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Bankers find small is beautiful in boutique boom

Private equity giant Blackstone is paying $17bn (£12bn) for control of the Thomson Reuters financial data business. Its lead adviser is a three-month old London firm  - Agencies
Private equity giant Blackstone is paying $17bn (£12bn) for control of the Thomson Reuters financial data business. Its lead adviser is a three-month old London firm - Agencies

The golden age of banking saw Wall Street giants so successful at sucking in cash that Goldman Sachs was famously described by Rolling Stone magazine as a “vampire squid” that wrapped itself around “anything that smells like money”. 

But the world’s most powerful investment banks are increasingly competing with the very bankers they taught to hoover up work. When private equity giant Blackstone unveiled a $17bn (£12bn) move for a chunk of Thomson Reuters last month – its biggest deal in a decade – the lead role didn’t go to an industry Goliath but a three-month-old London firm few had ever heard of.  

The appointment of Canson Capital Partners, set up by former HSBC bankers Matteo Canonaco and James Simpson, highlights the growing trend for well-connected bankers to get lucky after striking out alone. Utilising their existing relationship with Blackstone, one of the biggest investment firms in the world with more than $424bn in assets under management, the pair beat Bank of America Merrill Lynch, Citigroup and JP Morgan to the lucrative lead role. 

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“Canonaco did a fantastic job helping us source the deal and execute the transaction,” said Blackstone’s senior managing director Martin Brand when asked why the firm got the top job. “I have worked with him for many years and developed a trusted relationship, which is essential in large, confidential transactions of this nature.”  

Annual profits at Robey Warshaw leapt from £19.4m to £36.6m in 2016 after the boutique advised on Shell’s blockbuster £40bn bid for FTSE-100 rival BG Group.
Annual profits at Robey Warshaw leapt from £19.4m to £36.6m in 2016 after the boutique advised on Shell’s blockbuster £40bn bid for FTSE-100 rival BG Group.

It’s that desire for discretion and exclusivity when it comes to high-profile deals that has kept independent banks – be it an established name like Moelis & Co or a new entrant such as Canson – soaking up work since the financial crisis. The value of global M&A deals involving a boutique adviser rose 57pc between 2010 and 2017, according to data provider Dealogic, swelling by 77pc in Europe as small proves increasingly necessary for businesses chasing multi-billion-pound takeovers. The bend in attitude has sparked interest among weary bankers fed up of internal politics, lack of client exposure and shrinking bonuses at the mega-banks, with HSBC’s Canonaco and Simpson among a swathe of rainmakers to set up alone in recent years. 

“Banking is not a fun place to work – if you can do the same deals with a smaller team, without all of the internal politics, and you can capture a greater portion of the fees [why wouldn’t you],” says former Barclays banker Julian Macedo, who left the British bank in 2016 and now runs his own consultancy. “In down times you often see people set up on their own.”  

You have to find a way to share those moments of doubt and loneliness with someone

Nathanael Mauclair, Aldebaran Global Advisors

The attraction of doing just that is set to peak in the weeks ahead as those working for large European banks find out about their bonuses. 

City experts expect bonus numbers to be down as much as 10pc on last year, while those working for a successful boutique can still land the mega salaries paid out before the financial crisis. 

The partner owning the most shares at four-year-old London boutique Robey Warshaw, for example, saw his earnings rocket from £9.4m in 2015 to £36.6m last year. But the stories about bankers setting up their own ventures vary wildly. While veterans of the industry can use their relationships to land huge mandates that generate tens of millions in fees, as Robey Warshaw founders Sir Simon Robey and Simon Warshaw have done, many others do not have the same level of experience and are forced to find other ways to stand out.  

“There have been a lot of new advisory firms formed, and they come in all sizes and flavours,” notes Scott Bok, the chief executive of US investment bank Greenhill. “The large firms have multiple products that create conflicts, and many others are small enough that they lack global reach or relevant sector expertise.” 

The banking industry has shrunk since the financial crisis, causing people to set up small advisory boutiques themselves. 
The banking industry has shrunk since the financial crisis, causing people to set up small advisory boutiques themselves.

Fighting to compete with the existing boutiques as well as the rapidly rising number of entrepreneurs in the sector, it can be difficult for those starting out to be heard. 

While independent advisers might be free from the bureaucracy, conflicts of interest and admin work that come with working in a big organisation, those who have become self-employed over the past 18 months talk of fee pressure, huge compliance costs and loneliness as they try to win business without the backing of a big brand. 

“It’s hard to say every day, how do I progress,” says Macedo, who targets companies looking to go public through his business, The ECM Team. “It’s a different type of stress, although there are upsides – [I’m] sat here in my ski gear at 11am on a Tuesday having a coffee. The key factor for success is a particular niche.” Jean-Philippe Verdier, who ran investment banking for Jefferies in France until 2016, set up his own London boutique Verider & Co after being approached by contacts who wanted independent advice on a flexible retainer. Starting out as a one-man shop, he now has a board and four members of staff. 

“You really eat what you kill – clients retain you and your capabilities, not the fancy office or the corporate name,” he says. 

“I recall the thrill of getting a Friday evening call from a client appointing us to start on first thing Monday.” 

But despite growing his business quickly and saying his “happiness index” is up since leaving big banking, Verdier admits there are still plenty of challenges with being your own boss. 

“The amount of red tape involved in running a small business is surprisingly ridiculous – sometimes you feel like you set up a business to answer compliance questions,” he says. 

There is also the issue of pricing. Nathanael Mauclair, a former managing director at NYSE Euronext who co-founded Aldebaran Global Advisors in 2016, says coming up with a clear fee strategy and giving “the right message” has been a challenge since setting up the group as companies sometimes think small firms should equal small fees. 

And then there are those moments of doubt.   

“You have to find a way to share those moments of doubt and loneliness with someone,” says Mauclair, although he makes clear he doesn’t regret this decision. 

“You have your comfort and your daily routine, and at some point in time there is a change in your perception and you want something completely different. With the environment across Europe – lots of companies being created – we realised the time to launch is now.” 

While interest in joining or running a boutique continues to soar, the rising number of big businesses angling for independent advice on a major deal still tend to go for the industry veterans they have an existing relationship with, or the more established players. Many taking the leap need to have money behind them or a willingness to live a more modest lifestyle.  

“As many bankers have the big mortgage, holidays, school fees, maybe the Ferrari, you’ve either got to have already made some wealth [to fall back on], have appetite for risk or you’ve been restructured,” says Verdier. 

“I don’t know many junior managing directors yet that created their own firm that have really scaled up.”