Is “Juniorisation” Leading to Changes in Equity Research Departments?

"Juniorisation" has been specifically happening in the sales, trading and derivatives departments of investment banks. However there are indications that this trend is also being seen in equity research.

There have been several articles in the press over the last few months talking about “juniorisation” in investment banking. Some mention this phenomenon as an industry trend, including “Wall Street is gripped by something called juniorization” (Business Insider UK, Mar 2016). Others point out a specific firm strategy, such as at Goldman Sachs: Lloyd Blankfein explains a new strategy at Goldman that’s great news for young people”, (Business Insider UK, Apr 2016) or at Citi: Citi swaps business head for VP as ‘juniorization’ continues (eFinancialCareers, Mar 2016).

“Juniorisation” refers to a trend that has been happening over the last few years, which consists of reducing the number of senior employees in financial institutions, and replacing them with less experienced workers i.e. “juniors”, as a means to reduce costs. This reflects an increasing focus on the “return on capital” of some of the most senior employees in a bank.

According to one of the articles from Business Insider UK, “Goldman Sachs increased its number of analysts, associates, and vice presidents by 17% from 2012 to 2015. Goldman’s partner and managing director pool, however, has decreased by 2%”. This was referring to a presentation from Goldman’s CEO Lloyd Blankfein at the Credit Suisse Financial Services Forum last February.

“Juniorisation” has been specifically happening in the sales, trading and derivatives departments of investment banks. However some industry experts have highlighted that this trend is also being seen in equity research.

There can be several implications of this for equity research departments. Whilst having more juniors in a department can open the door to new initiatives, the risks are that less experienced analysts may not have the same level of ability as senior analysts in certain critical areas, or even realise their importance. Strong relationships with clients, doing a thorough analysis of a company and conducting detailed forecasting may be underestimated by more junior analysts.

As highlighted by eFinancialCareers, the importance of mentoring early-career analysts may become of increasing importance: “Boomers need to understand [millennials] as consumers, colleagues and future leaders, because they will have a significant impact on financial services firms’ office environment and company culture. Meet millennials halfway and mentor them.”(eFinancialCareers, Mar 2016).