Different teams within an asset management firms

I was wondering if anyone could discuss the merits of working in various parts (e.g. fixed income, equity research etc.) of an Asset Management firm? My preference is to work in fairly quantitative role that is intellectually stimulating, but that also has strong career prospects moving forward.

 
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Just a bit of background, I used to work for a mid-market (but >$1B AUM) asset manager as an Analyst covering Equities.

If you're talking about the entire asset manager as a business, of course you would have front office, middle office and back office roles, but for the sake of brevity, let's stick to front office. Generally in front office you would have (or have the equivalents of) a Sales Team and the Investments Team.

The Sales Team is usually divided into institutional & high net worth sales and retail sales with further subdivisions into the different functions. Institutional & HNW sales people are generally client facing, and they need to have a strong understanding of what's going on in the portfolio both returns and strategy-wise, and be able to communicate the Investments team's views and calls to clients. Remember that these people interface with sophisticated institutional investors so more is demanded of them than most "sales" roles. Often, there would be a "Portfolio Specialist" role or an equivalent, who would usually be a "bridge" between the investments team and sales. When meeting with clients, this person would often be responsible for the more technical portions of the discussion.

The Investments team is the one that actually runs money. The are commonly subdivided into asset classes like Equties, FI, and Multi-Asset. Some larger houses would have currency, commodity and derivatives desks. Some guys would do derivatives under FI & Multi-Asset. Generally, under these teams you would have Portfolio Managers, Analysts, Dealers/Traders. Portfolio Managers are generally a senior you work your way up to. In equities at least, many of them start out as research analysts, especially in more "active" or fundamental-oriented houses. Analysts vary in seniority but you generally have Research Assistants & Analysts, Senior Analysts and Strategists. You generally would start out as a Research Assistant or Analyst (or you would be an RA then work up to Analyst) handling coverage of a few companies in a certain sector. If you'll be in equities, they'd often start you out by helping someone who covers those companies then begin handing over coverage company-by-company to you once you've "ramped up" your knowledge of the sector you'll be assigned to and the specific companies you'll be in charge of covering. Your time will be split between "on-the-ground research" speaking to companies, industry thought leaders, sell-side analysts and other sources of relevant info (whether full-blown face-to-face meetings or routine "channel checks" over phone/text/email) or doing site visits, desk-based research looking for data then organizing and interpreting it, translating the info you gather into models for the different companies you cover and then translating that into fundamental views on the companies (buy/sell/hold; OW/UW/Neutral, etc) and then writing reports that communicate your views with the rest of the firm and feed them into the portfolio construction process. I was never in Credit Research, but I sat next to one of our credit analysts, his time split similarly to mine, but less meeting companies and a lot more Macro and FI Research. I'm not so sure how exactly an FI Analyst's time is split, but I would think that it's skewed towards FI-specific Macro research and monitoring the markets. As an analyst, you develop very deep expertise in the sector and asset class you cover, and your specific company coverage. It's an "accumulated knowledge" game and if you ever meet analysts who've been covering a sector for 10+ years at a decent house, the level of insight and breadth of knowledge they have is amazing. As you move up, you have the option to stay in research and move towards being a senior analyst that runs research for a whole sector (or segment within a sector) or group within an asset class and eventually a strategist or head researach for an asset class or you can transition into becoming a portfolio manager. Some equity analysts who are very senior (on both the buy side and sell side) sector specialists with strong network and great insight even transition to the company side to run strategy, business dev't or be the CFO. Dealers/Traders on the other hand do exactly what you would expect a dealer to do, and they are really in the office most of the time executing portfolio changes for the portfolio managers, and being the ones to really monitor the market and inform the team in case anything drastic is happening. Given the fact that many buy side firms are moving towards doing the trading themselves (whether via Direct Market Access or an Algo), buy side dealers are becoming more and more important, especially as the sell-side begins to get more and more disintermediated in execution. Quantitative Analysts at asset managers can be either on the portfolio analytics side or the quantitative strategies side. I honestly cannot speak at length about what they do on a day to day basis, but in general they help quantify elements of investable securities like correlation with the index, various risk factors, sometimes pricing for more complex instruments. A lot of their output goes into quantitatively dialing-in portfolios. Not all houses have a big quant team and I know that a lot of smaller places still often go by "gut feel" portfolio construction. Then of course the bigger houses have their own economists who run economic research. Portfolio Managers are the people who run money, and most roles are essentially a resource for them to manage the portfolios better. At the end of the day, the buck stops with the PM, because no matter what analysts, economists, quants and dealers say, the PM has the final say as to what goes into the portfolio... Though they may sometimes try to blame others for their negative alpha. Their job is to generate alpha and justify whatever fee the firm charges clients. The role is really a mix of everything because they have to look at everything when construction the portfolio. There's a ton more that could be said about these different roles but that should give you an overview of what it'll be like.

If you want to help clients build solutions for their investment needs and allocate capital across asset classes, a sales role may be your best bet. If you're more interested in running money eventually or becoming a specialist in a sector/asset class, go for a role on the investments team, most commonly as an entry level Jr. Analyst/Research Assistant or if there are junior buy-side dealer roles available if that's your thing. As to whether you should come in through an analyst role versus a trading/dealing role, it depends on what you enjoy doing. If your interest is mainly in understanding the fundamental economic drivers of sectors, markets, and specific companies for certain asset classes, you may be better suited for an analyst role. Generally speaking, analyst roles would also have a lot of "out-of-office" interactions with counterparties, company executives, thought leaders etc. because you attend a ton of briefings on a range of topics. Companies hold quarterly earnings calls and very regular investor briefings, the sell side often holds economic briefings for their Econ team (and sometimes FICC teams) to share the House View and like I mentioned, there's a significant amount of "on-the-ground" research that happens. If you're mainly interested in watching and studying the markets, maybe a dealer role is best for you. I personally know someone who started as an analyst, didn't work out at all, but became hotshot traders when he crossed over.

Edit: Sorry didn't have time to type out all my thoughts, added some stuff here and there.

"Be the Disruptor, not the Disrupted" - Clayton Christensen
 

Thank you so much for taking the time to explain all of this, you've been extremely informative. I am looking more at the investments side of the industry but I am not entirely set on which of fixed income, alternatives and quantitative analysis; do you have any recommendations about which of these have the best career prospects, hire the most graduates, involve the most analysis and whether you need a certain background to go into any of these? I am an economics student, and am not sure whether I would need a more mathematical background to perform any of these roles.

 

For Fixed Income (and even for a lot of derivatives), you don't necessarily need to have a quant background to do get by and be very good. To give you an idea of what level of quantitative knowledge you may need on the job, check out these books, my buddy was asked to read these:

http://as.wiley.com/WileyCDA/WileyTitle/productCd-0470821647.html https://www.amazon.com/Handbook-Fixed-Income-Securities-Eighth/dp/00717…

Note, that's just an indication.

Analysts tend to have very transferable skillsets, especially because the number crunching you do makes you "plug-and-play" for a number of other functions in different fields. Of course, I'm biased so take with a grain of salt.

"Be the Disruptor, not the Disrupted" - Clayton Christensen
 
AssetManagementMonkey:
2. A separate question, is there a reason why a mutual fund would put FX Risk under its investment organization, as opposed to its risk management division?

The FX Risk does not come from a dedicated FX portfolio, but rather simply the fact that there are investments outside of the country. This means outright positions have to be taken to eliminate the risks. This is significantly different from most risk groups where their job is simply to monitor the risk of a portfolio. I hope this makes sense

 
  1. Fundamental Research (Equities)
  2. Quantitative Research (Fixed Income)
  3. Financial Modeling
  4. Portfolio Construction and Performance Attribution Analysis
  5. Asset Allocation
  6. Trading
  7. Risk

Not sure why modeling is different from research... but the top 3 will give you the best knowledge base and I would argue the best career progression. Portfolio construction would be interesting but nobody is going to make you PM anytime soon.

 

FX Risk might involve making spot/futures trades to hedge currency exposure across portfolios, but that's just a guess.

Which group is best probably depends on your strengths. Fundamental Research will require heavy accounting, Financial Modeling might require heavy programming/math, asset allocation will likely be more macro, etc.

 

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