Investment banking wannabes are increasingly looking to the staid world of bonds to kick-start their careers, as deal flow in debt capital markets continues to recover from its Covid-19 slump in contrast to the formerly exciting world of equities and mergers and acquisitions.
“In the good years, ECM looks great – it is glossy, high profile, and more headline-grabbing. But DCM, on the other hand, tends to be much more consistent through the cycle and in many ways has more long-term relevance to the client,” said Bryan Pascoe, CEO of the International Capital Market Association.
One recent graduate from Singapore Management University said she initially looked to do internships in M&A as she saw the sector as a “glorified part of investment banking”.
“But the deal flow (in M&A) has been very slow in recent times,” she said.
So the young woman, who specialised in quantitative finance, decided to pivot into DCM.
“I think it’s way more exciting now to be in DCM than to be in M&A,” she said, as M&A deal flow has experienced a major slowdown amid market volatility and higher interest rates.
The same was true for another young DCM analyst, who also made the jump into DCM from corporate banking in March.
“I’ve always wanted to be in M&A. I think everyone who knows finance but hasn’t lived it wants to be in M&A because [of the] prestige,” he said.
Having graduated during the Covid-19 years, he struggled to find a job in M&A and settled for a corporate banking role at an international bank to gain an understanding of the market, with M&A still on his wish list.
Three years in, he changed his mind. Realising that he enjoyed seeing a deal through from start to end, he began considering a complete career switch to DCM.
“For me, it was a matter of growth opportunities, to target a specific product because I think that’s better for juniors,” he said.
“When I did deals, I was running the end-to-end processes like credit, execution, et cetera. It was interesting, and I thought: ‘Why not do that full-time?’”
Quicker recovery
The rising interest for DCM among young bankers has not gone unnoticed by recruiters.
“Before the current economic slowdown, a fresh graduate generally would be more interested in joining ECM. It was perceived to be more glamorous,” said Sid Sibal, a Hong Kong-based banking recruiter.
“But today, a fresh graduate would want to go to DCM. It’s a lot more stable, there is comparatively more deal activity and when interest rates come down, DCM should see a quicker and greater recovery first.”
G3 bond issuance from Asia ex-Japan was up 14% year-on-year at US$165bn as of August 15, according to LSEG data, though far below its historical peak in 2021, while Asian local currency bond issuance amounted to US$2.2trn-equivalent, near its record high.
In contrast, the Asian IPO market is in a downturn, with just US$20.9bn of deals so far this year, and M&A is also in the doldrums with transaction volumes of just US$15.9bn in Asia ex-Japan.
“Two, three decades ago, if you were a fresh graduate you would rather be in ECM/M&A,” said DBS global head of investment banking Clifford Lee.
“But after a while, the ECM market dried up. [Bankers] want to shift back, to become DCM bankers because the regularity of the deal flows and the growth was really there,” he said.
Bonus disparities
Base salaries for junior bankers in DCM are similar to those in ECM, but the difference in bonuses can be notable. An ECM managing director may be able to grab a bonus 10 times their annual salary, while a DCM banker will look at two to four times, said Sibal.
“In a good year for both, an ECM banker may well get compensated better, but through the cycle it is difficult to say. Most years, the volumes in the bond market are much bigger,” said Pascoe. “A good DCM banker with a strong client base and deal flow will therefore have the ability to do very well."
Even as interest towards DCM rises, senior bankers and industry experts caution against joining the sector for purely opportunistic reasons. Aspirant DCM bankers should be ready for the fast-paced world of issuing debt.
“You must be interested in the topic, because it justifies the hard work … which is really very laborious and intense. But if you’re interested in it, you like it, you’d be able to keep growing and keep yourself motivated,” said DBS’s Lee.
United Overseas Bank's head of debt capital markets Carolyn Tan agrees.
“Chasing after deals … it’s like chasing after rainbows. Before you can reach the rainbow, there will be a lot of storms, and so you must enjoy weathering storms, or so-called ‘tough journeys’,” said Tan.
“People who enjoy the excitement, those who love the unpredictability … I think those are the ones we want in our team,” she said.
(Additional reporting by Suzannah Benjamin)