Back in 2007, as an Associate at Credit Suisse Investment Bank, I was asked to travel to India and train a group of off-shoring / outsourcing analysts on financial modeling, valuation and other financial skills. What I discovered there made a strong impression on me: a group of highly qualified and motivated financial analysts hungry for work and exposure to the, then, prestigious world of investment banking.
Having successfully outsourced back-office functions as IT, were starting to send some of their financial analysis and research overseas. They either established subsidiaries in India or hired Indian firms where a group of analysts was dedicated solely to their needs and purposes. Two main factors drove this trend: it was cheaper and banks wanted senior analysts to focus away from repetitive basic analysis and on more front-office, added-value and money generating tasks.
Since then, the trend for offshoring analysis has taken off. Estimates suggest banks now use as many as 5,000 financial analysts based in emerging economies, led by India. These staff are paid between $10k to $25k a year, a fraction of their counterparts in London or New York.
In the past, the financial outsourcing firms used to keep their analysts in the dark on the identity of the clients for whom they are working (be it a Credit Suisse or a Morgan Stanley). But given the scale they've achieved, these firms are now trying to market themselves more aggressively and requesting co-branding of work. For example, Copal Partners (1,200 employees) with offices, among others, in Delhi, Beijing and Buenos Aires has recently signed an agreement with Société Générale Private Bank where they will do research and write reports on companies with reports co-branded with the Bank's name and Copal's. I suspect retainers have crept up in the process.
Personally, I didn't stay in IB for long. After 3 years at Credit Suisse, I left in 2008 and joined an asset manager specializing in commodities in emerging markets. Unsurprisingly, front office functions such as intermediation were outsourced to local companies. Success in emerging markets required an in-depth understanding of the local market and politics. What was more surprising was that most of these functions were outsourced without retainers: there were no fixed costs whatsoever. Local providers were paid a success fee and nothing more.
In the current environment, banks could clearly benefit from a similar model for their analysis work. Uncertainty about revenues in capital markets and M&A means banks need to keep their fixed costs as low as possible.
We think we have the answer. Together with a former IB colleague, I have set up 'Analyst Pool,' a website that matches ex-IB financiers, whether from banks, hedge funds or PE, with companies who wish to take advantage of their expertise. Companies advertise assignments; ex-bankers are able to bid for them. Pricing takes place in a transparent auction, which makes bids more competitive and lowers the total project cost for the client. The assignments in question can be anything from marketing to writing a business plan. The costs are entirely variable.
This makes sense for the bankers involved too. Bonuses are fading away and job insecurity is becoming standard. Many are feeling the urge to work for themselves, to achieve a better work-life balance and more interesting risk-reward profile. This is their chance.
Edmond Sassine is the co-founder with Pierrick Morier (ex-Credit Suisse Investment Bank) of Analyst Pool, a virtual investment bank staffed by freelancers.