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The 22-year-old Wall Street graduate trainee: hot commodity, or tragic victim of artificial intelligence? At the moment, the answer is both.
Earlier this week, Navid Mahmoodzadegan — incoming CEO of the boutique investment bank Moelis & Co. — intimated that AI tools could take on much of the grunt work currently done by human number crunchers and PowerPoint makers. Adopted smartly, he said, AI could rationalise “the size of our pyramid”.
That sounds at odds with private equity’s frenzied recruitment of junior bankers. The peculiar custom of offering jobs that start two years hence to new employees of sell-side firms led to complaints from JPMorgan boss Jamie Dimon. Apollo Global Management and General Atlantic have, in response, paused this practice of time-delayed poaching.
Knowledge industries such as investment and dealmaking are inherently about human judgment. But the lower-level training that cultivates those skills can increasingly be outsourced to algorithms. As Mahmoodzadegan notes, investors and boards want to see technology used to bring down expenses.
Banker pay is, naturally, one of the biggest outlays. Moelis and its closest rivals consistently hand employees 70 per cent or more of total revenue. The historical norm of 55 per cent is almost impossible to achieve today as investment banks expand into novel areas such as advising on private credit financings, or selling stakes in earlier private equity deals.
Junior talent, though, happens to be relatively cheap — perhaps $200,000 a year for an analyst. It is hard to see how taking on fewer trainees could offset multimillion dollar guarantees given to managing directors.
Private equity’s pitch to early-career financiers is fairly compelling, and consists of more money and potentially more interesting work. Private equity firms are also more thinly staffed and less focused on churning out PowerPoints. For them, day-to-day operating costs such as junior salaries are less consequential.
Life for junior bankers at sell-side firms could also become more “intellectually stimulating” with the rollout of AI, Mahmoodzadegan hopes, even with fewer young staff than today. When a smaller number of junior workers support the most senior — in other words, the pyramid has narrowed — the odds of rising to the top are higher for those that can get a foot in the door.
The coming years will clarify some current unknowns. For example, what happens to the quality of the workforce if the repetitive tasks that today’s over-caffeinated juniors perform in the middle of the night — and which AI will obviate — really do build character and professional judgment? And what happens if the game-changing benefits of AI don’t arrive?
One thing to note is that private equity firms have been more humble than Wall Street investment banks about what AI will do for their businesses. That suggests it’s not just about money and mental stimulation: trainees choosing the nurturing embrace of the buyout barons may face less disruption and job uncertainty too.
sujeet.indap@ft.com
