• Valuation is completely different.
• You need to understand the finer points of accounting and spot small details.
• No one else outside of FIG understands what’s going on.
• And hey, you might even learn how to cause a financial crisis or two.

As an added bonus, you’ll be busy regardless of whether we’re in a recession (banks consolidate to cut costs) or an expansion (banks consolidate to expand and new banks go public).

You just need to wrap your head around all the tricky concepts first and crack the FIG success code.

Read on for all of that and more – including how you can optimize your chances of getting placed in FIG, the most common deal types, how valuation differs, and whether or not you can ever get non-FIG exit opportunities.

Breaking Into FIG

Q: Let’s start from the beginning: how did you find your current role in your group?

A: I went to a top four school and networked through the alumni who were active in campus recruiting. They were very helpful in my process.

I was originally intrigued by my firm’s restructuring team, but through the selection process was placed into the financial institutions group.

It has been a great experience so far, and being in my group has really opened my eyes in terms of valuing companies and being a part of an active team.

In any phase of the economic cycle, you want to be in a group that is active with deal flow. I lucked out and was placed in a group that always seems to be busy.

Q: How does that matching process work? Is it based on sell days or just your preferences?

A: You hear presentations about the different groups and afterward you attend a short mixer of some sort.

You’ll need to make quality connections so that your favorite group members can vouch for you and make your case.

If you have too many connections but not enough depth, you can easily get placed into a group you didn’t even list as one of your choices.

It’s not necessarily a bad thing, but it will make your career path more non-linear, especially if you have one mapped out already.

It’s a mutual fit – groups that have a greater need will have more spots open.

Q: Okay, but what about if I’m not an entry-level hire?

If I’m a lateral hire, what could I do to increase my chances of being placed in the FIG team?

A: One of my favorite movie scenes is this one right here. You cannot arrive at the table with a “clean slate” when you go in for a FIG interview.

My Managing Director once said, “It’s much easier to write a term paper with stuff written on the document already than it is to write from a blank sheet of paper.”

So you need to read up on FIG analysis, including how valuation differs, how the industry is divided, and you need to be able to speak intelligently about industry trends.

For an academic approach, take a look at NYU Professor Aswath Damodaran’s work and some of the papers he makes available on valuing financial services firms.

Other resources I recommend for more of an applied / hands-on approach:

• The Breaking Into Wall Street Bank & Financial Institution Modeling program
• American Banker (trade publication for FIG professionals)
• Financial Institutions, Markets, and Money

Go through those and absorb everything you can, and make sure you can talk about a few recent FIG deals, what motivated them, and what you think about the valuation and deal terms. Maybe even produce a one-page summary…

They don’t expect you to know everything walking into the interview, but they do expect you to be enthusiastic and a fast learner.

Both elements come across in how you talk, how you interact with your interviewers, and through the quality of your work (or responses).

FIG Newton? How the Industry Works

Q: Wow, thanks for all of these tips. These are very helpful for anyone looking to join the FIG scene.

So what exactly do you cover? How is the industry divided, and are certain banks stronger in certain areas?

A: Historically, FIG has been the biggest revenue generator for many investment banks – so they devote a lot of resources to it.

Here are the main divisions within financial institutions, as well as a few middle-market and boutique banks that specialize in some of the areas:

• Banks, Thrifts, and Depositories: Sandler O’Neil, Keefe Bruyette Woods, and Jefferies (former Barclays team)
• Specialty Finance
• Insurance: Macquarie (formerly: Fox Pitt Kelton)
• Broker-Dealers
• Investment / Asset Management
• Financial Technology: FT Partners

Of these areas, Banks, Thrifts and Depositories, Specialty Finance, and Insurance are by far the most different from “normal companies” because metrics like EBITDA and Enterprise Value simply don’t apply.

The other three sectors are not nearly as different, although there are some industry-specific metrics.

Here’s a brief overview of the business models in each of these sub-industries:

• Banks, Thrifts, and Depositories: You deposit money, they pay you a certain interest rate, and then they issue loans to businesses and other individuals at a higher interest rate.
• Specialty Finance: These are companies that provide “alternative lending” models – credit card companies, mortgage banks, commercial finance, leasing, mortgage REITs, asset-backed lending, and so on.
• Insurance: You pay a premium to cover yourself or your property in case of emergency, and they pay you when emergency strikes; when it doesn’t (or until it does…), they invest the money to earn additional profits.
• Broker-Dealers: They earn commissions on each trade or each deal (investment banks, stock exchanges, and so on).
• Investment / Asset Management: They raise money from investors, invest it, and earn a return on their investment. Or, they may simply manage client funds and charge a percentage fee for that.
• Financial Technology: Payment and transaction processing, card networks, financial software, and so on. The business models vary: commissions, recurring subscription fees, and more.

Q: OK, so those are a lot of areas and they all sound pretty different in terms of business models.

How does staffing work in FIG?

A: Depending on the firm, you can either be a generalist and receive assignments from any of the verticals, or be a specialist and just cover one area very well.

You just need to be flexible in your expectations – just because you like a certain sector doesn’t mean it’ll be incredibly busy.

As I said above, banks, insurance, and specialty finance are the most different sectors in FIG, so you’re more likely to be a specialist if you happen to work in one of those.

FIG Valuation: Book Value, Dividends, and… Regression Analysis?

Q: Right, so the experience is dependent on the sector but you’re more likely to be a specialist in certain areas than in others.

What about valuation? A lot of readers are curious about this one because it’s so dramatically different for FIG.

A: Most practitioners who cover Financial Institutions argue that valuation is very different from all the other sectors’ valuations (ex: consumer retail, industrials, etc.).

The reality is that the valuations are different in calculation, but not in approach.

You still use both intrinsic valuation and relative valuation, including methodologies such as trading comparables and precedent transactions.

If you take a look at the Fairness Opinion for BlackRock / Barclays Global Investors (see page 20), you can see how the measures are evaluated in practice.

That is an example of an asset management valuation, and you can see the metrics and multiples they use: P / E, EV / EBITDA, and EV / AUM (Assets Under Management).

It’s not dramatically different from normal companies because asset management firms don’t make money with the interest rate spread as banks and specialty finance firms do.

As for the actual methodologies used, let’s break them down by sub-sector:

• Discounted Cash Flow: Most applicable for broker-dealers, investment / asset management, and fin-tech. The same as your standard DCF.
• Dividend Discount Model: FCF is meaningless for banks, specialty finance, and insurance firms, so you use dividends as a proxy for their free cash flow instead.
• Multiples – P/E: You could use this for almost anything.
• Multiples – P /BV and P / TBV: More applicable for banks, insurance, and specialty finance since their market values should be close to their book values. Sometimes Tangible Book Value is used, so you subtract Goodwill & Other Intangibles (which can artificially inflate Book Value).
• Multiples – EV/EBITDA: Applies more to asset management, broker-dealers, and fin-tech; EBITDA is not used for the other sub-industries.
• Multiples – EV / AUM: An important metric for asset management.
• Multiples – Price Per Share / Embedded Value Per Share: This one’s specific to life insurance; embedded value is an intrinsic value methodology there.
• Net Flows Regression Analysis: Asset Management Inflows that are directed to a firm’s AUM divided by the firm’s Assets Under Management, graphed against P/E. This metric tells you how price is related to the firm’s ability to attract new money.
• Pro Forma Analysis (Merger Consequences Analysis or Accretion-Dilution): Pretty standard, but it can get complicated with banks (deposit divestitures, regulatory capital adjustments, and so on).

See page 18 here if you’re interested in an investment firm case study.

For a reinsurance client presentation on valuation, try the Fairfax / Odyssey Re transaction.

On the bank/thrift side of things, geographic presence is a big motivation to engage in M&A, as illustrated here.

Taking a look at a transaction between stock exchanges, you can see that the valuation measures are very similar to the standard set.

Q: That all seems pretty straightforward except for the regression analysis part – I didn’t think we’d see that used much outside of research / econometrics.

Anything else we should know about valuation in FIG?

A: Another big aspect here is working with and analyzing regulatory capital.

All banks and insurance firms must keep a certain amount of “capital” (basically, shareholders’ equity, adjusted for a few other items) on their balance sheets at all times.

That plays into the valuation because, for example, in a dividend discount model you can’t just blindly assume a 10% or 20% growth rate.

You have to check to make sure that the bank has the minimum amount of regulatory capital required, and then tie all growth and dividend issuance assumptions to that ratio.

So if you’re assuming that they issue a certain percentage of net income as dividends each year, their capital levels must remain above the minimum percentages even after they issue those dividends.

Bonus: Check out this comprehensive tutorial on Bank & Insurance Modeling to learn even more.

Brokers & Dealing

Q: I see, so it sounds like a tweak to the traditional DCF where you can just make the assumptions you want to make, within reason.

What types of deals are most common in your group?

A: Generally the split is pretty even among equity, debt, and advisory assignments. If the market is not doing so well, expect regional depositories to be acquired by larger players.

When times are good, expect a higher proportion of equity deals.

It’s consistent with corporate finance theory – if a firm issues equity, it’s a sign of good times within the issuer.

If a firm issues debt, it means that they need the funds for something more specific than general corporate funding.

Q: That’s interesting to see a more even split compared to other sectors.

What do the industry pages look like in pitch books?

A: Your pages differ depending on the sector you’re covering.

The financial sector is greatly affected by policy updates and regulations, so you might even be staffed on government presentations.

A set of pages might reference major developments and how these developments translate into challenges or opportunities.

Here’s what you might expect to see discussed in the different sub-sectors (just the ones I’m familiar with):

Banks, Thrifts, and Depositories:  Benchmarking pages include a segment on how well-capitalized depositories are. For regional banks, you’re likely to see something on the geographic concentration of branches.

In Manhattan, there’s always a fight between Bank of America and Chase over the number of physical branches and that’s the type of information you might see.

Investment Management: Trends on where money is going will be important to mention (types of investments and the level of overall net new money). The retention of clients through strong customer service and a track record for solid returns is crucial.

Insurance: The main areas concern life, auto, and property insurance. Factors that affect an insurance company include consumer confidence, employment levels, and interest rates.

For more specific forms of insurance, you might even see something on changes and trends in social attitudes (e.g. peoples’ views on work ethic and stability for disability insurance).

Exchanges: Believe it or not, exchanges do face competition. How other firms are able to out-innovate (process, price, etc.) the economies of scale poses a risk to exchanges. Some banks actually internalize trades and take away this trade volume from exchanges.

Exit Opportunities: What Exit Opportunities?

Q: Interesting to note all that. It sounds like you learn about the broader trends in the economy, but do you also get broader exit opportunities?

Some people say FIG is an incredibly specialized group and that you can’t do anything outside of FIG afterward – true or false?

A: It is, and it isn’t. Some people say being in FIG is a handicap for private equity recruiting.

If you’re in FIG, however, you have a much better story in terms of getting into strategy / corporate development roles at financial institutions.

You are definitely more specialized, and that can limit PE opportunities – but you’re also in a much better position for funds that invest in financial institutions.

Most normal PE firms won’t even touch financial institutions because they don’t understand them – but there are a few specialized PE firms that focus on FIG (e.g. JC Flowers) and they’re not likely to recruit someone without FIG experience.

And if you want to stay in a financial center, FIG experience can be very helpful even if you move into another group, another firm, or another industry altogether.

So much business in places like London and New York depends on financial firms that understanding them in-depth and having contacts there can make a big difference in almost any field – if you start your own company one day in one of those cities, guess who your main customers might be?

Q: Right, those are great points and I hadn’t thought through that one about FIG being central to business in financial centers.

So how can readers tell if FIG is right for them?

A: If you like reading up on the sector and you enjoy following financials you’re good to go.

The quality of your work is dictated by how badly you want to perform, and how interested you are in your work.

Some of the top leadership on Wall Street today actually had some background in the sector – for example, Morgan Stanley CFO Ruth Porat was originally a tech banker who then worked in financial sponsors / financial institutions.

And so I don’t think you can really argue with FIG as a solid way to start off your career.

Q: Awesome, thanks for your time.

A: Sure thing – enjoyed speaking with you!

Luis Miguel Ochoa has worked in investment banking for several years covering the industrial sector. In addition to being an avid mentor for his alma mater, he volunteers for the Association of Latino Professionals in Finance and Accounting. In his spare time, he is fencing, and attends networking events in New York. He has graduated from Stanford with a BA in Economics.

We’ll be optimistic here and assume that you’ve actually managed to raise enough capital, get all the legal and infrastructure stuff taken care of, and that your trading strategy still produces solid returns.

So what will your average day look like now?

Like everything with hedge funds, it depends: it depends on your strategy, the size of your organization, and your stage in the fundraising cycle, among other things.

Here’s a realistic day in the life for my research-driven value fund:

6:00 AM

Wake up. Check smartphone before rolling out of bed to scan headlines coming out of Asia and Europe. Glance at inbox to size up what chunk of my day will be consumed by correspondence.

Eat breakfast with the Wall Street Journal. Actually read it.

Listen to the BBC’s Wake Up to Money podcast at the gym and on my commute to round out my information on European markets. It’s more interesting than anything on CNBC 90% of the time.

7:00 AM

Arrive at the office. Read news related to positions I currently hold and am following. As I read all this news, I take notes on what’s interesting, what to follow-up on, and what could affect my portfolio.

A colleague brings by the daily holdings and performance report from our prime broker. There was a big move in the GBP overnight that leaves us more exposed than we’d like to be.

I ask him to call our prime broker to sell the excess currency and get the allocation back on target.

We don’t trade currency as a primary strategy, so we don’t have the capacity to handle this in-house.

There are a lot of securities I’d like us to trade ourselves, but the required infrastructure is too expensive for our current size, so we rely heavily on outside traders.

7:30 AM

Meet with the team to finalize the day’s game plan. This is possibly the most important part of the day, as it determines our research and trading priorities.

A lot of our positions have upcoming corporate actions (bankruptcy hearings, spinouts, etc.), so I need to stay on top of events as they unfold.

We go around pitching new ideas and decide what to pursue. Unlike a traditional asset management firm, we don’t divide people up by industry coverage.

We’re looking for asymmetric opportunities across industries/market caps/geographies/asset classes, so we have to be generalists.

An analyst who watches our screens for ideas presents some companies with massively underfunded pensions and declining earnings as potential shorts. I pick out the most promising names and divvy up the research. We’re off to our desks with plans in hand.

Of course, this plan can be blown to smithereens if the market opens down 300 points.

8:30 AM – 9:30 AM

Work on current holdings. One of them just announced a rights offering, so I build that into my model to see what the capital structure will look like and whether we want to participate.

9:30 AM

US markets open. If things are generally stable, I’ll just keep working through my game plan for the rest of the morning.

There’s an interesting merger underway with the potential to shake a bunch of weird securities, so I spend a few hours reading through the filings to understand the merger terms and the two companies being merged.

10:00 AM

A trader stops in to tell me that one of our positions has been hit with a regulatory action by the EPA. I stop researching the merger to figure out what’s going on with the EPA.

We determine it’s not of real concern since the company has ten times the amount of cash it needs to pay the highest possible fine.

11:00 AM

An equity salesperson calls to pitch a secondary offering in a company I was looking at months ago. No way – it’s a total disaster.

11:30 AM

Eat lunch while reading the merger agreement. They’re paying for part of it in warrants – put those on game plan for tomorrow. Time to fundraise!

1:00 PM

Have call with potential investor. He’s very well-connected and could catapult the fund to the top institutions.

He drills me with questions about our strategy, our risk management, our infrastructure and back office, and whether we have the capacity to take a lot of new money.

If that last issue seems odd to you, scalability is a common problem. A fund focused on microcap stocks can’t take meaningful positions with more than a few hundred million under management because they’d move the market.

On the other hand, it’s hard to succeed as an activist fund without a few billion in the bank.

Large investors are frightened that their contribution will decrease your ability to execute your strategy and they won’t reap the performance that attracted them in the first place.

2:00 PM

That company with the possible EPA fine? It just got worse. The stock is down 15% and the Justice Department has issued its own inquiry into the matter.

It’s going to get ugly – I pull everyone from their desks to figure out who knows what and how we can find out more. It’s a huge position for us and we’re losing money every second, but it could also be a great buying opportunity if the market is overreacting.

I want a decision by 3:30 PM so we can act.

3:00 PM

I’m looking through old EPA court cases to get a sense of how these things progress. History is telling me that the actual fines wind up being far less than expected and our company will have no problem paying.

Nonetheless, the stock’s down another 7%. We go ahead and buy more.

4:00 PM

Markets close. Other than our environmentally unaware company, our positions remained relatively flat, which is a relief.

I call our prime broker to make sure we’re set up to act on those merger warrants if we decide to pull the trigger. Luckily, no new paperwork is required.

I round up the team for a meeting to see how everyone’s progressed on their research projects. Most ideas end up as duds and there’s only one idea left from today’s list that I want to keep an eye on.

We go over our end-of-day screeners and pull a few names for tomorrow’s agenda.

5:00 PM

Back at my desk, I have time to do uninterrupted research for two hours. What does all this research entail?

For us, we look at everything: SEC filings, court documents, industry publications, sell side research, and our own meetings with management.

It’s easy to read the first page of a bankruptcy with a critical and energized mind, but by the time page 57 rolls around? That’s where most people drop off.

Our strategy requires knowing the nooks and crannies of everything we hold and that means a high level of engagement with all of these documents.

7:00 PM

Dinner party organized by a hedge fund service provider for new managers. Sad, but not surprising: I’m the only woman in the group of 30.

We talk shop and it seems like everyone’s had a rough quarter except for us. It’s nice to catch up with some peers and network with new folks – odds are that most of our funds won’t be around in three years.

9:00 PM

Head home and straight for my desk to do some paperwork. Running a fund isn’t just portfolio management: it’s a small business. I have to make sure that our bills are getting paid on time and our operating accounts are up to date.

10:00 PM

Outline ideas for the quarterly investor letter. I like to draw back the curtain a bit and talk about a few of our positions.

The challenge now is talking about this EPA fine without inducing panic in our investors – if we get a lot of redemptions at once, it would severely cripple us.

I respond to non-urgent emails from that morning. My friends want to organize a weeklong ski vacation, but at this point I can’t take that much time away from the fund.

11:00 PM

Go to sleep excited about the weekend, not because I have awesome plans, but because I can focus on research in the five-hour stretches I like without any market distractions.

Hetty MacIntyre grew up in Western Europe and the Deep South before attending a liberal arts college in the Northeast. She worked at a large pension and endowment fund manager before starting her own value-oriented private investment fund.

Oh yeah, just how different it is working in finance in Canada and how it can be much harder to break into the industry.

If you haven’t already read Part 1 of this interview and learned how our interviewee broke in against all odds – coming from a culinary background – you should get over there and read his story right now.

We’re going to pick up with Part 2 today and you’re going to learn all about what it’s like on the job - from the industries you cover to the most common deal types to the hours and yes, even the pay (with exact numbers).

And then we’ll move into the exit opportunities - a strange world where traditional private equity, venture capital, and hedge funds are less prominent and where pension funds are a more common destination.

NOTE: THIS INTERVIEW APPLIES MORE TO QUEBEC THAN CANADA AS A WHOLE.

So please keep that in mind as you read through it. Yes, things are different in other places. Some of the points here do apply elsewhere, while others are Quebec-specific (i.e. comments on French, some of the figures below, and so on).

Industry Landscape: Got Gold? And Oil?

Q: Switching gears now, how is the finance industry different in Canada overall? Can you go through what the key industry sectors are and how deals are different?

A: Sure. The main industries here are energy, metals & mining, transportation , timber/resources, and a bit of technology.

The Big 5 banks do deals across all of these.

Capital markets activity here is limited to the 5 – 6 biggest banks, and smaller boutiques don’t do debt or equity at all; the Big 5 banks also work with the federal government and provincial governments that issue debt or otherwise need to raise funds.

You do see some boutiques doing private placements and PIPEs, but anything else capital markets-related is rare to nonexistent.

US banks have less of a presence in Canada, though they are still involved in some deals.

A Day in the Life

Q: So the industry is smaller and much more focused – makes sense given the lower and more spread-out population.

What’s an average day in your life like? Are we talking standard investment banking associate days, or is it better / worse?

A: For me it’s pretty much the same as what you see elsewhere – long, grueling days and plenty of weekend work, with a fair number of crazy people in the mix as well.

You do tend to get more responsibility at the junior levels here since the whole industry is smaller.

So as an associate, sometimes I’ll actually go out and find M&A opportunities, bring them back and pitch them to Partners, and so on – or I’ll help with going out and soliciting investors myself. You wouldn’t normally see that at large banks in the US.

Although the PE industry itself is small here, we do a lot of work with pension funds and big banks here and show them projects that require capital – often we raise that capital in the form of special-purpose vehicles (SPVs) with standard-fund economics.

Q: So how would one of those deals work? Can you walk us through the process?

A: Sure. Typically a company that’s lacking capital (usually equity) or needs to grow more quickly would come to us and ask what we can do to help.

So we would complete some due diligence, understand more about their business and market, and assess how much the company could grow over the next 5 – 10 years based on the usual financial statement analysis and projections that you use in banking.

Then we would wrap all of that in a pitch book, and go out and present it to pension funds. Unlike PE or VC firms, pension funds here barely do any soliciting and pretty much wait for inbound leads to show up on their desks before investing in anything.

The Caisse, for example, the largest pension fund in Quebec and 5th largest pension fund in the world, allocates 80% of its portfolio to Fixed Income and Equities and 20% to real-estate & PE / VC.

Pension funds are huge here; 3 of the top 10 biggest funds in the world are based in Canada, even though the country has a smaller population than other developed countries.

So we might pitch one of these private companies that’s looking for growth capital to pension funds and get them interested in investing.

Other banks here might focus on the distressed or debt or convertible markets and find small-cap or mid-cap firms looking to raise money via those vehicles instead.

Q: What about differences on the technical side of deals? Is anything about financial modeling different?

A: There aren’t too many differences.

One point is that the Net Asset Value (NAV) model is more important for intrinsic valuation purposes when you’re looking at oil, gas & mining companies.

And at VC firms here, most of the “analysis” consists of a gut feeling check rather than rigorous technical work in Excel – but you see that in other markets as well.

Hours, Pay, and Paths

Q: OK, so not too many differences on the technical side, although the deal types tend to be a bit different and you deal with pension funds a lot more than traditional PE firms.

What about the hours and compensation? I’ve heard all sorts of mixed views on how they compare at Big 5 banks vs. smaller firms vs. the buy-side in Canada.

A: Sure. The main difference is that salaries and bonuses are much more standardized here, at least at the Big 5 banks. Here’s what you can expect based on recent numbers:

• First Year Associate in Toronto: $105K CAD base salary, with $50K CAD bonus. That ramps up to a $125K CAD base salary over time, with a bonus of $65 – $75K CAD, which stays flat until you reach the VP level.
• Analysts in Toronto: $65 – $75K CAD base salary (Note: May be $80K as the standard at some banks, and sometimes a bit more or less), with $30 – $35K CAD bonus.

However, these numbers are factored by the cost of living in each region, so you would earn 5% less in Vancouver and 10% less in Alberta. Montreal is about 20% less than Toronto.

Unlike the US, each bank here has a set salary and bonus paid to associates – so it doesn’t change much depending on group performance, number of closed deals, or fees.

Q: Right. Those numbers would look a lot better if the US Dollar falls a lot more, but I guess you have to settle for less sometimes.

What about the progression on compensation as you move up the ladder? How much would a VP earn?

A: I don’t have exact numbers for you there, but I’ve heard that VPs might make around $175K CAD base salary with highly variable bonuses based on deals closed, fee structure, and so on.

In a bad year as a VP, you could theoretically earn less than an associate would earn; it’s not common, but it is possible because VP pay is tied much more closely to deals and fees.

Q: What about compensation at boutiques and on the buy-side?

A: For boutiques, pay differs so radically from firm to firm that it’s almost impossible to generalize. Sometimes you could actually end up making more at a boutique than at a Big 5 bank because the fee percentage can be higher.

One deal I heard about here had a 5% fee (which is unusual – it’s normally more like 1-2%) attached to it, and since the boutique bank advising them has lower overhead and fewer people, they were extremely profitable on that deal.

In private equity, some firms here start you at much lower base salaries – maybe $40K CAD – and then give you significantly higher bonuses of around, say, $160K CAD.

Pension funds pay less, but give you more job security – their returns are pathetic, so there’s less money to go around. Plus, they’re highly scrutinized since so many unions rely on the fund and carefully monitor what they pay people.

As an analyst, you might get $60K base salary and a $10 – $15K bonus there; associates might get a base salary of $80K and a bonus of around $20K.

On the other hand, it’s also a very secure job with almost unlimited funds, so you can slack off and barely do anything – it’s almost like working for the government. We’re talking 40-50 hours per week at the most.

The top guys running these places make a lot of money, but the juniors don’t fare nearly as well.

Q: So what’s the typical “path” there in terms of progression and exit opportunities?

A: As I mentioned before, a finance degree from a top Canadian university here is essential. It’s also very helpful if you know French because many of our clients come from Quebec and want to work with other French-speakers.

For some inexplicable reason, they value the CFA very highly here. So that would be an ideal combination to start with: top finance degree + finance internship at Big 5 bank + CFA + French speaker.

After banking, there aren’t too many exit opportunities and most people tend to stick around in the industry; venture capital has been growing lately and some funds are getting larger, but overall the industry is still tiny. And PE is almost nonexistent, relative to the US anyway.

Sometimes people go to big companies’ internal M&A practices – energy companies here, for example, like to solicit oil & gas M&A associates and VPs to come in and run deals so they can avoid paying fees to banks.

And there’s going to be a lot of industry consolidation in coming years because the big companies here want to acquire the smaller players, and they keep on finding new reserves, developing new extraction technologies, and so on.

The Exit Opportunity Landscape in Canada: A Gaping Black Hole?

Q: You’ve mentioned a couple times now that there aren’t many traditional exit opps in Canada – do you have any numbers to back this up or describe the industry?

A: Sure. To give you an idea, in Quebec there are only 3 private equity firms with over $500 million in assets under management; Toronto has a few $1 billion+ AUM funds.

By US standards, $500 million is tiny – the biggest firms out there have tens of billions in capital.

Sometimes, big funds in the US such as KKR actually get aggressive in Canada and will do deals here as well since they consider it part of their “play ground.”

In the VC world, there are also very few firms and in Montreal, for example, only two venture capital firms even have more than $500 million in capital – again, tiny by US standards.

Many PE and VC firms are tiny, which is a bad deal for you if you think about it.

If a firm has $50 million in capital and 6 Partners, you’re looking at $1 million in management fees (2%) each year that gets split between the Partners, leaving very little for the associate; he might make $50 – $60K and be more of an analyst.

Pension funds are an order of magnitude, or maybe even several orders of magnitude, bigger than either of these and a single pension fund might hire 10 associates per year, test them out over several years and see how many a) last b) like the pay c) don’t go on to law school.

(Yes, a significant number of MBA graduates here either have a law degree or follow up with a law degree afterward.)

And since pension funds pay so little, “exit opportunities” for most IB analysts here consist of, “Go to business school and re-join the firm as an associate if you want to get paid more and advance.”

Q: So exit opportunities aren’t too appealing – any differences in recruiting to be aware of, in case someone reading wants to pursue PE, VC, or pension funds in Canada?

A: At pension funds, the process is very similar to what you see in private equity interviews – they give you a case study, a week or so to complete it, and then you have to write up a presentation or thesis on the industry and whether or not you’d make the investment.

And the same goes for PE and VC: the firms are smaller, but they’re still looking for the same qualities – some technical know-how, the ability to recognize and recommend good investments and avoid bad ones, the ability to drive deals to completion independently, and how well you can bring in new business for the firm.

Oh, and since pension funds are heavily regulated by the government, you’re required to be bilingual in French and English if you want to work at a pension fund in Quebec. And there’s tons of M&A activity in Quebec, so you’re pretty much out of luck if you want to work at a pension fund there but don’t know French.

So maybe you should think about doing a Finance degree at McGill with a Minor in French if your heart is set on pension funds…

Q: I’m not convinced by these “exit opportunities” in Canada. It almost sounds like opening your own restaurant might be more lucrative – are you thinking of getting back into that?

A: Hah, good one! For now, I’m happy where I am but who knows what will happen in the future.

I’ve had a passion for food and culinary arts for a long time, and it’s ironic that I originally got into the industry by working at a restaurant.

So I’ve thought about opening my own place before, but I’m not thinking about doing anything like that in the near-term.

Q: I still think you should give it a shot, or at least move to a country where exit opportunities pay more.

But in any case, thanks for the chat – really enjoyed it, and learned a ton about finance in Canada in the process!

A: Thanks! I enjoyed speaking with you as well.

NOTE: THE INTERVIEW ABOVE APPLIES MORE TO QUEBEC THAN CANADA AS A WHOLE.

So please keep that in mind as you read through it. Yes, things are different in other places. Some of the points here do apply elsewhere, while others are Quebec-specific (i.e. comments on French, some of the figures, and so on).

Finance in Canada – Series:

• Investment Banking in Canada – Overview
• Break Into Investment Banking in Canada (Part 1 of Interview)
• Investment Banking in Canada: On the Job and Exit Opportunities (Part 2 of Interview)

UPDATE: Comments on this article are now closed.

Yes, pay figures may be different and some of the individual details within may apply more or less depending on where you are and which bank you’re at.

However, I cannot afford to spend all day arguing about these points. Everything that can be raised about the interview already has been raised and discussed below.

If you don’t like it, please skip over this and read whatever else you want on the site. Best of luck.