BlueSteps Edge Interview Series - Financial Services - How far have we come since Dec 2008?

The BlueSteps Edge: Financial Services

Exclusive interviews with top executive recruiters and headhunters in key sectors - to bring you the latest career updates from the front lines.

Betsey Wood, Director and Head of the New York office of Global Sage, shares her views on activity within the financial services industry during these difficult economic times.

BlueSteps: As an expert in the financial services sector, you’re arguably seeing more activity than any other industry. What’s your view of what’s happening?

Betsey: As you know, we recruit for a combination of large investment banks and securities firms. This also crosses over to the asset management community: traditional asset management firms, mutual funds, hedge funds and associated businesses. Since the summer of 2007 and now with much greater force since summer 2008, we’ve seen a gradual buildup of caution and now significant layoffs, principally in investment banking or the sell side of the business. Most impacted has been the fixed income and structured finance business. Since early 2008, there has been a lack of liquidity across the credit markets and a slowdown in lending. This is now impacting almost all areas of new fundraising. There have been lots of spikes around derivatives and other structured areas.

We saw a very quiet effort on the part of the investment banks to lay off their lowest performing 10% in late 2007, but now the slowdown means that almost every bank has to double or quadruple their estimates of impaired assets write-downs, which has led to a more formal need to cut staff deeply in 2008 beyond those initial levels. The layoffs are occurring at all levels at the firms and will probably reach 10-15% of total staff at most major investment banks by early 2009. International markets are no longer immune and significant cuts are now going on in London and beginning in Hong Kong and Japan.

So far it has not affected all levels, including entry level hires, as quickly and dramatically as in 2001, but it is definitely driven by a concern that if they’re not making fee activity, staff needs to be right-sized. Firms are trying to encourage some older staff to leave but also younger staff. Some of the big firms now seem to be increasingly concerned about being able to honor their full range of commitments to candidates just out of business school, and they fear they may have over-hired.

So people are watching the markets, and our concern is that these incremental hiring cuts at the investment banks will now continue into first quarter 2009 if fee activity does not revive quickly in January/February 2009.

BlueSteps: How about internationally?

Betsey: Looking around the world, London has also slowed down significantly, and we are seeing only essential roles being replaced. In some emerging markets that had been very hot in 2007/early 2008, price tags for top talent had gone through the roof. There remains a lack of top quality personnel in places like Russia, a market that particularly comes to mind, even though it is now currently affected by the stock market crash there in September 2008. A similar fight for certain types of personnel in Middle East continues at the moment, despite the slowdown of new banking issues.

The scope and depth of the different financial sectors in the China market where foreign participation is welcome has grown so quickly that we’re still spending a great deal of time and resources against that market. The same is true with India. These countries have become much more of a piece of the global market and global retrenchments affect them far less as firms are still trying to build out so many different business practices in financial services, not just cross-border capital markets.

Against that background, on the asset management side, I think we’re not seeing nearly as deep an impact so far from the crisis. Yes, there are a number of hedge funds that have failed, but that hasn’t so far put a lot of people out of work. The most active areas of recruitment are not so much front-line people, but internal infrastructure roles: risk management; traders; people with electronic trading platform expertise; and people who can make the efficiencies of those firms better, in particular people who can reinforce the image of the franchises with respect to the consultants looking at these hedge funds since so much more of the money going to the hedge funds is being driven by institutional consultants. It’s a tough area of recruiting; there are not a lot of people with that kind of experience. We’re spending more of our time looking at these kinds of roles as well as various fundraising roles.

Here in the US we’re screening many candidates who we can refer back to our partners in Europe and Asia, and vice versa.

BlueSteps: Are you finding that the number of actual jobs for senior level candidates in financial services is declining?

Betsey: In absolute terms today, yes – there will be a loss of up to 150,000 or more jobs from the financial services sector globally by end 2008 if the current forecasts are achieved. But this is across all levels of the companies, not especially concentrated on the senior roles, although obviously they are the ones most cost-effective in rapidly lowering compensation costs to the firms.

Senior roles continue to be needed, but they are changing. There are fewer pure “management” or rainmaker roles, as opposed to hands-on leadership and continued P&L responsibility for clients, even at the most senior levels. For example, in terms of retained search, there’s a lot more emphasis on specialized sales jobs. There is definitely a collapsing and merging of different pieces of the silos. We’re being asked to introduce talent for multi-asset class sales platforms, requiring a different type of salesperson, someone who can cross-sell both fixed income equity and derivative products, across a diverse range of institutions in a specific country or geography. Because firms are not finding it easy to promote a sitting incumbent who has just one piece of the pie, we’re being challenged to find different and more multi-skilled people around the world. So that’s why  you’re still seeing senior banker appointments or flow between firms because the companies may be readjusting their models at different paces, and sometimes bringing new “change agent”  leadership from a different firm that had successfully adopted a different model already.

BlueSteps: What areas are growing, or at the very least are safe havens right now?

Betsey: I think the traditional industry focused banking coverage roles will stay as they are in most firms, with many US firms seeking to move further down in size to the “mid-cap” (not Top 100) companies in the US. I think the core of investment banking advisory services will also stay the same. M&A opportunities, especially in the mid-cap range, will come back. People with deep client relationships in certain industrial silos are always employable. There probably will be more value for independent advice and so we do see more of the US and UK boutique firms able to provide merger fairness opinions etc, trying to capitalize on good people leaving the major firms to add very experienced talent to their ranks.

There’s a consistently expressed perception in the press that restructuring and distress will be a big growth area for bankers, but I think in reality there’s already been a lot of money raised for direct investment in that area. The pending investment opportunities take more capital now than in the last cycle, because the debts are bigger, but they don’t take tons more people to analyze them. Firms may have scope to absorb skilled middle to upper level people with credit and restructuring backgrounds, but they don’t offer a lot of easy employment for junior people. Fee paid bankruptcy advice is right now benefiting only a small number of boutiques and especially the law firms, given it may take until mid to late 2009 for bank loans to finally default.

In private equity, it’s a little slower, except for some specialist areas (clean technology and healthcare) and infrastructure, both in the US and the emerging markets. Again, most major firms are pretty fully staffed at the middle to higher levels and have significant amounts of reserve capital raised in big funds that closed in 2007 and 2008, but I think they’re spending more time investing in companies, not chasing lots of new deals. There’s a lot of preserving capital going on. The problem at the moment is not lack of capital; it is lack of credibility and confidence about whether asset prices have stabilized or will go down, and how to add any element of leverage to a new deal. There’s plenty of capital sitting on the sidelines.

Hedge funds is such a broad term that it now mean everything from the more established type of asset management fund to something far more risky. People need to be aware of the total size of money under management available to the firm, how stable has it been. The larger will survive, but those under $5 million can, and are getting wiped out very quickly, particularly those that have had big exposures to the US and European credit markets and CDO markets this year.

BlueSteps: What kind of advice would you offer senior executives looking to change jobs or in danger of losing a job right now?

Betsey: First of all, the most valuable thing a senior employee can do is to reinforce his/her network of client contacts: whether these are customers to whom they sell securities, or corporations for whom they’re providing services. Think carefully about who you would use as references were you out of work. Focus on getting back-up documentation about your business: deal lists or statistics if you’re in sales. You need to think about those areas so can go sell yourself concretely.

If someone is already or likely to be caught in a merger situation, they need to be cautious and clear about why they may choose to stay if that opportunity is available to them, and not be complacent feeling that their future is secure, even if s/he survived a first cut. We’ve heard some pretty cold, stark stories about people getting paid only a week for every year they’ve worked, no bonuses. Letting people go immediately before a merger is officially closed is now not uncommon as we are now seeing with BOA/ Merrill Lynch and saw earlier with the Bear sale and with the Lehman bankruptcy.

You should be aware that if you are retrenched, this is not an environment where people are necessarily getting offered substantial severance packages, especially not from the investment banks. Firms are looking to operate at the lowest possible cost given their losses. If you have stock awards that have not yet vested, and if you’re quite senior you need to figure out how to negotiate around getting those awards still being eligible to vest (especially against such depressed share prices for most financial institutions) or figuring out and understanding the rules around retrenchment for that stock; be strategic and careful. Ask questions in advance before you need to know the answers to understand what is at risk for you.

When you’re in discussions with a prospective employer remember that a lot of the stock in your current or former company may have had very long vesting periods, or be very underwater at this point, and that the hiring company may not simply be willing to write a stock award to pick it up or adopt an unrealistic valuation. It’s a pretty unusual time in terms of what firms will stretch to do. Unfortunately, many firms are looking for bargains in picking up good talent, hoping to pay only fair and solid bases, with future bonuses and other compensation solely linked to future performance at their company, not a past history at a competitor. Firms are avoiding benefit or bonus buy-out costs if they can help it.

BlueSteps: If you’re in one of the hardest hit sectors such as structured finance, what should you do to get hired? Are there jobs in related sectors where that skill set would be applicable?

Betsey: I think people need to figure out how to use their experience in a different context. For young people who were in structured finance, they should think about retraining to leverage their experience into a different area of finance. If they’re very numerate, they need to think about doing professional qualifications - CFA’s or CAIA’s - to leverage themselves into a quantitative analyst role or a similarly different kind of job. The truth is, they’re not going to be able to instantly transition to project finance or other structured finance work as it is declining now too. I’ve also encouraged some people to go to work for the big commercial real estate companies, to the internal groups for M&A, property assessment or finance like a Tishman Speyer if they have entry from client connections. If you are at one of the big real estate companies, it may be easier to come back to the banks.

Right now with the whole government bailout plan (TARP) in flux, it is not clear that a new regulatory agency will emerge or new asset managers grow up to buy and manage distressed structured finance assets, but smart young people need to track developments in this area. They may find that going to work in the professional services world – especially Top 4 accounting firms in their corporate finance or valuation/audit groups – is also a good opportunity to broaden their real experience for 3-5 years and keep them on a platform for a potential eventual return to one of the banks.

But there is no question that the rapid and unexpected change in October 2008 in the US away from independent investment banks and broker dealers to now having all the major firms become regulated bank holding companies means that investment banks are going to have to operate with much less leverage than in the past five years. So many of the formerly sexy areas like structured finance are very unlikely to rebound in any major way for a long time to come.

Another area that is changing rapidly is the financial sponsors/major private equity firms. Many are trying to re-deploy staff at the more junior levels in light of much reduced deal flows, and are beginning to quietly lay off staff and slow down hiring as the overhang of leveraged loans in the banks are sold out to the market at discounts and banks avoid any new credit extensions. However, there has been a strong need for better and more specialized fundraising and marketing at these firms as some of them cross over from pure private equity to having hedge fund or special situations/distress related strategies. So a number of senior candidates that have come up through the sell-side Institutional Sales roles are now finding employment in the fund marketing area for the PE firms.

There is also blurring in terms of what’s considered asset management and “alternatives” inside the asset management arms of the big bulge bracket investment banks which is having an impact also at the Funds of Funds as well in terms of their need to cover and work with more of the “alternatives” areas. So there are some paths along fundraising, distribution and placement that are requiring people to be more skilled. The best people in these areas tend to be well experienced, are not all very young, and there are definite opportunities for seasoned people with books of institutional contacts and good track records in selling specialized products like private equity, real estate funds etc. This is true in the US, Europe and even now in Asia where there is no indigenous group of such individuals.

I also think people need to come to terms in their 40's and 50's as to whether they can be more entrepreneurial or buy into a business in a service industry, something they love.

BlueStep: What do you think is on the horizon for 2009? Predictions on the market?

Betsey: The months ahead are going to be very, very challenging as there are relatively few new firm entrants with capital or the ability to grow. The only likely growth area for any new entrants remains asset management, not in investment banking. Aside from the very largest firms, you’re seeing traditional American banks choosing to grow more in their home country.

So that’s why I think people need to be careful with their next step. It may not be the same kind of role you had. More fallout and consolidation is a way of life that will continue to accelerate in early 2009.

We will definitely see more regional US bank mergers in the Mid-West, the South (like Florida), and on the West Coast - not just the mortgage firms but the regional banks hard hit now by industrial client problems and layoffs. I think we’ll see more fallout among foreign banks which have West Coast or Chicago or Texas offices pulling back from smaller US business lending.

In commodities recruiting, which we’ve done some of, there has suddenly been huge pressure on firms that grew rapidly in 2007/2008 brought on by the collapse of the oil prices, and hiring has abruptly slowed down. Many/most of the staff of these companies are in Texas, not New York or Chicago at this point in time, which is a challenge for some families now wanting to relocate if a spouse also has a career in NY or Chicago.

For very top talent in banking, the opportunities will always be there. It may just take a few months into 2009 for some of the major market nervousness and impact to calm down and for stability to encourage more risk taking again across the markets, which will eventually open up new positions.

BlueSteps: What about “The War for Talent”?

Betsey: It’s really about finding multi-skilled, transformational people who can really add value, and are more entrepreneurial. It’s about finding people who can take a business, a product line or ideas and move them to new geographies or help change regulation in a geography, or add a new level of financial discipline or cost control while providing new talent leadership.

Firms are becoming less hierarchical and those who are very talented can advance now very quickly in both investment banking and asset management/hedge funds. Barriers of age and length of service are breaking down. So firms are constantly grappling with hierarchy and it’s about finding those types of individuals for whom firms are happy to reshape their structures to give them the tools to have a maximum impact on the businesses.

The levels of government capital supports for bank stabilization seen in September and October 2008, and continuing today are just unprecedented in our times. The changed shareholding structures, with governments as major shareholders, are bringing new and very different pressures to bear on bank leadership and governance practices. The days ahead will show some very severe pressure for changes in the traditional bonus-oriented compensation models of investment/commercial banks and that will likely encourage the best trading talent to move to the hedge fund industry and individuals with very strong industry knowledge to continue to look at moves to private equity, where their upsides may be less constrained.

About Ms Wood

Betsey Wood is a Director and the Head of the New York office of Global Sage. She was a co-founder of Global Sage in 1999 as part of a five-year career in executive search in Asia, and rejoined the firm in New York in late 2005 after two years as the Chief Operating Officer of the Financial Services Volunteer Corps, a non-profit voluntary organization doing global advisory work with financial intermediaries and regulators. Ms. Wood focuses on senior level recruitment in investment banking, alternative investments and private equity across the emerging markets.

Previously, Ms. Wood had a distinguished career of more than 20 years as an investment and commercial banker in the emerging markets, particularly in Southeast Asia & India. She holds an MBA from Columbia University in New York and a Bachelor of Science in Foreign Service from Georgetown University in Washington, D.C. T
o read more about Betsey and Global Sage, visit www.globalsage.com.

Interview conducted for BlueSteps by Allison Cheston, November 2008. Allison is a marketer, career advisor, and expert in executive search marketing. For more information go to www.allisoncheston.com.

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