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Elite Boutique Investment Banking Primer

You can easily categorize the world’s top investment banks into two major categories: bulge brackets and elite boutiques. If you were to take a look at the top firms, every single one would fall under one of those two categories. An investment banking analyst role at one of these firms is one of the highest paid business jobs you can get out of school.


Below is a list of the top investment banks, ranked by M&A deal volume in 2019. Of this top 10, Evercore and Centerview would qualify as elite boutiques.



Today, we’re going to discuss the nature of elite boutiques, how they compare with bulge brackets, as well as the pros and cons of working for an elite boutique.


For full disclosure, I worked at Evercore in New York. I picked that offer over other bulge bracket and other elite boutique offers, though I likely would have taken a top bulge bracket offer over Evercore (i.e. a top group at Goldman Sachs or Morgan Stanley).




What is an Elite Boutique (aka Independent Advisors)?

Elite boutiques are investment banks that specifically focus on investment banking and primarily do M&A and restructuring functions. Elite boutiques represent how the old school investment banks had once operated – they focus purely on doing investment banking deals, advising clients on strategic decisions. Bulge brackets tend to have many different company functions, including lending and wealth management.


Note that many of these elite boutiques are internally referred to as “independent advisors”, because the “boutique” connotation tends to imply a smaller or less sophisticated type of company.


Many elite boutiques were formed because a founder or partner left one of the bulge brackets and wanted to focus wholly on investment banking.


You’ll see that many elite boutiques grow by hiring away partners from other banks. Many elite boutiques offer partners at other firms the opportunity to head their own industry group or division. In this way, the evolution of elite boutiques can resemble the growth of law firms – leaders leave firms to start their own leaner operations and get a greater amount of equity.



The Defining Characteristics of an Elite Boutique

Some of the defining characteristics of elite boutiques include:

  • Elite Boutiques Have a Greater Focus on Pure Investment Banking

Elite boutiques focus almost exclusively on investment banking. It’s not their business model or corporate structure to dabble heavily in other kinds of business.


Just to illustrate the difference, in 2019, 97% of Evercore’s revenues came from investment banking. They also do equity research and capital markets, but those functions are materially smaller.





In contrast, bulge brackets tend to have way more divisions and more diverse priorities. It’s not just about investment banking, it’s also about managing more assets and getting a good return on lent capital.


J.P. Morgan for example is an enormous financial institution that just happens to own Chase bank, one of the largest consumer banks in the world. Per their annual report, J.P. Morgan’s investment banking fees represented only 6% of their total net revenue in 2019. J.P. Morgan is still a tremendous place to work, but the company’s leaders are not going to be solely focused on the investment banking team.





  • Elite Boutiques Don't Have Balance Sheets

A very important distinction is that elite boutiques don’t have balance sheets or they have very small balance sheets. What this means is that they do very little financing or lending. That’s why you never see Evercore or Centerview as the lead underwriter for an IPO. In order to lead an IPO or lend a company billions of dollars, you need to have a balance sheet and a big capital markets team.


Capital markets is an essential part of the business model for the bulge brackets. J.P. Morgan and Bank of America lend huge amounts of money to public companies, private equity firms, and other institutions. In fact, many bulge brackets use their balance sheet in order to win deals. For example, bulge brackets will often offer lower terms on financing deals in order to win the M&A mandate. It’s like being a slight loss leader on financing in order to get a bigger share of the pie.


Elite boutiques don’t have that option and often say that they win deals based on the quality of their advice. Without the option to loan companies money, you have to make sure that your strategic advice and client servicing is top-notch.


  • Elite Boutiques are Leaner

Elite boutiques have way fewer employees, which generally means that deal teams are smaller and that you’ll have greater responsibility for your tasks. At bulge brackets, there can be deal teams from 3 or 4 different industry groups and functions (e.g. east coast TMT, west coast TMT, M&A, debt financing...) At elite boutiques, there’s generally going to be fewer people involved.


This can be good and bad. You might get more opportunities to work with higher level employees at an elite boutique. It probably means that there’s more room for you to grow and the road to partner is less crowded. But it also means you might not have the same luxuries as a big bank.


For example, most bulge brackets have integrated research teams, high-quality support staff, and even outsourced presentation groups (to help you format stuff). At elite boutiques, it can be kind of random what resources you have. I definitely remember sharing just a handful of research accounts across my entire analyst class and having to pull research from a public computer.


Being leaner and smaller also means that elite boutiques do not always cover every industry and every geography. Many boutiques focus on one specific industry because that’s what the partners specialize in. Qatalyst for example is probably the best pure tech investment bank in the world, but it doesn’t have very many offices or presence in other industries.

  • Elite Boutiques Pay a Greater Percentage of Deal Fees to Employees

Generally speaking, elite boutiques are going to pay more than bulge brackets. That’s because there’s less corporate heft and fewer administrative bodies. Importantly, many elite boutiques were founded with the principle that partners and employees should receive a greater proportion of the deal fee (vs. the company and shareholders).


Centerview for example is notorious for paying their employees and partners absurdly more than others in the industry. This is possible because the deal teams get to keep a much greater proportion of the fees won from the investment banking deals. Goldman Sachs may earn a ton of money from deals, but a greater proportion is paid out to the corporation, shareholders, and to help fund other business units.


This pay gap is apparent even at the analyst level. There tends to be a 10-15% pay spread between elite boutiques and bulge brackets.



Who are the Elite Boutiques?


Let’s examine a list of the top 15 elite boutiques based on M&A volume in 2018 per Bloomberg to get a sense of who the relevant players are.



I personally think that this list is relatively indicative of which firms are growing quickly and which can attract talent. Note that the biggest elite boutiques are at the bottom of the top 10 of the total investment banking list, so in general they are still quite a bit smaller than the bulge brackets.


It’s difficult to supply a discrete ranking of which are the “best” places to work, so here are some general observations and perspectives I hold:


Observations of Elite Boutiques

  • I think Blackstone and Lazard used to top this list consistently back when Evercore was still small (i.e. early 2010s and prior). Lazard has still been consistently great though and I think the shift in league tables speaks more to Evercore’s crazy growth. I think Blackstone's spin into PJT Partners impacted their perception and deal flow a bit, but recruiting seems to have remained strong.

  • Moelis is notoriously a sweatshop. Good recruiting, but they have an uncanny ability to sap their analysts of life and joy.

  • Centerview notoriously pays by far the most of any investment bank, often trumping 2nd place by 20-30%. They pay very well but the flipside is that they frown upon analyst recruiting more, often requiring you to stay a 3rd year before they’ll support your recruiting decision. That being said, they probably have the best analyst retention across all firms, which makes sense, because they pay in line with many private equity firms.

  • I think Qatalyst is hands down the best place to be if you want to be in tech – better than Goldman or Morgan Stanley too. They’re grossly underrepresented on this ranking because this list is M&A and not IPO. Qatalyst is on the best tech deals every single year and is a great feeder to venture capital, big tech, and tech private equity.

  • I would personally still pick good groups at Goldman and Morgan Stanley over any of the firms here. In my opinion, the deal flow is going to be similar, recruiting and brand is going to be slightly better there. Any foregone salary isn’t going to matter much in the medium to long run.


Pros and Cons of Working for an Elite Boutique


Here are some high-level pros and cons of working for an elite boutique.


Pros


Better pay (At the analyst and associate level, about 10-15% higher than bulge brackets)


Generally more supportive of analyst recruiting

  • I’ve found that many elite boutiques typically just “get the game” better and don’t kid themselves about analysts recruiting for the buyside. They don’t put restrictions on recruiting or force you to recruit in secret like many bulge brackets do.

  • Oftentimes, elite boutiques will even be encouraging of recruiting, making introductions, offering to give recommendations, and facilitating a comfortable working environment. For example at Evercore, a firm-wide e-mail was sent out warning deal teams when recruiting was likely to arise. The e-mail suggested that deal teams cover for analysts. At Goldman, my friend had to pretend to go to the dentist multiple times in order to do coffee chats.

Growth opportunity and firm trajectory

  • Elite boutiques are generally smaller and many are growing very quickly, so there tends to be more upward mobility. I think in general it tends to be easier to climb the ladder at an elite boutique (which is why so many mid-level bulge bracket people jump ship).


Cons


Weaker brand and prestige outside of finance

  • If you’re not sure if you want to stay in finance, or if you want to go to a public or government role, you might be better suited “playing it safe” and going with a bulge bracket. Elite boutiques are certainly not very well known outside of finance and you’ll have less cache if you think you might want to do start-ups or raise money at some point. I think this delta is probably even more true internationally, where many elite boutiques don’t have very large offices.

  • It also doesn’t feel sick when you go back to your high school reunion and they stare blankly at you as you try to explain to them you’ve had a successful career.


Less exposure to financing portion of the business

  • Tangibly speaking on the job, it’s actually a hindrance to not be very involved with the lending and IPO side of the investment banking business. Not having a balance sheet can hold you back a tiny bit. Nothing is unlearnable, but I found there’s slightly more of a learning curve in say private equity when you have to deal a lot with debt terms and financing. IPOs are also important because it is one of the most common exits.


Fewer lateral opportunities

  • Smaller firms mean fewer divisions and offices, so there are going to be fewer lateral opportunities overall. For example, if you ever considered lateraling back to your hometown, some elite boutiques might not have any presence there.


Generally more “key person risk”

  • Many of these elite boutiques are still led by the original founder of the firm (e.g. Evercore, Moelis, Centerview) and it’s perceived that the founder drives a lot of the deal flow in the firm. If the key people retire or shift focus, it could really change the perception and growth of the business. On the other hand, a lot of the bulge brackets have armies of managing partners and often have well-systemized succession plans.


So should you work for an elite boutique?


Well, as I alluded to in the introduction, I think the specific firms you're deciding between influence the decision a lot more. As an analyst, I think the specific ranking of firms is going to matter more for recruiting than whether it is a bulge bracket or elite boutique. As long as the firm you’re going to is doing deals and there’s a track record over the last 3-5 years of recruiting success, you should be in a good position.