Qinglin Zhao (Karoline)
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The rise of Elite Boutique Investment Banks

By: Karoline Zhao

To complement or supplement, that is the question.

Recently, Vault released it’s rankings of the Most Prestigious Banking Firms for 2018. Besides Goldman Sachs & Co and Morgan Stanley, some firms that have less presence in the headlines, including Lazard and  Evercore, now share a pie with those big-league names in the top 10. Renowned banks such as Citi and UBS, which were both in the top 10 of the 2008 Most Prestigious Banking Firm Rankings, have fallen  behind  these little guys ten years later. Elite boutique banks are officially under the spotlight now.

You may wonder what a boutique bank is, and how it differs  from a bulge bracket? To name a few, Bank of America, Barclays, Citigroup are examples of bulge brackets.  In general, compared to bulge brackets, elite boutique banks are smaller in size and more flexible in terms of its structure and operation. The boutiques primarily focus on specific divisions of investment banking such as mergers & acquisitions or asset management. They rarely have a full range of financial services as bulge brackets and have less of a global presence. As a result, bulge brackets still own a larger proportion of market share. Yet as Business Insider points out, these  “small banks are killing the big banks” when it comes to certain arenas, especially M&A. Based on Dealogic data, the share of US M&A by boutiques has been on the rise since 2008, and M&A boutiques accounted for 38.4% of global deal volume in the fourth quarter of 2016, which amounted to $515.1 billion. This record is largely a result of over $1b M&A advising deals. MarketMogul provides even more striking numbers: Boutiques earned 27% of M&A fees while experiencing a 47% increase in deal volume over the previous year. What factors contributed to such growth of boutique banks?


The financial turmoil of 2008 was undoubtedly a watershed moment, which marks the point when boutique banks started gaining some momentum. After the financial crisis, which Hintz describes as “the catalyst” for boutiques, more clients have been drawn to boutique banks because of their self-styled structure. Traditional bulge brackets which provide both financing and trading services are considered to have conflicts of interests when  involved in M&A advising. Since elite boutique banks don’t engage in trading but solely offer advisory, they can claim to be independent from an array of conflicts, and thus build areputation for providing objective and unbiased opinions. Furthermore, they are bound by less regulation and supervision, and often function more efficiently than the bureaucracy laden BBs.

As Christopher Alessi from Institutional Investor suggests, the crisis also drove out talent from bulge brackets that instead turned to building their own startups. This could explain why the founders of boutique banks are typically renowned experts on M&A deals from brand-name firms. Robey Warshaw, for example, is established by veterans from Morgan Stanley and  UBS.  With their former expertise, these new founders hardly lack clients. The reputation of both the boutique and its owner now is vitally hinged on the outcome of every deal. In order to maintain clients, boutique banks need to take every client seriously, which from the perspective of clients, can benefit them to the greatest extent. In contrast, human capital in bulge brackets are assigned to various tasks, so attention to advisory is not as high as specialized boutiques. Therefore, boutique banks started to complement advisory roles used to be played by large firms. An example would be Evercore, a leading advisory boutique, which collaborates with J.P Morgan, a traditional bulge bracket, and other boutiques like Greenhill & Co., a long-standing boutique bank founded by former Morgan Stanley president Robert Greenhill. Evercore advised AT&T on a $39 billion acquisition of T-mobile in 2011, which could have been the biggest deal of the year had it not collapsed by the years end.

Boutique banks are indeed the new stars on the rise, but challenges await for them as well. Their specialization also means limitation. More specifically, it is difficult for boutiques to target new clients given their limited geography and confinement to different industry sectors. While big banks start to set foot markets outside of U.S and Europe, such as Asia, the size and leverage of boutiques prevent them from having a presence in the global context. The employment hierarchy of boutiques is another structural issue since their fate largely depend on their owner, which is always at stake because the risk of decision making is not diversified. Even if the rainmaker fumbles once, it can be devastating to the firm since it is established upon the personal relationship between this owner and clients. To put all in a nutshell, boutique banks can rarely be an all-star due to its size and structure.

To put it all in a nutshell, while competing with bulge brackets in advisory services, boutique banks also function as an aid in their specialized fields.  According to NYU’s Smith, big investment banks seek help from boutiques for advisory services. In general, it is more like a symbiotic relationship that bring about potentials to benefit both in the long run.


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