The investment banking industry has faced a number of threats over the past years since the financial crisis. From aggressive regulators motivated by political demands to declining transaction volume, it seems that the titans of Wall Street have been under constant attack. And now the industry faces yet another challenge – this time from within the broader financial industry. Private equity firms are increasingly becoming involved in investment banking deal underwriting and some of the biggest firms are making it known that they expect to be leading players in the game in short order. How the established ranks deal with this new threat could dramatically change the shape of the industry.
Blackstone Group the Latest to Seek Out Investment Banking Opportunities
The large private equity giant Blackstone Group is the latest private equity firm to make a run at establishing itself in the investment banking landscape. Private equity firms such as Blackstone are eager to diversify revenue streams in light of potential taxation changes on carried interest, along with the questionable future prospects for leveraged buyouts. Investment banking revenues would also provide a bridge in terms of cash flows as general partners await the arrival of carried interest revenues from their private equity partnerships.
It should not come as a surprise that Blackstone is the most recent private equity group to take a long look at investment banking. Its founder, Stephen Schwarzman, comes from an investment banking background with a long track record of success on Wall Street. His experience and leadership, along with Blackstone’s size and resources, certainly make the group a formidable threat in entering the business.
Blackstone is certainly not the first private equity firm to enter the investment banking landscape. Both Apollo and KKR secured licenses to operate as underwriters and KKR is already generating about $100 million a year in underwriting fees.
What Does this Mean for Investment Banking Job Seekers?
The entrance of private equity firms into the investment banking landscape is a mixed bag for those seeking opportunities for employment in the industry. On the negative side, these firms will put increasing pressure on the established players at a time when they can least afford additional competition. Margins are already tight for most of the bulge bracket firms and motivated new entrants could drive revenues even lower. The new players also don’t have established cost structures to weigh them down and perhaps could bring increased efficiency to the industry. This could threaten existing jobs.
On the other hand, many will welcome new players to an industry that has consistently seen firms exit the market for several years. Perhaps this is an indication that private equity firms see a near term recovery in investment banking revenues, and are simply lining up in order to take a share of that. In any event, it does open up new opportunities as private equity firms look to augment their ranks with investment banking experience and knowledge. How this will impact the industry as a whole remains to be seen.