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Wall Street’s boutiques bet on star bankers. Now they’re stuck with the bill

Investment banks like Evercore, Lazard and Moelis scooped up dealmakers ahead of an upswing that has yet to fully materialise

New York’s boutique investment banks insisted new rainmakers’ multimillion-dollar guaranteed payouts were a temporary phenomenon. The windfalls look like they are here to stay.

Banks, including Evercore, Moelis & Co and PJT Partners, have paid out at least 60 per cent of their net revenues to staff every year since 2022, the level long regarded as the industry benchmark.

After initially predicting the hangover from a post-pandemic hiring spree would last just two or three years — Lazard’s chief executive Peter Orszag said in 2024 he thought his bank’s compensation ratio would fall below 60 per cent the following year — boutiques are now warning investors they are in for a wait.

Evercore is “still a way from sub-60 per cent”, chief financial officer Tim LaLonde told investors in March. Lazard’s ratio hit 69.9 per cent in the first quarter of this year.

The boutiques’ costs shot up when they seized on a post-pandemic downturn in dealmaking as an opportunity to snap up dozens of senior bankers shed by Wall Street’s bulge-bracket players before the business cycle turned again.

Recruits take time to build a book of business — not least because of lengthy non-compete clauses.

“[We] made the observation at the time [of our IPO] that it was quite difficult for any new partner . . . to generate any revenues of consequence in the first two years,” Paul Taubman, founder and chief executive of PJT Partners, recently told analysts.

To persuade them to take the risk on a smaller firm, the boutiques offered the bankers guaranteed minimum payouts for the first two years followed by a promise of a 25-30 per cent cut of their deal revenues.

In theory, the investment should pay off when dealmaking rebounds and a bank is fully staffed to capture the upswing. And in some cases, fees have soared. From 2022 to 2025, PJT’s investment banking advisory revenue jumped more than 80 per cent; at Evercore they rose 36 per cent. Total revenues at Moelis increased by almost 60 per cent in that time.

But rather than the post-pandemic hiring spree being a one-off event, the boutiques have continued to add expensive new recruits as mid-market dealmaking has struggled and they have pushed into faster-growing areas such as private credit, AI, power and energy, tech and sports.

Lazard added 28 senior investment bankers in 2025 against a target of 10 to 15, pushing up its compensation ratio. It has since abandoned any particular target date for hitting the 60 per cent threshold.

The fact that these banks have continued to hire expensive senior bankers despite stubbornly high compensation ratios would typically be a sign of confidence that higher revenues are just around the corner.

“Why is it so expensive to hire right now? Because people are optimistic about their businesses and so they want to pay up for talent,” said Devin Ryan, equity research analyst at Citizens JMP.

“We’re in a very hard market for recruiting right now because of the revenue potential. I think people feel like this is quite bullish for this business.”

But it could also indicate a more enduring shift in boutiques’ models, where a higher share of revenues is diverted to banker pay instead of shareholder payouts like dividends and share buybacks.

Boutiques’ shares have underperformed the S&P 500 this year — as well as their larger peers, which have benefited from soaring revenues in their trading units.

There are worries that while megadeals are still being struck, the midsized transactions that are banks’ bread-and-butter have slowed because of high financing costs, a stagnant private equity industry, and geopolitical uncertainty.

“When [the boutiques] were drawing up the plans in 2024 for hiring, they expected 2026 would look better than it does,” said Brennan Hawken, senior equity research analyst at BMO Capital Markets. At Lazard, investment banking advisory fees climbed just 10 per cent between 2022 and 2025.

Executives are looking for other ways to cut costs, including by using AI to save on junior bankers.

Lazard’s Orszag has been most enthusiastic about using automation to enhance client work and cut the number of junior staff required to support a senior banker, something he has described as the “total associate equivalent per managing director ratio”.

“It’s a little bit of a back to the future on the team size, because it used to be that teams were smaller,” Orszag told an industry conference last month. “As specialisation took over, team sizes got bigger. We’re going to be going back to smaller team sizes enabled with these new [AI] tools.”

But others are more sceptical. The chief executives of Moelis and Evercore have said publicly they did not immediately see the opportunity to reduce staff. JPMorgan Chase chief Jamie Dimon said in May that he thought banks could use AI to “create temporary margin, but not permanent margin”, as competition eroded the gains in profitability.

There is a chance that if midmarket dealmaking remains thin for much longer, banks may have to start culling rainmakers. Perella Weinberg recently cut a tenth of its workforce.

One longtime bank executive in charge of pay decisions said banks found reasons to justify high packages for star bankers whatever the stage of the business cycle.

“It’s a pretty slim-margin business,” the executive said. “They do a lot of tap-dancing around ‘investing in growth’ or ‘retaining employees’, but the bottom line is the ratio ends up high in good times or bad.”