Curious about ER

...and then realise that 1) it will always exist 2) it can be one of the most lucrative careers if applied correctly.

u can alway go in to IB and PE... cuz u have tons of industry knowledge.. and u ahve done number of valuations.

correct me if i am wrong...

I know that equity research will always exist, but I do not know if it is necessarily true that it must exist in NYC for example. A majority of it could hypothetically be outsourced, like IT work.

Cash, Rules, Everything, Around, Me
C.R.E.A.M.
Get the money
Dollar, dollar bill y'all

then you don't know what equity research is.

1) the point about outsourcing is plain stupid. in fact outsourcing is an extremely good thing in er as basically bitch work (model maintenance, data intensive work etc.) is sent to india leaving more time and energy for prop analysis/idea generation and client contact. you have to understand what the value add is in sellside er. analyst duties in banking are much more easily outsourced.

2) most bankers are recruited straight out of school (ugrad/mba) while a lot people join er after experience in different industries (industry knowledge is crucial). sellside er is probably the most obvious stepping stone to finance, so there's a lot of competition from guys trying to break in from outside. it's meaningless to talk about which position is harder to get. in this market everything is hard...i know guys with all three levels of cfa starting right now in the most junior positions in er.

"1) Is ER being outsourced to the point where it would be stupid to pursue opportunities in it?"

no...there will always be equity research in the united states, simply because it's impractical to be covering u.s. stocks in other parts of the world. importantly, what actually matters most to a lot of buy-side firms is (1) idea generation and (2) access to senior management teams. i know this maybe hard for someone outside the industry to understand, but a lot of the big hedge funds and asset management firms will follow the stocks just as intently as the sell-side, so they don't care as much about industry notes and earnings reports and stuff. however, the best sell-side analysts are the ones that provide access to management teams and that also are very good with originating new ideas.

"2) How competitive is it to get into ER out of undergrad? Particularly from a non-target?(I've heard everything from that its no harder than ops to just as hard as IBD because smaller ER analyst class)"

i interviewed for both banking and resesarch jobs and ended up getting offers in both. i ended up working in equity research for 2.5 years and decided to go that route since, at that time, i felt i was more interested in public markets and investing in stocks. i'd say on average, the strength of resumes for undergrad IB hiring was stronger than that for research, but this was probably due to a number of factors including that more people wanted banking and fewer spots were available for ER (there is definitely less recruiting on the research side). at the end of the day, though, there are definitely people in research that really know their stuff, and some people who got jobs but really had no idea what they're getting themselves into -- and this isn't so different than banking. so at the end of the day, i'd say it's somewhat harder to get a banking job but it's no walk in the park to get a research job either. i was able to get research and banking offers from BB's and went the research route.

however, as soon as i realized that the type of work wasn't exactly what i wanted to do, and that i was more interested in transactions and private investing, i went all-out in terms of private equity recruiting. it's much harder to get into PE from research than banking, but not impossible. i think the reason that it's harder to get into PE from research than banking is for a number of reasons: (1) most people in PE came from banking, so it's more of a "known entity" when they hire people of similar backgrounds; (2) banking analysts are available in larger classes, whereas the research classes are smaller and less regimented; and (3) banking analysts have experiences working on transactional models which is something that's very important to PE.

that being said, i still think research skills and industry knowledge that you gain in ER are very relevant to diligencing potential investments in private equity, and that was something i discussed a lot. potential employers understood that i didn't come from banking, but i knew how to build basic LBO and M&A models and i guess i did sufficiently well on model tests and case studies. at the end i decided to sign on with a $3-6 billion MM buyout firm, which is where i'm at now.

anyway i hope these perspectives are helpful. i think i'm clearly the exception rather than the norm as most people in ER tend to go to asset management or hedge funds, but it's not impossible if you're determined to make the move.

i hope this helps

if you're curious to learn more about equity research and everything pertaining to it, you should go to www.analystforum.com, check General Discussion, and do a search for "numi research" or "numi ER". i've written hundreds of posts relating to all aspects of equity research, whether it's related to the industry as a whole, what people do day-to-day, how to interview, what good research analysts do, etc...so hopefully you'll find some good advice there.

finally, if you're further interested in how i moved to private equity, i wrote a fairly detailed post here --> http://www.analystforum.com/phorums/read.php?1,657261,page=1

i started writing on analystforum several years ago and only recently joined WSO when i switched into private equity, but i do think that you gain a lot of interesting insights and responsibilities in research and i can certainly say that many of my experiences in research were transferable to PE. however i also think PE is the type of job where you basically have to draw upon all the finance and business skills you've ever developed, no matter what field you came from, since the type of work you do tends to be so varied and all-encompassing...but that's also why i've found PE to be so interesting.

thanks for great posts numi

Cash, Rules, Everything, Around, Me
C.R.E.A.M.
Get the money
Dollar, dollar bill y'all

damn i thought this thread was about the TV show

although you've switched emphasis (from sellside to buyside), do you not consider the work that you do to be equity/capital research?

John Mack, could you please elaborate?

my point to the OP is that only considering equity research (as it is traditionally viewed) is very short-sighted and misses the point.

Within ER, you learnt how to research and identify industry trends, strengths and weaknesses of a company, and how to value it - the technical side of the job. You also learnt how to construct interesting and pursuasive arguments to convince investors to follow your advice - the "soft skills" side.

What you do now is really not a million miles away from what you did before. Sure, you may not have the hassle of updating quarterly models and publishing maintenance research - but you are essentially identifying assets that you think are cheap or expensive.

It doesn't matter what label you want to put on it - if you can do this well, you will always be well paid.

John Mack - what you're saying is definitely true. The knowledge that you gain in equity research is very transferable to other fields. In equity research, your role is to look at a wide array of qualitative and quantitative information, and your job is to distill it all the way down to determining (1) how much a business is worth, and (2) why investors should or shouldn't buy it. To that end, I've found that the analytical skills I developed in research, many of which you mentioned in your post, have come in very handily in private equity, especially when it comes to vetting potential buyout opportunities. In addition, because equity research teams tend to have one or two associates at most, junior personnel are typically pretty involved with meeting and speaking with company management teams, and knowing how to evaluate and grade managements is of course very important on the private equity side.

To your other point about good researchers always being able to get paid, I also agree. It's true that the sell-side business model has evolved quite a bit since the Global Settlement, but (1) people are always going to need investment advice, and (2) employers are always looking for someone that has the skills to put a price on potential investment ideas.

As far as why bankers tend to be more sought-after for private equity firms, I do think a lot of it is because of the modeling experience as well as the familiarity with the deal process. However, in my brief experience in PE based on the two months I've been here so far, I've found that the associates that came from banking tend to be more process- and detail-driven whereas people from an equity research background are more apt to thinking about "bigger picture" issues regarding businesses, which is what research analysts do every day on the sell-side (i.e. think about broader industry and company trends).

At the end of the day, I think both banking and research backgrounds are useful in private equity -- maybe banking more so than research -- but if you position your skill set in the proper fashion, I do think research backgrounds can be similarly transferable. As you implied, private equity is basically applying the same knowledge you had when looking at public investments towards private investments.

Is it better to start as a research analyst in the sell-side or in the buys-side (as in asset management)in terms of exit ops and compensation?

funkytommy, use the search function...

This is true. Not everything can be outsourced. Only the lower end data mining, crunching, types of processes.