruiting, interviewing, advice, etc

Recruiting Timeline:

Banking:

Where We’re At:  

• SA 2025: Last week was fuckin crazy. If you missed it, plenty of firms jumped the gun and opened up apps including Gugg, Rothschild, and DB to name a few. The expectation is that 80% of apps will open before March.

• FT 2024: Most firms are wrapping up their processes (90% over). Get your shit together and send out all applications.

Gameplan:

• SA 2025: Behavioral + technical interview prep (index heavier on the behaviorals at this time). Remember, bottom-line-up-front when preparing for behaiorals. Given the timeline, we hope you have extensively networked across Wall Street. It is time to bust out the recruiting guides and start practicing for interviews. Some firms interview within 1-2 weeks after opening apps! Reference our Premium Database for a suite of all the resources necessary to prepare for an interview.

• FT 2024: Hiring has been challenging given the poor deal market with some firms firing employees. However, firms still need young blood to work 80+ hour weeks and make minimum wage (on an hourly basis). You should be ready to hop into an interview tomorrow.

Interview Questions of the Week:

-Behavioral: Tell me about a time where you failed? What did you learn?

-Technical: What are the makings of a good company? What are the makings of a great company?

Feel free to write us your responses and we can provide feedback on the quality of your answers!

Want access to an updated database of 200+ banks/consulting/buyside firms? Venmo @HoosHelpers $50 and shoot us an e-mail @[email protected]. Additional details of the database can be found below. Gain an edge over everyone else by not having to spend countless hours tracking applications and deadlines.

Consulting:

Where We’re At:  

• SA 2025: We’re in the very beginning of the process. Only one firm has released an application and others won’t be released for a few months.

• SA 2024: Firms have concluded hiring for SA 2024. Very small/niche firms may release applications here and there.

• FT 2024: FT hiring is over aside from any very small/niche firms trying to fill a position.

Gameplan:

• SA 2025: Research and have a list of firms you are going to apply to. Reach out to firm employees and network!

• SA 2024: It will be very hard to find many firms still hiring. If you do have an interview make sure you have cases down. Otherwise it might be time to consider a related role for 2024.

• FT 2024: Small/niche firms really appreciate people who understand their firm and have shown interest. Before going into an interview, speak with a few employees and make sure you are knowledgeable about the firm and the clients they serve.

Interview Questions of the Week:

-Tell me about the most negative feedback you received about your performance. Did you agree with the feedback? What did you learn and what changes did you make as a result?

Feel free to write us your responses and we can provide feedback on the quality of your answers!

Buyside:

Where We’re At:  

• SA 2025: Funds such as Audax and Apollo have opened up apps in-line with banking releases. Interesting, these are credit roles instead of PE.

Gameplan:

• SA 2025: Prepping for buyside roles at the junior level is very similar to prepping for banking (both behaviorally and technically). Noted that for the buyside you’re expected to take more of an investor lense to a problem and there is greater focus on assessing your true passion for X role. If you’re serious about buyside recruiting, I recommend taking a look at High Yield Harry’s newsletter covering all things buyside recruiting: HYH Newsletter.

Interview Questions of the Week:

-Behavioral: What are the characteristics of a VC-stage business? A growth stage business? A mature business? A dying business?

-Technical: Pitch me a company. Why does this fit well with our thesis?

Feel free to write us your responses and we can provide feedback on the quality of your answers!

Premium Database:

The database is updated bi-weekly and contains 200+ Investment Banking and Consulting internships/full-time positions along with:

• Interview tips for specific companies

• Interview prep material

• Applications and deadlines linked so that you can apply with one click

• Information about the application process

• Professionals to network with

• Buyside deadlines, interview prep, and people to network with for the sweatiest of students

We send the updated dataset every two weeks with the latest banking and consulting job postings. We released our 23rd update last week.

Students we have been helping have already landed roles at Blackstone, Goldman, J.P. Morgan, Jefferies, Citi, and Solomon.

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This is a small investment for a huge payout when you secure your dream offer!

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Market Update:

Rate cuts in 2H24

We touched upon this topic before in "The Pulse" --#25. Today, we are going to dive into a little more detail to explain why this will happen and the effect it will have on the economy.

Everyone knows rates were hiked at the fastest clip in history starting in March 2022 with the latest hike in July 2023 pushing rates to ~5.50% as a means of reducing inflation.

Now, what is important here is that the FED projected they would hike rates to ~5-5.50%. So, they lived up to their promise. On that note, we can expect the FED to honor their promise to keep rates higher for longer.

Now, the expectation is that the FED will cut rates in 2H24. However, no one expects rates to be slashed back to 0%. Instead, long-term rates in the 200-300 bps range is a more likely outcome. The speed of the cuts is also unlikely to match the unprecedented rate of the hikes.

Why will rates be cut?

1. Inflation has been reduced (currently at 3.1%; just a touch North of the 2% target)

2. Consumers and corporates will need financial support as higher rates flow through their balance sheets

3. Since the dawn of time, rates have always been cut within a year after the end of each tightening cycle

Many credible sources including the legendary Aswath Damodoran claim that inflation in the 3% range may be the new normal as we navigate record unemployment, sticky wage growth, and geopolitical instability which will contribute to higher prices of goods such as oil. The FED is still targeting 2% inflation, but is definitely pleased with their progress to combat inflation and has been comfortable with inflation in the 3-3.5% range as shown by their lack of raises since July.

Unlike inflation, rate hikes are slowly making their way through the economy and are just starting to be felt by consumers and corporates.

Debt is either fixed or floating. Right now, there is a huge discrepancy in interest expense for consumers and corporates on their older, fixed rate contracts vs. their floating rate contracts.

If I issued a loan for $100mm in 2021, my cost of debt today is probably in the 8-13% range depending on the credit quality of my business as loans are typically floating-rate products. However, if I issued bonds for $100mm in 2021, my cost of debt is probably 2-5%.

If I issued bonds, I’d be saving millions of dollars today since the interest is fixed at the time the contract was signed.

As older contracts are renewed and companies issue new debt, their margins are going to get destroyed due to the greater interest expense. Companies performed surprisingly well over the past year as they played towards a strong consumer eager to spend and match inflation-adjusted pricing. Now, they’re expected to experience significant margin compression due to the higher cost of borrowing and a less enthusiastic consumer with limited liquidity.

What will rate cuts do for the economy? 

The primary benefit of rate cuts is a fresh infusion of liquidity. Lenders loosen underwriting, people look to borrow more, and bolder investments are made as hurdle rates become more achievable.

An injection of M3 is always exciting for the economy and will lead us to stronger growth. It will also lead us to more speculation.

I think credit investors are in a particularly challenging situation as it will become much harder to generate upper-teens returns when borrowing money becomes cheaper. Not to mention the increased competition in the space which also pushes down pricing power.

Nevertheless, the FED holds all of the power here and it will be interesting to see where rates end up and how the market reacts to cuts.

In an interview, form a view on the direction you think rates are headed. Make sure to discuss the timeline and lagging effect rates have on the economy.

Learning Point of the Week:

BBs vs. EBs. MBB vs. Big 4. Mega Fund vs. MM. What are the differences?

Heavily requested topic to breakdown everything you need to know about the different types of firms. This week, we will discuss the core components of different firm classifications across banking, consulting, and the buyside.

Starting with banking.

BB=Bulge Bracket. EB=Elite Boutique. We actually posted about this on our LinkedIn: BB vs. EB

Characteristics of a BB:

• Examples: JPM, Citi, GS, BofA, Wells Fargo, etc

• Actively uses its balance sheet to lend money

• Work on the largest deals 

• Many different departments and roles outside of just investment banking

• They pay well, but not great. Starting salary ~$100-$115k. Bonus ~40-80%.

• More people = better WLB (marginally better by ~10-15 hours/week)

• Interview processes are less technical, but interviews are harder to get than EBs

• Great exit opportunities to PE/VC/Credit. Also good exit opps outside of finance given the brand name

• Some BBs like JPM, have a stickier culture where fewer analysts leave the firm in search of “greener” pastures

Characteristics of an EB:

• Examples: Evercore, Moelis, PJT, Perella Weinberg, etc

• Mostly specialize in pure-play investment banking. Strictly advisory services

• Heavily index on product roles like M&A or Restructuring (Restructuring is significantly better at EBs than BBs)

• Smaller deals, leaner deal teams. Arguably better exposure

• Better pay than BBs. Starting salary $110-$130k. Bonus ~50-100%.

• Less people = shittier WLB. These guys work around the clock, 7 days a week ngl

• Interview processes are more technical and interviews can be easier to get if you went to a target school

• Better exit opportunities within finance, especially to PE. Less opportunities outside of finance

• Typically a 2-year culture at the analyst level. Most people leave

Now, onto consulting.

MBB = McKinsey, BCG, and Bain. Big 4 = Deloitte, EY, PWC, and KPMG

Characteristics of MBB:

• Examples: Bain, BCG, and McKinsey

• The most sought-after firms to work for within management consulting

• Pure strategy consulting firms that serve top-tier, large clients

• Leaner teams with a more collegial environment

• Higher starting salary ~$100-$130k (inclusive of bonus). McKinsey is a strong outlier with higher pay even amongst the MBB

• Shittier WLB (still far better than banking)

• Interviews are much more technical / case-heavy

• Exit opportunities are better

Characteristics of Big 4:

• Examples: PWC, EY, Deloitte, and KPMG

• Strong management consulting programs, but there are many other departments and roles outside of consulting

• Also work alongside large clients within the Fortune 500

• Larger teams, arguably worse exposure

• Starting salary ~$75-$100k (inclusive of bonus). KPMG is an outlier and pays like shit

• Better WLB because there are more people (can be a 40-50 hour/week job)

• Interviews are less technical and less competitive

• Exit opportunities are worse than MBB

Now, onto the buyside.

For the sake of simplicity, we are only discussing PE.

Mega Fund = AUM of $100bn+ and typically work on deals of $1bn+

MM = Middle-Market. Broad term to describe firms with less than $100bn AUM. Fund size usually $10-$50bn. Deal size $50-$500mm.

Mega-Fund:

• Examples: KKR, Blackstone, Blackrock, Warburg Pincus, etc

• Work on the largest transactions with much larger teams

• Huge fund size = big transactions

• Typically many other roles available outside of PE (credit, infrastructure, insurance)

• Worse exposure and very difficult to work your way up the ladder given concentration of upper, middle management

• Better pay. Likely similar to EB pay for junior analysts. Admittedly, I only have numbers for the associate level. Apollo is known to be an outlier paying far above market

• Known to be banking 2.0. Shitty WLB

• Interviews can be super sweaty sometimes with a modeling exercise

• Exit opportunities can be worse than banking because of specialization and worse brand name compared to BB

Middle Market:

• Examples: Silver Lake, Sixth Street, Spectrum Equity, Orion, etc

• Smaller transactions, smaller teams, and a smaller fund size

• Usually better exposure and more responsibility at the junior level

• Typically a focus on a particular asset class (infrastructure, tech, healthcare, etc)

• Typically a focus on a particular type of investing (PE-only, credit-only, distressed debt only)

• More mobility regarding promotion

• Typically worse pay then mega-funds. However, some middle-market funds will pay far above market

• Better WLB (case-dependent)

• Interviews are either super sweaty with complex modeling or sometimes much easier than banking with a heavy behavioral focus

• Exit opportunities highly constrained to other roles within finance given lack of brand name. Working at a portco is common

Going Forward:

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“The Pulse” #28