Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (8 page)

CHELSEA BALL
, the flip-cupping Bank of America Merrill Lynch analyst, slumped down on her bed, pulled the off-white comforter up over her bare feet, and groaned at my question about how things were going.

“Dude, let’s talk about your life,” she said. “Because mine is shit right now.”

It was a Sunday afternoon, halfway through Chelsea’s first year in the public finance division, and already her world seemed to be coming apart. Roughly half of her pain was related to her relationship with Anton, the Georgetown sophomore she had been dating. Chelsea’s monthly Megabus trips to see Anton had started out as welcome distractions from the bustle of New York, but they had quickly become her biggest burdens. Work proved impossible to escape on the weekends, and logging in remotely from Anton’s dorm room, on a tiny laptop with none of her usual tools at her disposal, was an exercise in frustration. And every time she visited him on campus, she found herself feeling contemptuous of her surroundings.
I’m twenty-three years old
, she often thought.
I make six figures, and I have my own apartment. Why am I still eating in a dining hall?

She and Anton had been fighting almost daily, and Chelsea often thought about breaking up with him. That would certainly make things easier. But she also knew that she didn’t have time to pursue a new love interest these days, and wasn’t being in a mediocre, occasionally frustrating long-distance relationship better than being alone?

The other half of Chelsea’s frustration came from work, where her situation was quickly becoming untenable. Since her group’s country-club field day, she had learned a lot about public finance. Most of the group’s work consisted of deals involving municipal bonds, or “munis.” A muni bond, she learned, is any bond issued by a state or local government, or any 501(c)3 tax-exempt organization, a group that includes school districts, some museums, universities, seaports, and other public spaces. Those organizations issue bonds in order to raise money to build new buildings, repair old ones, and undertake any other kinds of expensive capital projects. In return for providing that money, muni bond investors get tax-free interest and rates anywhere from 2 to 8 percent, depending on the specific bond.

Chelsea actually liked the big-picture substance of her work. She had been staffed on several deals in a row that involved arranging muni bond issuances for nonprofit organizations, and she knew her bank’s work would enable these groups to pay to build new facilities, refurbish old ones, and take on other expensive growth projects. That seemed noble enough, and Chelsea had enjoyed the out-of-town trips she’d gotten to take as a result of her assignments. She had even figured out some of the technical challenges that had tripped her up at first. Recently, she had mastered DBC, a software program that was used to structure municipal bond issuances. You plugged in variables like the duration of the bonds, how much you needed to raise, and what the interest rates were, and DBC would do the rest. By playing around with the software’s features in her spare time, Chelsea had gotten to the point where other analysts in her group were asking her for help with it.

Still, despite the progress she was making, Chelsea didn’t know whether she’d ever been so unhappy. The reason was simple: her boss, Ralph.

A fortysomething man with frizzy hair and a look of perpetual confusion, Ralph was one of the most perplexing people Chelsea had ever come across. He was so odd, so neurotic and finicky, and with such a tenuous grip on reality, that Chelsea and some of the other analysts in the group had started calling him “the Mad Hatter.”

Ralph was Chelsea’s primary boss, and he was almost pathologically paranoid about keeping his resources, including her, to himself. Anytime Chelsea went to visit another part of the trading floor, he’d ask why she’d gone, and if another group was trying to steal her away. If another group within the bank was working on a deal that involved his sector, he would accuse them of encroaching on his turf. When it came to managing his analysts and associates, Ralph was prone to unpredictable tantrums, and his face often turned purple when he was worried or upset.

“
Oh my gawwwwwwd
,” he’d say in a nasally whine, four or five hours before a big project was due.
“Why isn’t this dooooooone?”

Several weeks earlier, Chelsea had gotten her biggest assignment to date. Another boss of hers, a senior banker named Chad Hamilton, had come up with the idea of compiling a weekly newsletter to keep the group’s clients apprised of the goings-on in the muni bond market over the previous week. If the spreads between Treasury bond rates and the Thomson Reuters Municipal Market Data index rate (or MMD, a synthetic rate that combined data from lots of different muni bonds) widened by half a percent, the bank’s clients would find out from the newsletter. If a group of new bonds from a college in Virginia or a city in Kansas were expected to price in the upcoming week, that information would get to other organizations considering issuing bonds of their own. All told, Chelsea’s newsletter would have to contain between two hundred and three hundred pieces of information—every one of which would have to be pulled from her Bloomberg terminal, typed, checked, and put in a clear, organized PDF every Monday morning.

Chelsea threw all her energy into making sure the newsletter was perfect. She formatted data carefully in Excel, ported it over into Word correctly, checked and rechecked her introductory paragraphs for spelling and grammatical errors, and sent it up the chain for a final once-over before it was sent out to clients.

For three weeks, Chelsea heard nothing but praise. Clients, colleagues, and even Ralph had loved the newsletter, and told her so. But in week four, she got called into a meeting with Doug Majors, the head of the entire public finance division.

“I see,” Doug said, “that one of our internal metrics has been going out in the weekly newsletter.”

Chelsea knew the metric Doug was talking about—it was a component of municipal bond performance that Bank of America Merrill Lynch compiled using client data. Chelsea had thought nothing of including it in the newsletter. But now, Doug was livid. The metric, he said, was used by the bank’s own bond traders, and not at all suitable for dissemination to anyone outside the firm’s walls.

“That is confidential information!” he told her. “We absolutely cannot put our internal metrics on any client communication. It’s a liability to even have this out there!”

“I didn’t know,” she said. “I thought I was supposed to include it.”

“Well, you weren’t,” Doug snapped.

After being chewed out by Doug, Chelsea reeled, and waited for either of her bosses—Ralph or Chad—to come to her defense. Senior bankers, after all, were the ones who were ultimately responsible for checking the newsletter over before it went out to clients, and they’d never flagged the metric as an issue. But nobody said anything. And eventually, she realized she would have to take the blame herself.

Chelsea was embarrassed and furious. Embarrassed to have made such a rookie mistake, and furious at the higher-ups who had refused to defend her.

“What did these guys think I fucking did?” she later told me, her voice rising with exasperation. “I have no power at all! I’m just doing what everyone else is telling me to do!”

Chelsea’s complaints reminded me of a motif I’d heard over the past year. As part of my investigation, I’d been speaking to many of the recruiters and HR executives who are responsible for bringing young people into large banks and keeping them happy once they arrive. And many of these managers expressed genuine puzzlement at the way today’s young bankers and traders dealt with being corrected on the job. Young people, they said, were prone to overreacting when their managers called them out on mistakes, and would often get highly emotional when confronted with anything other than unadulterated praise.

“They want feedback, but they don’t want just any feedback,” one HR executive told me about the new breed of bankers. “They want it to be positive.”

Chelsea wasn’t getting much positive feedback, at work or elsewhere, and combined with her failing relationship, the knock to her confidence paralyzed her. In the next few days, she checked out completely. She took long lunch breaks, went on long walks around Midtown during work hours, and started using her spare time to open her notebook and sketch logos for imaginary businesses she wanted to start. Chelsea had always been an entrepreneurial spirit—she’d written a half-dozen business plans in college, and was always talking about some side project she was working on—and she couldn’t believe she’d locked herself into a job that placed her at the mercy of such inflexible and unforgiving bosses, doing work in which her creativity was severely undervalued.

After hearing Chelsea detail her woes, I began thinking about the kinds of young people I’d seen flourish in finance—the ones who seemed genuinely happy with their careers. It occurred to me that those people tended to fall into three general categories—call them Habituals, Locomotives, and Gunners.

Habituals, generally speaking, are the people who might in the context of college admissions be referred to as “legacies.” These are the people who choose to go into finance either because their parents or siblings work in finance, or because they’ve grown up with financiers in their immediate social circle. Strictly speaking, most Habituals make it to Wall Street on their own, but their upbringings (in wealthy or upper-middle-class communities) and their educational opportunities (at private high schools and top-tier colleges) have made finance a destination that, if not inevitable, is at least a known and respected option for people in their circumstances. For these people, the lifestyle associated with finance is important. They like having beach houses, exotic cars, and the other trappings of the upper-income brackets, and they like spending their time around other moneyed elites. Banking is often a stepping-stone to more lucrative jobs at private equity firms or hedge funds, and the ultimate destination is often the Forbes 400 list.

“I’m not self-loathing at all,” one young private equity worker with Habitual tendencies told me. “I could be working in the Peace Corps, and I chose not to, because for natural, selfish reasons I’m maximizing my own utility like any other person does.”

Locomotives, on the other hand, come to Wall Street with an underdog’s ambition. They tend to come from working-class or middle-class homes, receive financial aid or scholarships during college, and often pull their families behind them as they chug toward success. (“My family calls me ‘the meal ticket,’” one Locomotive banker told me.) Many of these young financiers are ethnic minorities or first-generation Americans, and few of them have parents or relatives who have worked in the financial sector before. To these people, making money is
emphatically
the reason to work on Wall Street. Locomotives can sense that in a time when economic mobility is shrinking, Wall Street is one of the last industries that can reliably catapult middle-class kids into the realm of the wealthy and powerful. And they are more likely to stay put once they’ve gotten onto a stable, high-paying career path.

Gunners, the third group, thrive on the pace and excitement of the finance world. A Gunner may be a former college athlete who treats his trading career as a dog-eat-dog competition, or she may be a female executive for whom succeeding in a male-dominated industry is a test of endurance and pluck. For these people, money is only a scoreboard. The real thrill is the perfectly timed trade, the M&A brawl, or the big promotion. These people can get discouraged when markets are slow or trades aren’t going their way, but they’re so addicted to the dopamine and adrenaline rushes associated with finance that they can’t ever imagine quitting to join a slower, less challenging industry.

Chelsea wasn’t a Habitual, a Locomotive, or a Gunner. She belonged to a fourth group of in-betweeners who hadn’t grown up in poverty, but didn’t have the kind of parental safety net that would allow for more creative and adventurous work. She’d chosen banking in part because it seemed stable—and because she hadn’t known what else to do after college—but now, she simply did a very high volume of very boring work, in an environment that made her feel drained and expendable, under the thumb of finicky and hostile bosses, in an industry that wasn’t doling out the morale-sustaining perks it once did.

These complaints weren’t unique to Bank of America Merrill Lynch—in fact, you could probably walk into any law firm, accounting office, or media company in New York and hear a similar set from young, dissatisfied workers. But for some reason, Chelsea’s work environment felt uniquely horrible. And whether her situation was representative of a larger clash between a generation raised on praise and the ego-shattering nature of Wall Street’s harried and indelicate culture, or just the result of a bad boss and an unfortunate mistake, it was a looming disaster all the same.

ARJUN KHAN TOOK
the stick, gave it a little chalk, leaned down low on the pool table, squinted, and aimed. With a swift thrust, he connected with the cue ball, which clacked into the striped ball and sent it hurtling toward the corner pocket. The striped ball missed, careening off the wall and into the black eight ball, which slowly traced a path over to the side pocket and dropped in.

“Well, guess that’s the game,” Arjun said with a sigh.

It was the spring of 2011, and we were at a bar in Lower Manhattan where Arjun, the Lehman Brothers refugee turned Citigroup M&A analyst, was unloading his frustrations about the private equity recruiting process on me over a few rounds of stiff old-fashioneds.

“I heard one guy in my group already has three offers,” he said. “I’m kind of freaking out.”

Every spring, usually sometime around the first or second week of March, first-year banking analysts fan out around New York for dozens of imaginary “dentist appointments” and mysterious “family emergencies.” What they’re actually doing is interviewing for jobs with private equity firms and hedge funds, which grab for Wall Street’s most promising first-year analysts in one of the most time-honored rituals of young finance life.

Private equity firms and hedge funds (which are collectively referred to as the “buy side,” since they purchase the products and services that “sell side” investment banks offer them) represent the big leagues for many young Wall Street workers. These firms have the most lucrative pay in finance—offers as high as $250,000 a year for a talented private equity analyst are common—and they offer analysts the chance to work on huge deals involving big-name companies. For years, until the crash of 2008 made villains of investment bankers and traders, private equity barons were the most notorious subset of Wall Street financiers. They were thought to be slash-and-burn buyout artists who took over companies and extracted all the profit they could for themselves, then left the limp carcasses behind. These days, though, private equity is perhaps the most prestigious place a young bank analyst can wind up—the equivalent of making the Pro Bowl as a rookie.

Private equity firms used to recruit bank analysts during their second year on the job. But in recent years, as the war for top analysts has heated up, firms have been pushing the process earlier and earlier. Now, analysts are courted during the spring of their first year, just six months after they arrive at their banking jobs, and eighteen months until their private equity jobs actually start. Each of the private equity megafunds (KKR, TPG Capital, the Blackstone Group, the Carlyle Group, and Bain Capital, to name a few) typically recruits between five and fifty analysts per year—meaning that there are routinely thousands of first-year analysts fighting over as few as a hundred megafirm spots. Bankers whose applications make it through the initial cull are given multihour technical interviews, grilled about their knowledge of the private equity business, and taken to cocktail mixers with the firm’s executives in order to be tested for “fit”—industry parlance for how likable they are.

Technically, banks frown on analysts interviewing for outside jobs (hence the dentist appointments), but the buy side recruiting process has become so routine that it is now treated as an open secret at many firms. For the analysts who navigate the recruiting drive successfully and wind up with offers at their top-choice firms, the next year and a half is a relative breeze. For the ones who don’t, the search for a postbanking job continues anew. And for everyone, the process can leave a mark on fragile egos.

“The private equity recruiting process is where a lot of really accomplished people deal with failure for the first time,” one former bank analyst explained to me. “You take a kid who was summa cum laude at Yale, get him a job at Goldman, then put him through private equity recruiting, and you see what he’s made of.” The former analyst, who ended up getting an offer at one of his top-choice firms after a lengthy and stressful application process, still seemed scarred by the experience several years later. “I got rejected first round from Bain Capital,” he said. “It was the most depressing thing ever. It was like:
How do I deal with this? This is a weird emotion.
”

Arjun, who had already experienced rejection when his Lehman Brothers offer was rescinded in the fall of 2008, was currently experiencing the worst parts of the private equity recruiting process. His job in Citigroup’s M&A division was seen as one of the best stepping-stones to private equity, since the skills that made a good M&A analyst—solid ability to value companies, parse complex financial statements, and look for regulatory and legal risks hidden in a deal—also made for sought-after private equity workers. And alumni of Arjun’s group were making millions at KKR, TPG Capital, Blackstone, and every other megafund, meaning that his quest had plenty of precedent. But the calls just weren’t coming in. Arjun couldn’t understand, for the life of him, why he wasn’t attracting more interest as a private equity candidate.

“I really, really think it’s about schools,” he said that night, over a rematch at the pool table. “I just look at people who got interviews and who didn’t get interviews, and it looks like it’s focusing on people who went to the top schools.”

At Citigroup, Arjun had stood out largely on his merits. He had been placed on deal teams with analysts from Ivy League universities and worked alongside people whose parents were Citigroup executives or major clients of the bank. It hadn’t seemed to bother anyone that he had gone to Fordham and grown up in less advantageous circumstances. He was talented, and he was willing to grind, and those two factors mattered more than a pedigree. But now, faced with a lukewarm reception from the buy side, he was learning that meritocracy had limits.

Arjun was deeply unhappy and highly anxious, and yet it was hard for him to talk to anyone about how he felt. He knew that outside the finance bubble, it looked like he’d won the lottery. He had the front-office banking job he’d always wanted, he was earning what many twenty-three-year-olds would consider an obscene amount of money, and he had plenty of opportunities on the horizon. But he was having trouble moving up to the next, slightly more elite, slightly better-paid level of Wall Street privilege, and his disappointment was real.

In social psychology, this phenomenon is called the “hedonic treadmill”—the shifting of desires relative to achievements. And although it applies in every industry, it’s baked in to Wall Street’s basic ethos. By virtue of their stations in life, young Wall Street bankers and traders are rarely unlucky, but they are always
relatively
unlucky—there is always someone, somewhere close by, making ten times more money or with ten times more responsibility and status. And after 2008, the element of scarcity was added to the equation. Now, Wall Street workers were not just battling for a piece of an infinitely large pie. There was less to go around—fewer jobs, smaller paychecks, tighter opportunity sets. To borrow David Foster Wallace’s description of literary New York, bankers after the crash became “great white sharks fighting over a bathtub.”

“Everyone’s always measuring their dicks,” one private equity analyst explained to me. “If I’m a Goldman banker, I go up to a McKinsey consultant and I’m like, ‘My dick’s bigger than yours.’ But then a Blackstone analyst goes to the Goldman banker and says, ‘My dick’s bigger than yours.’ And a portfolio manager at Greenlight Capital goes up to the Blackstone analyst and says, ‘Well, my dick is still bigger than yours.’ It never ends.”

For Arjun, the private equity job hunt was bringing back the feelings of inadequacy he’d developed during the Lehman Brothers collapse. He still believed in the Wall Street meritocracy. He still thought that if he kept his head down and worked hard, he could overcome his lack of an Ivy League education and his humble upbringing. But his faith in that ability was being tested.

“I went through all this to build a career, and it’s still not working,” he told me that night, as we wrapped up our pool game and walked back out into the chilly March night. “I just don’t understand.”