I'm trying to move to the buy-side from the sell-side and have been sending ideas to various funds for the last year or so, both as an employee of my firm and as independent job-seeker. I generally expect to get ~5 ideas per year, partly as a consequence of being focused on 1 sector and not being able to spend much time of my own research.
In the last year and a half, I've made 5 major recommendations in my sector with an average return of almost 60% (if annualized, 111%, but that's skewed by a couple big moves in 3-4 months). I don't know if I would have been able to pitch more than 2 of these to any given fund.
- 1 was a high quality company as a pseudo-housing recovery play
- 1 was a post-acq growth stock
- 1 was a an oversold stock after a big trade unwind
- 2 were contrarian/special sit stocks
Naturally, few firms I sent ideas to responded, and my sales guys were no help at all. I know I need to keep looking for new ideas, but at the same time, I feel like I should get credit for what I've done, at least to get someone to listen to me next time. Is that unreasonable?
What you are saying is that you've made some good calls but you feel like you aren't getting the positive response that you'd hoped for?
It sounds like you are maybe an associate on a research team, so I'll provide some advice / thoughts assuming that:
My last comment would be that credibility is gained over time but can be lost very quickly. So if you mixed in a dud (I don't mean a non-winner, I mean an idea that wasn't well thought out), that may be how funds think of you.
Yes, I was an associate. I am currently unemployed because my analyst was a terrible stock picker. Not that most sell-siders aren't, but he didn't really even go through the motions. Unfortunate, because he was really smart otherwise.
Besides the rammifications of his ratings, working under him to led to some terrible research. As in I was so mad I had to publish something I would get up and leave the building at times. He didn't understand what was important and what wasn't. I also had to arbitrarily make the numbers fit his estimates, so a lot of times I would get grilled on our models and have no idea how to respond because he didn't ever clue me in on what he was saying. Some of that was on me, but I made a choice to start focusing on my favorite ideas in order to get a new job before he got fired. Clearly didn't move fast enough.
I only ever made calls on my ideas, which I also pushed with sales. That got me nowhere, so I started doing independent models and write-ups to send out, which made some traction - generally because I sent them to funds that didn't really use my firm.
On your point on differentiated ideas, my housing play stock rec was not well researched. I pushed that as our top pick because we needed something and I saw little downside and a lot of upside. I never got the time or resources to really do what I needed for that, but I knew the trends were in my favor and I ballparked some numbers to know that was the best choice. Everything I said was correct, but I didn't get to the level of quantifying the impact of the housing recovery (construction wasn't the main driver for the company).
The ideas I sent out independently were definitely differentiated. I sent these to targeted firms that I thought could take interest, but I wasn't sure who the best targets were for my contrarian ideas. Damn shame, too, because those were my best work.
This sounds pretty tough. It'll also be a challenge when funds look at your resume and can piece together who you worked for. That won't help you land interviews.
I would suggest you keep active in the markets and keep doing what you're doing - pitching ideas to the contacts you have and to new ones you can drum up.
A few thoughts (just my opinion):
I'm not sure if your team/analyst has much to do with it. There are tons of smart associates who were stuck in situations like yours that ended up with good opportunities. I'd argue that as an associate being "right" on calls is less important than the analysis that underpins the trade. So focus less on past calls and focus more on currently actionable ideas that are supported by thoughtful work.
Sounds like from the above you're already doing this, but diversifying your skill set is huge. Research and pitch ideas from different industries, non-US geographies, across the cap structure. As an associate, I'd imagine you're relatively young and still "moldable". If you've only covered industrials, take the time to learn tech. If you're an equity guy, do the work to understand credit. You might make wrong calls, but if your analysis is accurate, I'd imagine funds would be receptive to that.
Related to the above...focus on building out your short skill set. Most sell-side guys are terrible at this, and its one of the larger challenges of moving from a sell-side research/desk analyst role to a HF.
All helpful points. I've come to realize I wasn't explicitly stating what most PM's would be looking to hear, even though I included all the info leading to the conclusion. Another issue would be pitching stocks with low quality management, which nobody seems to want to touch.
It's hard to try and go outside of my wheelhouse because I feel a pressing need to find something NOW, but that short-termism has left me where I am. I also admit my bias to the long side, but I feel those ideas have a wider target market (not exactly as many short-only funds as long-only).
I've actually been working non-stop on a few projects assigned by a long-only fund (like 3 straight weeks of working 10 hours a day), but that hasn't gotten me too far. Can't tell if it's worth working there. I'll focus on sourcing some new recommendation now. Any advice on how long I should expect to spend finding and analyzing a new idea? My past ideas have been contingent on having years of experience in my sector, so I already had a big advantage compared to a generalist coming across something in a screen.
I have a question - if you are sending Hedge Funds free research and really good ideas, what incentive do they have to hire you? Why wouldn't they just keep receiving your ideas for free and make money off them (or have option to ignore?)
I don't think sending ideas is an optimal way to get jobs at a hedge fund - it cheapens you as a potential candidate and sometimes reeks of desperation. Are you working with a headhunter now? if you want to transition to buyside and have good associate experience there should be some opportunities out there for you to work at a shop as a junior person or another sell-side operation.
In terms of 'screening' for new ideas - theres plenty of sectors with stress/distress, at all time highs, or otherwise interesting. Pick something topical like Coal or something event driven as it will be on everyone's radar screen - and dig through the companies and see if you can spot any opportunities.
good luck.
All concerns I've had in the past, however, I've been advised by people on here and in my network that sending ideas directly is the best way to get someone to respond to you. And it's not like I'm generating an idea every week and blasting it out to a distro list, I'm sending select applicable ideas to the funds that would potentiall invest in them - and rarely to the same fund. You do have to take a risk that they just take your idea and don't talk to you, but honestly, I don't care so much about that as I do about getting a job.
Do people in your network work at hedgefunds?
I would think pitching yourself as a hard working, young analyst could potentially be more fruitful as it sounds like you are two years out of school. If so - people I believe are less likely to listen to your recommendations and more for you to join a team to learn and contribute to PMs (who know more about investing than you do*)
*or at least what universally all PMs think, ha.
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