INVESTMENT BANKS LOSING ALLURE by Oleksiy Nesterenko

INVESTMENT BANKS LOSING ALLURE by Oleksiy Nesterenko

In the pre-2008 world, all MBA soon-to-be-graduates eagerly awaited for the opportunity to be interviewed by one of the major investment banks. There was an unspoken understanding among business school graduates: landing an investment banking job was a mark of success. Despite countless ruined weekend, numerous “all-nighters”, and overall culture of “do or die”, job at a bank was point of pride and viewed as the first step on the way to becoming a “baller”.

One financial crisis and seven years later, the picture has drastically changed.  In 2014, a long slide in the number of MBAs joining investment banks reached a new low point. According to Harvard Business School report, in 2007 ca. 13% of the business school's graduates who landed jobs went into investment banking. By last year, that figure fell to ca. 5%, and is expected to drop to 4% in 2015. Other business schools are witnessing similar trends. Fewer and fewer graduates chose to go into investment banking:  Columbia saw a drop of nearly 15% (26% in 2007 vs 11% in 2014) in the number of MBAs joining the industry, Wharton experienced a decrease of 10% (24% in 2007 vs 14% in 2014), MIT’s figure declined from 11% in 2007 to 6% in 2014.

These tendencies were driven by a myriad of reasons, ranging from bad perception investment banks received for their role in the financial crisis to the tech boom that is luring away entrepreneurs seeking to strike on their own. But the key factor is the reduction of pay that is no longer sufficient to compensate for miserable work-life balance of employees. Average pay at investment banks nearly halved since the financial crisis due to a drop in revenue and a greater focus by regulators and shareholders on bonuses (for example Goldman Sachs per-employee compensation expense fell to $373,265 in 2014 from $661,490 in 2007).

Major banks have started to implement measures to fight back, promising newly joined MBAs better working hours, guaranteed day off each week and reasonable deadlines. These efforts, in part, were prompted by the death of an intern, who collapsed in his shower after he had worked for 48 hours straight, at Bank of America London’s office in 2013.  

Yet, it seems like the new initiatives will be fruitless until the moment MBAs once again will start considering investment banking as a sustainable career.

About the author:
Oleksiy Nesterenko is a co-founder of Afenest Advisory, a financial advisory firm that provides guidance to clients in areas of corporate finance, business strategy and M&A. Prior to Afenest Advisory, Oleksiy Nesterenko spent most of his career in investment banking, focusing on technology companies in the USA, Europe, and CIS countries.

Mr. Nesterenko holds an MBA degree from INSEAD business school and BA degree (Magna Cum Laude) in Business/Economics from UCLA.

EMERGING MARKETS ARE NOT AS RISKY AS YOU THINK by Oleksiy Nesterenko

EMERGING MARKETS ARE NOT AS RISKY AS YOU THINK by Oleksiy Nesterenko 

“Emerging markets are not as risky as you think” was the main premise of an article written by two McKinsey experts in 2003. Until recently, such view has been gaining ground among Western investors who chose to conduct business in emerging economies.

I also shared this belief when I decided to move to Russia in 2012 to open an advisory boutique. Until that point I spent nearly 6 years in the investment banking industry, having worked in the US and UK. During my tenure as investment banker, I gained good understanding of Western business and management practices. MBA degree further developed my mindset towards international standards applied in the West.

However, after I have been operating in Russia for some time, I have realized that many of the assumptions and attitudes with which I started were counterproductive. Thus, I had to adopt new practices which would aid me in establishing effective interaction with local businessmen and managers.

In this article, I would like to share with you some of the most common misconception risks that you might encounter while working in Russia (thereafter referred to as “locals”), and practices that I found to be effective mitigants.

1)      Negotiations:

Misconception risk: good “deals” are struck by hard bargaining

Mitigants: haggling with locals carriers a significant risks of producing agreements that will not be implemented. The formula for a good “deal” is: regard negotiation as a process of three stages (pre-bargaining, bargaining, post-bargaining), and maximize the time and energy spent on clearing the ground and on creating consensus during the pre-bargaining stage so that as little as possible is left to agree on during the bargaining stage.

2)      Strange behavior of managers:

Misconception risk: locals’ behavior is often inexplicable and frustrating. In the Western business community one knows what can be expected of managers, partners or competitors, while in Russia you don’t

Mitigants: there is a sound inner logic to the behavior of locals, if one takes into account the hidden private agenda. Major difficulties often can be traced to the fact that key local managers react to any new idea or proposal with a private agenda, namely to keep the maximum amount of managerial power (as opposed to improving firm’s operations). Furthermore, locals are embedded in informal networks of family relations as well as close personal professional alliances. Within these networks the exchange of favors is not just a matter of mutual benefit but constitutes a moral obligation. Thus it is not uncommon for a local manager to operate as a nucleus of personal networks of favoritism.

3)      Motivation:

Misconception risk: all you need in order to get good results is to pay locals well

Mitigants: paying well (or having monetary rewards such as “bonuses”) is not sufficient to motivate locals to fully committing themselves to a certain goal. Good pay is only one element, out of many. Often locals are even willing to sacrifice money for other considerations such as genuine influence on business decisions, opportunities to learn valuable new skills, and some degree of security in regard to discharge.

About the author:
Oleksiy Nesterenko is a co-founder of Afenest Advisory, a financial advisory firm that provides guidance to clients in areas of corporate finance, business strategy and M&A. Prior to Afenest Advisory, Oleksiy Nesterenko spent most of his career in investment banking, focusing on technology companies in the USA, Europe, and CIS countries.

Mr. Nesterenko holds an MBA degree from INSEAD business school and BA degree (Magna Cum Laude) in Business/Economics from UCLA.

WORK

Hello!

My name is Oleksiy Nesterenko and I think that my experience would interest to some of you.

I have been working as an investment banker for nearly 6 years. And during my time spent as an investment banker I was fortunate enough to work in 3 countries: United States, United Kingdom, and Russia.

It is not surprising that these places are very different from on another, thus making the working experience in each country “one of a kind”. I greatly enjoyed my time working in each of the countries, yet there are particularities of each country I wish I had known in advance. So I will commence a series comparing various aspects in lives of bankers in those 3 countries, called “Oleksiy Nesterenko’s i-banking experience review”. I will rank each aspect 1 through 5, with 5 being the best.

1st aspect: WORK

Work aspect will be analyzed by looking at:

•          Quality of work

•          Entrepreneurial spirit

•          Work schedule

Quality of work:

US: everyone would agree that the financial markets in the US are the most advanced, and many financial products originated there. As such, investment bankers in the US get introduced to the complexities of the world of finance from the very beginning of their careers.

Score: 5

UK: London has always been and remains to be the financial center of Europe. With the status come obligations. Therefore, quality of work is very similar to the one in the US, yet it still lacks the US.

Score: 4

Russia: Russia switched from government regulated economy only little more than 20 years ago, and it is quiet evident.

Score: 2

Entrepreneurial spirit:

US: investment banking analysts programs in the US are well-oiled machines, and every junior banker is just an easily replaceable bolt. Each level of seniority has their own specific rights and responsibilities, and not following those would be unthinkable.

Score: 2

UK: for many people that join investment banks, investment banking becomes a career. Thus, even though hierarchy is adhered to, it would not be surprising if an analyst got to present a part in a pitch at a meeting.

Score: 3

Russia: it is the most enjoyable side of Russian investment banking. Junior bankers are encouraged to take as much responsibility as he/she can handle.

Score: 4

Work schedule:

US: when I first learned that junior bankers work on average 80 hours per week, I thought it was a joke. During my first week I found out that 80 hours is an understatement.

Score: 2

UK: as I mentioned earlier for many analysts investment banking becomes a career. Therefore, senior bankers do not try to squeeze all of the juices out of you right away.

Score: 3

Russia: working schedule is very similar to the UK. And occasionally you get a weekend off.

Score: 3

Total “Oleksiy Nesterenko’s i-banking experience review” scores for Work aspect:

US: 9

UK: 10

Russia: 9