In this episode, Meeyeon, Jeff, and Duncan discuss the newly launched specialization in Investment Banking and Private Equity (IB and PE) at CFI.
Join us as we explore the reasons behind the popularity of these fields, the misconceptions surrounding private equity, and the essential skills required for success in both areas.
Transcript
Meeyeon (00:13)
Hi everyone and good morning, good afternoon, good evening, wherever you might be joining us from to another episode of CFI’s What’s New at CFI. I’m your host, Meeyeon, I am your VP of content and training here at CFI as always. And today, we are gonna be talking about our latest specialization in investment banking and PE, IB, and PE modeling.
Now our specializations, as you may or may not know, are where we’ve curated courses very purposefully with a specific career path in mind. you might kind of think that, okay, well, I’d be in P.E. modeling. That’s not like a job title. There’s no job title that’s called investment banking modeler. But this skill in and of itself is so enormously important to the role. It’s such a fundamental skill that it is very much a specialization that we want to hit.
And IB and PE are, and I’m gonna refer to it continuously, investment banking and private equity as IB and PE respectively, are such popular topics. It was the most popular industry to get a job in when I graduated. I’m not gonna name the year to date myself, but it was so popular when I was in school. I’m sure it was extremely popular when you guys were in school. And everyone that’s listening right now that can
either recall when they were graduating from any sort of undergraduate master program. It is a very popular field if you are interested in finance generally. So we want to talk about today why we put the specialization together, what you can expect to get out of it, but also just some rapid fire questions kind of generally about the industry and why we continue to address it.
So I wanna start off with that. It’s a really high level. So I’m gonna pose it to both of you guys. So today I’m joined by two of my amazing colleagues. I see you guys have seen here many times before, Jeff and Duncan. And what would you say, this is a question that you’ve probably received time and again, but what do you think is the draw for people into investment banking and private equity, especially as you know,
over the years, it’s become more and more mainstream knowledge that it is such a intense and fairly stressful role. If it’s so stressful and so intense, why does it continue to draw people in so much year over year?
Duncan McKeen (02:49)
I think money’s a big part of it. Wouldn’t you say that? Let’s just put the elephant in the room first of all. It’s probably that’s one of the biggest factors. And sorry, Jeff, I probably talked right on top of you. What were you gonna say?
Meeyeon (02:50)
Yeah, little secret there.
Jeff Schmidt (03:04)
No, to me there are two reasons and there’s what I’m gonna call a good reason and a bad reason. So under that bad reason is kind of what Duncan said, is money, right? Investor banking is one of the only jobs you can get as a college graduate where you’re basically guaranteed to earn six figures. At least in my experience based in the United States.
Meeyeon (03:04)
To me, there are two reasons, and there’s one that’s all good reason.
Jeff Schmidt (03:30)
That’s not too dangerous, right? There are other jobs. I’m based in Texas, so it’s an oil and gas, so there are people that can go out and work on an oil rig for a lot more money, but that’s a really dangerous job. Investment banking isn’t supposed to be that dangerous, of course.
Meeyeon (03:33)
No. My god, I’m gonna get hit by my computer.
Jeff Schmidt (03:49)
Exactly, and so it’s one of the only jobs that you’re guaranteed a really high salary. And so that’s one of the draws, and a lot of people have student loans, so they need the money to pay off the student loans. the other draw that I don’t consider that great of a reason is prestige.
Meeyeon (04:03)
school
Jeff Schmidt (04:11)
It’s considered a very prestigious job in finance and a lot of people do it because their friends did it or their parents were in investment banking or whatever the reason. So to me those aren’t the really ideal reasons you should join investment banking. You should really do it because you have a strong interest in finance. You have a strong interest in specifically corporate finance. So mergers and acquisitions, capital markets, things of that nature,
I would be lying if if I said that money wasn’t a huge draw, and clearly, it is.
Meeyeon (04:47)
Yeah, imagine,
Duncan McKeen (04:47)
And I think
Meeyeon (04:47)
I…
Duncan McKeen (04:47)
that was it.
Meeyeon (04:47)
said, I’m going to want I’m going to hire an investment banking analyst. We’re to be at Goldman Sachs, but I’m to pay you $10,000 a year. Would you rethink it? Probably.
Jeff Schmidt (04:56)
Yeah.
Duncan McKeen (04:59)
I think, yeah, Jeff, those are like great, great points. And I guess the only other thing that I might add in there is that like, sometimes you get a lot of interest in IB and private equity because people don’t know about all the other wonderful jobs in finance. That happens a lot, particularly like at an undergrad level, I would say. Like when I used to teach like live,
to undergraduates, a lot of the time you’d ask them, how many people want to go into investment banking? And like, so many hands would go up. I want to say like well over 50 % of the room. And then if you start to ask them about, you know, what they know about other jobs in finance, that’s where like very few hands would go up. And that’s actually, can we say this on this, you know, this podcast is like, that’s a big part of the reason why we put that careers and finance course together is just to make
Meeyeon (05:28)
Thanks.
Duncan McKeen (05:53)
people aware of all of the other wonderful roles that there are out there in finance, outside of those roles that everyone seems to compete over. And let’s just say.
Meeyeon (06:04)
Yeah, like I remember the, think the biggest two kind of umbrellas you could go for if you’re interested in finance at an academic level is, you know, the classic investment banking or it might be different now due to just, you know, technological change, sales and trading.
And then you have, you know, the CPA route. You have to go through your grueling audit hours, write the exam and whatnot. And people are just like, yeah, I just like, don’t want to do this. And so this seems like the other well publicized path. And so it’s
Duncan McKeen (06:28)
Hmm.
Jeff Schmidt (06:29)
Hmm.
Meeyeon (06:34)
It becomes such huge pillars of knowledge that you don’t really hear about the rest. And so if you’re listening and you’re curious, again, we have our careers map for that. But what I would also say, I would venture to say is that, you know, investment banking is a very well-known, well-talked about path. And I think for the most part, people know quite a bit about it just from, you know, topical news and whatnot, but private equity, I think people know a lot
less in detail about what that role entails, how closely it’s related to the skill set that you develop at an investment bank and how much modeling is such a prime part of that role as well. But one topic that I want to hit that I think is relevant for our listeners is, at least when I was at the investment bank, the big thing was people were like, my gosh, I’m going to stick this out for like one or two years.
See if I really like it and then want to try and climb my way up the ladder to managing director. Very few people were like that. But the whole thing was, okay, like after I like really learn a lot of stuff here and I’m really, really stressed out, I want to go into P.E. like private equity. People had this what I think was a misconception that private equity is like investment banking with all the stuff that you don’t necessarily want with it. And I want to talk about why that’s a misconception.
Duncan McKeen (08:01)
Well, maybe it’s a misconception partly because both of those jobs involve like really heavy quantitative skills and tons and tons of financial modeling. They both share that in common for sure. So yeah, they definitely.
Meeyeon (08:13)
People seem to think there’s gonna be a lot less hours. That’s like the big thing. They’re like, I’m gonna be on the client side. There’s gonna be way less hours and it’s just like not true.
Duncan McKeen (08:17)
Hmm.
Yeah, so I would say the hours might be similar, but maybe in PE you’d get a bit more control over your hours in the sense that like, investment banking, you’re at the whim of the client all the time, you know, and clients can basically, you know, come to you on a Friday and want something done over the weekend for Monday.
You know, that can just happen at any time. So sure, you can go and make plans. I’m to go to my friend’s wedding this weekend. Okay. But those plans can quickly be canceled if there are clients that need things.
Meeyeon (08:30)
Yeah, anytime. So, sure you can go to the plans.
Duncan McKeen (08:50)
to be done, whereas in PE, think maybe you just have a little bit more control over your calendar. But who’s kidding who at a junior level, you’re not going to have any control. I’m just saying, a PE fund can have more control, let’s just say, than an investment banking team over their calendar maybe.
Meeyeon (09:01)
Yeah, exactly.
Jeff Schmidt (09:13)
And you’re still doing very, very heavily intense modeling work, whether it’s investment making or private equity. But the big difference is, you’re not building out pitch books or confidential information memorandums, SIMs, in such a detail. You have to read them on the PE side, but you don’t have to arrange tombstones, for instance, until 2 a.m., right?
So that’s a pretty big difference, but the Excel work is…
Duncan McKeen (09:41)
in…
Meeyeon (09:43)
Yeah. And then like at the end of the year when the bonuses get paid out, it’s like, you are the tombstone. You’re like, I am right here. But I the next topic that’s a great lead in is our specialization being on modeling.
Maybe we could just talk about how, so we’ve clubbed together IB and PE. When we are teaching the specialization, how much of an overlap do you think is in the skill set that you develop?
Jeff Schmidt (09:50)
Yeah, exactly.
Meeyeon (10:13)
Maybe we could go through why you’ve chosen the courses, like in the order that we have, and how you might use the skills learned in an IB role versus PE.
Duncan McKeen (10:26)
That’s a good question. I would almost, yeah, go ahead, Jeff.
Jeff Schmidt (10:31)
I think the modeling skills are almost one-for-one in terms of overlap for the most part, right? Three statement modeling, LBOs, valuation work. There’s a different perspective from the sales side
Meeyeon (10:49)
Yeah, and you touched on it earlier about where one you might be doing a lot more building and the other one you might be doing a lot more reading.
Jeff Schmidt (10:55)
Yeah, yeah, so it’s a different perspective, but the actual technical side of it, think, is overlapped quite a bit.
Duncan McKeen (11:04)
I would agree with that. like, know, like at the end of the day, effectively, like one roles, buy side and one role is sell side really. and, and just, just to be clear on, on those terms in case that any listeners haven’t, haven’t come across those terms, essentially, the sell side is when you’re selling different investment ideas. So that would be investment banking because they’re always pitching and trying to sell, their clients on different ideas. And then the buy side would be PE,
where they’re listening to different ideas and pitches and they may buy into one of those ideas if they like an idea that they come across. So that would be the main difference. And that’s why there’s so much overlap in the skills that are needed is they’re really the same skills because those two groups, IB and PE are just on different sides of the negotiating table, if you will. But maybe…
One other thing that we didn’t touch on was that, because MEEYEON, earlier you mentioned the idea that like, there’s this belief that like, PE is like IB without the things that you don’t like, or the stresses that, but the one stress that you add with private equity is that you may get a decision to invest in a company, you are married to that investment for years. know, whereas investment banking,
Meeyeon (12:16)
Yeah.
Duncan McKeen (12:32)
um, you know, if you successfully deliver a pitch and get a mandate, well, once that is done, you’re onto the next one pretty quick. Um, so kind of at the door. mean, what did we, I mean, Jeff, you know, we discussed this before as being the difference between like dating and marriage, for example, you could like, I’d be like dating and P is like marriage. You’re married to that investment for, I don’t know, let’s say five plus years, five to seven years, maybe. Um…
Meeyeon (12:40)
Yeah, it’s like kind of out the door.
Jeff Schmidt (12:53)
Yep.
Meeyeon (12:53)
My god, I love it.
Duncan McKeen (13:01)
If you’ve made a mistake in that PE model, man, you’re living with that for sure. Pretty severe if you make a mistake in an IV model too, but I guess not the same as PE when you’re investing your own funds and your clients’.
Jeff Schmidt (13:06)
Yep.
Meeyeon (13:09)
Thanks.
Jeff Schmidt (13:12)
Hmm. Yep.
Meeyeon (13:15)
Yeah, when you have like a P&L that’s going to be going over and over and over for years and years, it’s, you’re in for a long haul.
Duncan McKeen (13:22)
Mm-hmm. Yeah. Yeah, for sure.
Meeyeon (13:25)
And so I’m going to talk, I want to touch on one topic and then I’m going to ask one other question. But something that I find is so important about the skill of modeling that you develop is that, especially on the sales side, because there’s such a volume of work and you’re constantly pitching clients to get that stream of like fee income, you develop very practical skills, but also you get to practice them over and over and over and over again.
What is also so important is that I can’t say I’ve really ever been in any role or that I’ve known anyone that’s ever been in any IV role where like a managing director comes up to you and says like, Hey Jeff, we are pitching this, you know, triple B plus media and teleco company name here. And I want you to build such and such a model from scratch. Like,
I’m talking about opening up a brand new Excel file and like starting from scratch. That never happens. And so the idea of not just building, like the idea of building from scratch is not necessarily practical, but what’s extremely useful and of an extremely valuable skill is being able to audit models, understand how they’re built and really be pragmatic about where the most common errors might be,
being able to sit down with a model that has a bunch of like pound ref signs all over it and being able to confidently walk through it. Now, with that said, which courses do you think are your personal favorites for developing that kind of skill in our specialization?
Duncan McKeen (15:11)
I was going say, Jeff, do you want to mention that? you just did a course on auditing three statement models.
Jeff Schmidt (15:18)
Excuse me. We just released a course called Auditing and Balancing a three Statement Model. That’s better for when you’re given a model, doesn’t balance, trying to figure out, why doesn’t it balance? And what are the most common ways, are the most common sources of imbalance?
So, a lot of it’s just like reconciling the cash flow statement to the balance sheet. But that is a really important skill set when you’re handed a model or a model template. You really have to understand the interconnectivity of the three financial statements and be able to figure out, because you have to have a balanced balance sheet, just kind of by definition. It’s in the name, right? So it’s a really important skill to have
Meeyeon (15:58)
Yeah.
Jeff Schmidt (16:05)
when reviewing. And as part of that course, we do discuss some ways that you can review a model very, very quickly.
Duncan McKeen (16:13)
Yeah. And you definitely need great model auditing skills for sure. I mean, even outside of balancing models, just, if you get access, let’s say you’re an IB and you get access to the data room from a client, you’re going to find models in there. They’re not going to be great typically. I mean, you’re going to have to be, but there are valuable things in there. you you need and want the data that’s in there, but the model may not be built very well. So you need to be able to
quickly audit it and find the mistakes in it. So you need to be able to find hard codes, partial inputs. You essentially need to be able to go down one column in the model in detail and then check left to right. So you need to know how to check like row differences. And without those skills that we’ve just mentioned there, it would take you absolutely hours, if not days, to check the model without those,
Meeyeon (17:02)
Thank you.
Duncan McKeen (17:09)
without those skills, without those keyboard shortcuts and those Excel techniques. So you need, yeah, you need to have those muscles built up for sure to save a lot of time.
Jeff Schmidt (17:19)
Yeah, there is no substitute though for knowing how to build a three statement model for instance, or an LBO model, DCF. So, I mean, you really have to have those foundations in place and then, because that helps you audit a model, review a model, so…
Meeyeon (17:38)
And so with a specialization, is there, if you could tell our listeners one message about what they’re going to take out from this specialization. Any sound bites?
Duncan McKeen (17:57)
It’s a good question. One thing we could say about it is that it would be, I would say the difficulty level would be higher than the FMVA. Wouldn’t you agree with that, Jeff? So it’s like, yeah, so that’d be a good takeaway. Within the FMVA, you look at what are some of the hardest courses in it, well, it would be like, to name just maybe a couple, be like LBO modeling and M&A modeling. But those are both core in the IB/PE specialization.
Meeyeon (18:10)
Okay, that’s an excellent point to note.
Jeff Schmidt (18:10)
Yep.
Duncan McKeen (18:28)
You want to love modeling for sure and if you love modeling then you’ve come to the right place to take your modeling skills up to a very very high level for sure.
Jeff Schmidt (18:40)
Yeah, like Duncan said, that’s what I was going to say is it’s more technical. So just a course we have, and this is a little confusing because it has similar names, but in the FMVA you have comparable valuation fundamentals. And in the IB, you have comparable valuation analysis. The difference is the one in the IB uses publicly traded companies. So publicly traded companies are…
Real companies, they don’t have to necessarily be public, are just going to be a lot more complex. Just the nature of it. So the IB specialization is going to just be more technical because you have to understand other technical things like what’s non-controlling interest? What are some non-recurring adjustments? So normalizing income statements is also a part of that specialization. you can get pretty technical.
So it’s definitely, it’s the FMVA but it’s a little bit more intense, a little bit more technical.
Meeyeon (19:44)
And now I wanted to, before I close our podcast, I want to make sure, cause we’ve said that this has a higher difficulty level than the FMVA. I don’t want to deter anyone from this. And here’s the one thing. What I’ve learned in my career is that if you are interested in something enough to go and get a job and like really go through the grueling interview process and it’s challenging and you’re a little bit scared, that is a good thing,
but also you will not know whether you are really passionate about something until you become good at it. And so it’s gonna take, for me, it took like three years for me to become really, really good at and confident at financial modeling where I could receive any model from any of the industry groups or our infrastructure team. And I have zero, zero fears when I open that file.
I’m confident that I can walk through it no matter what’s in it. I know I can do it. Regardless of what amount of time it has, I’m confident I have the skills to do it. But guess what? That took me three years of backbreaking labor. It took a lot of time. And one of the things is I would say you would never know if you’re passionate about something and you love something until you become good at it. And so don’t let the fact that this has a more challenging…
level of difficulty than FMVA to turn you away. If you’re interested in it, that’s a good thing. And so I hope that we’re going to see big numbers in this new IB and PE specialization because I know everyone is interested. Don’t let difficulty levels make you run away. I hope that it actually attracts everyone to this. And so unless we have anything we want to add, Duncan, Jeff?
Duncan McKeen (21:41)
Well, I just going to say like even, you know, for the listeners out there, even if they’re interested in learning more about those roles, you know, going through the specialization can be a great way to learn a lot more about those roles because they may they may go into the specialization and start to encounter the courses and think, wow, this is really not for me.
Good thing I did the specialization before I started to apply for the jobs or they may come into it and just absolutely love it. And then it’ll reinforce their decision that those are the right rules for them.
Meeyeon (22:13)
Because this is such a, this is so practical, this is so hands-on, this is something that’s super unique and special about CFI is that when you’re on the desk day one, if you join an industry group team or a real estate PE team, this is what you’re gonna be doing. And so this is a real live preview.
Now, with that said, I hope that you will join us in our next episode of our CFI Podcast, but for now, we will see you all later.
Duncan McKeen (22:45)
Bye, everybody.