Investment banking analysts in China are flooding out to private equity

Investment banks in Hong Kong are facing a severe shortage of junior talent as up to 80% second year analysts have left bulge bracket firms for jobs in private equity this year.

“I joined this bank two years ago. There were ten analysts in my class, but now there are only two left,” says one analyst in HK on the condition of anonymity who herself moved a few months ago. “And even these two could leave any minute.”

For the past couple of years, Mandarin-speaking Chinese have been the recruit of choice for investment banks in Hong Kong keen to tap into lucrative advisory work on the Mainland. However, investment banking in Hong Kong is increasingly viewed as a stepping stone into private equity in Shanghai, Beijing and Hong Kong, and analysts are leaving in droves to private equity.

An 80% turnover rate may not be the norm everywhere, but it highlights the fact that an increasing number of junior investment bankers are only willing to stick it out for a couple of years before moving on.

The working hours are one thing, but most juniors these days are not naive enough to think they’re taking a 9-5 job. Instead, suggest the analysts we spoke to, the work is not engaging enough. “The work is repetitive and routine, it makes me feel like a robot,” she says.

Young, energetic and curious young graduates quickly become jaded after months glued to spreadsheets, they tell us. Private equity doesn’t seem like an obvious escape route – the job still requires extensive financial modelling and the hours are long, but to many it’s a breath of fresh air.

“On the buy side, they are principals and need to be responsible for the investment from beginning to end,” says one HK-based senior M&A banker at a big European bank. “So buy side work is simply more interesting, ”

Investment banks have been making some concessions to working hours in the wake of a series of deaths related to stress or overwork in recent years, but the work-life balance is still better in private equity.

One analyst tells us that after sending an email at 2am at her new PE firm – standard practice in investment banking – she was surrounded by concerned colleagues the following morning asking her what was wrong to necessitate working so late.

And while investment banks struggle to make a profit in Asia, private equity firms are growing. The recent stock market surge in China has flooded the market with extra money, which in turn has led to new PE firms being set up. A lot of more established firms have also used this opportunity to raise additional funds. All of which has pushed up the demand for junior analyst and associates.

“Buy side has become extremely popular, particularly in the consumer goods and tech, media and telecom sector,” notes another analyst who moved from an American investment bank to a Chinese PE fund just last month.

For many, it’s about the long-term career prospects – pay could be up to 20% lower at most local private equity firms than bulge bracket investment banks. “Only a few very big foreign funds are able to match your pay,” says an anonymous analyst who recently left a large bank for a PE firm in China. “Medium-sized funds or local funds all pay much less.”