If you're young, bright, ambitious and out to make a fortune in London or Hong Kong, choosing a career path is easy get into credit research. Once a humdrum, nine-to-five job performed by academics, credit research is now an entrepreneurial task with huge rewards. Experienced analysts are some of the most sought after people in finance.
"It's gone crazy. Headhunters are calling up all day long," says Joseph Biernat, director of global credit research at Deutsche Morgan Grenfell, who is building up a team in London. "Hong Kong is even wilder."
In Hong Kong senior staff are pulling in as much as US$1,000,000 a year while in London the range is between £100,000 and £300,000 including bonuses for juniors, going up to £500,000 for those with longer experience. Huge demand is driving up salaries: it's doubled them over the past two years. Meanwhile, investment banks are having to cast their nets wider to find staff. Rating agencies are the traditional recruitment ground, yet suitable analysts in these companies are being poached faster than they can be trained. Banks are looking further afield, sometimes taking people out of internal credit or sales, or even persuading equity analysts to switch.
On current trends, a number of credit researchers will eventually attain the superstar status afforded to leading equity players, taking their turn to explain the mysteries of the markets to the television cameras. "They are becoming much more high-profile and have certainly moved from back office to middle office. They are much more highly regarded," says Ron Bradley, managing director of executive recruiter Jonathan Wren Search & Selection.
Credit researchers themselves are becoming much more ambitious for their profession. Says Tariq Pasha, director of fixed-income research for NatWest Markets: "It's my ambition to make credit research as important as equity research. Fund managers rely on equity research to pick shares, so why shouldn't they demand the same from credit research?"
Many are starting to. In Europe the prospect of a single currency is driving the demand. Issuers, arrangers and investors are all aware that the forex element of many European bonds is set to disappear and credit premium will be the chief arbiter of returns. Investors across Europe will be able to buy numerous foreign bonds without currency risk. But to make good investments they will need to understand an issuer's credit history.
In Asia, bond issuance is growing at a rapid pace, but much of the paper is unrated and corporate disclosure is often poor. Analysts who can decipher opaque balance sheets and explain to investors the inner workings of Asian companies are at a premium. Credit analysts are also in demand to back up banks' origination work, advising on pricing and putting together research that will introduce the issue to investors.
Investment bankers think that credit research departments in London and Hong Kong will eventually grow as big as their counterparts in New York. On Wall Street, large teams specializing in sectors as diverse as paper and forest products through to healthcare have been in place for over a decade. The depth and breadth of the US corporate bond market, together with the sophistication of institutional investors, justifies their existence. But in London and Hong Kong the profession barely existed until a few years ago and what there was consisted of pedestrian research on minute spreads between liquid sovereign and supranational issues.
To plot the changes going on in the profession, Euromoney tracked down leading pracitioners and asked them about their work and their lives.
Joseph Biernat
American Joseph Biernat, director of global credit research at Deutsche Morgan Grenfell (DMG), claims to have been the first credit researcher in London when he came over with Merrill Lynch eight years ago. "People looked at me like I had two heads," recalls Biernat. At first he sat on the syndicate desk and his colleagues asked him what he did. "I do credit research," he said. "What's that?" they asked.
Biernat's British career started out with him advising US investors who did know what credit research was on UK bonds. It was a far cry from the life he had left, backing up traders on a frenetic Wall Street floor during the era of leveraged buy-outs. Single-A credits were turning into double-Bs overnight. "Back then, New York traders would yell and swear at you. Sweat would be pouring off me," says Biernat. "I wouldn't want to do it again." He gave up the comfortable tennis-and-lunch existence of a provincial commercial banker to go into investment banking, gaining credentials at a rating agency along the way.
At Merrill, Biernat was on his way to the washroom when his pager went off informing him that the RJR Nabisco bid was under way. In the thick of it in New York, Biernat could swap yarns with other credit researchers at the Fixed Income Analysts Society. But in London, "there was no-one else in the market. It took me a long time to find another person doing [credit research]," he says.
Now the problem is finding staff to fill the empty slots. "The business has exploded. Everyone is starting to hire a team. London is where New York was 15 years ago. Asia is further behind and it's impossible to hire people there. I have resorted to sending people out from here," says Biernat.
Richard Deutsch
Fellow American Richard Deutsch, who is first vice president, fixed income research for Merrill Lynch in London, arrived in the UK three years after Biernat. Awareness of the profession had hardly improved in that time, he says. "Five years ago credit research [in the UK] was negligible. The only thing in the European market was sovereigns. No-one knew what credit research was," says Deutsch whose first post in London was with Nomura International where he expected to be doing counterparty credit but ended up assisting east European corporate finance.
"The eastern European section needed credit experts to look at things such as a Czech privatization or to evaluate a Russian tobacco factory for a US investor," says Deutsch. But the job didn't suit Deutsch's private life or his pocketbook. "It meant being in eastern Europe 60% or 70% of the time and that was too much," he says. "What's more my job content was corporate finance but I was getting counterparty credit remuneration."