The boutique bank running out of room for new hires
It was Perella Weinberg Partners’ Q2 results day today – closing off the (American) boutique investment bank reporting season. What happened?
It depends. The boutiques – Evercore, Lazard, PJT, PWP, and Moelis – seem to have had mixed fates in the most recent quarter, and whilst all seem to be in the mood for hiring, not all of them seem to have the capacity to do so.
PWP has less capacity than most. It reported today that Q2 revenues were up 10% from a year ago, and only down 2% half-on-half. This wasn't bad compared to rival boutiques, but PWP's compensation spending is consuming its revenues: 90% of revenues were allocated to paying people in the second quarter.
That’s higher than at rivals. Lazard spent 86% of revenues on compensation in Q2; Moelis spent 80%; Evercore spent a mere 68% - but this was partly because it cut pay.
Why is PWP spending so much money on people? Every boutique wants to reward its people with good reason – it wants to be the best placed for when M&A revenues return, and deals need dealmakers again. But how long can boutiques continue to pay for expensive seniors while they’re not bringing in money? PWP was even cutting “regular” staff to free up funds and make room for those dealmakers, Bloomberg reported.
Stacking up expensive bankers might be a good gamble if dealmaking is around the corner (and, certainly, a lot of banks think this). But another black swan event – or a protracted return to revenues – can leave the overly-exposed boutiques flying too close to the sun.
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