Breaking in to the Buy-Side

Coming out of a semi-target, how exactly does one break into the buy-side (i.e. from undergrad)? Do funds or AM divisions have junior analyst or rotational programs? If so, what is typical comp?

Of course CFA level 1 would help, but what about staying a year after undergrad for an MSF?

Also, could someone give me an overview of how AM works outside of mutual funds, hedge funds, pension funds - like how does BB AM or other AM firms differ from "funds" and such?

Thanks.

 

Bridgewater hires fairly aggressively out of college across all majors. SIG likes engineers, you can also get a spot with BB FoF management, although the opps out of there aren't so great. Audax hires straight out, although apparently they work you to the bone. A smattering of other HFs and PE groups that I'm forgetting. As far as traditional AM firms, GR-NEAM, Fidelity, probably a bunch more. Just off the top of my head.

"There are three ways to make a living in this business: be first, be smarter, or cheat."
 
Best Response

I broke into the buyside straight out of UG (with a lot of luck) on the PM/quant side as an analyst, at a good BB AM:

The above poster is slightly wrong, as BB FOF is not the only thing BB AM hires for. There is an occasional spot for a buyside ER analyst, credit research, etc. but admittedly these spots are few and far between.

Way too long post, but hopefully this will be my brief contribution to WSO:

Breaking In:

I come from a similar background as the OP, but I think it is helpful to break down the question further-- For client-facing roles, which are the majority of the hires, as long as you have a decent finance background, and OCR exists, you work hard, and you are generally bright, there are generally more roles available.

The way recruiting worked for me is generally not a guide for people looking to break in: I interviewed for all the traditional straight out of UG parts of the firm, but found my resume gradually pushed towards AM with the help of some very generous MD's who thought it would be a good fit for me.

The number of total analysts in a similar role are admittedly slim, and hiring is really need based, and that happens once every 3 years or so for a particular team or something usually. The thing that bothers people about straight out of UG buyside is the dilemma of not actually knowing anything but trying to prove to your group of choice that you can learn; for the most part, previous exp at another premier AM firm or a decently large hedge fund seem to be the backgrounds of most of my colleagues.

BB AM versus "Traditional AM" versus "Alternative AM"

I don't necessarily think top BB AM differs THAT much from pure traditional asset managers, but you do get afforded the safety of a bank balance sheet if your fund catastrophically blows up and they deem a rescue is necessary in very rare cases. A lot of the passive indexing that goes on at asset managers won't happen usually at a BB, and they try a variety of stuff under one roof. What ends up happening is that it just becomes a collection of smallish teams operating under one roof, in the sense that they try to become a multistrategy firm, with random alternative FOF teams existing also. It gets complicated when firm money used to be involved pre-Volcker in "internal hedge funds" at say a Goldman, or at a JPM which also has Highbridge.

There are some top-notch teams hidden in "traditional" AM divisions that do launch hedge funds for clients, and the line becomes blurry on what constitutes of what you think as traditional AM versus a HF--say you have a star value-biased manager who manages his book close to beta-1 because of whatever marketing reasons, but you want to isolate his stock-picking process/think you know when to lift/tack on simple beta hedges. With some basis risk, you can crudely manage his ex-ante exposure to as near 'market-neutral' as you want, and how this really differs from an alternative strategy is really up for debate. A lot of people will defend that all the supposed 'risk-management' and superior 'fundamental bottoms-up research' of a hedge fund will be washed out and get offended at this chimera product, but only a few star hedge fund managers really do make such a difference in the more liquid asset classes.There are also going to be teams that do active shorting, etc. etc. and their hedge funds really do outperform a lot of HF firms out there.

Where I think traditional AM differs from HF in general is the type of asset classes/risk premia you are allowed to go into, and not really any talent/extra intellectual capability per se. I know AQR has tried to do a lot of work in opening up classic hedge fund tricks like taking momentum bets to the general public, but notice the lag in where it first appears in hedge fund strategies and then becomes available to the general public. Partially because of the regulatory freedom HF delivers, you will see the innovation coming from there.

By extension, I personally feel paying 2 and 20 for an equity long/short guy simply is a rip-off, but would be definitely interested in paying 2 and 20 for a top statistical arbitrage or distressed debt fund because that sort of investing is truly unique (it really has nothing to do with my quant background either).

What it really comes down to I the think is to evaluate where you lie within the AM spectrum; the first obvious thing is what sort of beta (asset class) exposure you deliver (equity, private equity, commodities, etc.) and the relative freedom you are allowed within the asset class via premia you can take bets on. For instance, in something we all understand--equities--you can decompose it into Fama-French-Carhart. You can fiddle around with position limits and bands, drawdown control mechanisms, bet concentration, asset allocation, bet sizing relative to other bets, etc. etc. etc. The thing that drives me nuts about WSO is that it holds the view that security selection is the generation of all alpha in a successful manager or that being value-biased works generally--there are a combination of things that work and don't work for a manager, and security selection skills aren't always it. Being heavily concentrated in a few bets isn't exactly the mark of a star manager either--yes, you look like a genius and hero if your single thesis works out, but that doesn't mean you are a good fund manager--it means you understand a company and have the influence to change it, not that you are actually good at betting in general.

In the end traditional AM ends up being alternative AM with more constraints; for better or for worse, certain beta exposures, premia plays, and strategies are labelled as "alternative" simply because people are too lazy to do the research on them to understand them in order for them to become "traditional." Apparently, limiting net beta was the original hallmark of an alternative strategy, but thankfully we have taken on a more nuanced description since then.

 
syntheticshit:
+1, up-repped you. This was the most informative post I've read so far this year. Please email the site admin and get Certified, more posts like these are what the site needs.
I am permanently behind on PMs, it's not personal.
 
syntheticshit:

Great reply. Thanks for posting this.

I think there is an interviews where Cliff Asness of AQR was talking about the future of fee model for investment management and he said that there should be different fee models for different strategies / firms. I'll see if I can dig it up (I'm not 100% sure if it was Asness or not who said that). I might start a separate post on business & fee models so that I don't highjack this thread.

To the original poster, I started off on the buyside (REPE). I networked quite a bit and also applied to jobs that required 1-2 years experience even though I didn't have any besides internships. I had my modelling skills tested during my interview and was prepared so they took me on (albeit at a junior level). I'm not sure if this is entirely relevant to what you are pursuing.

 

*I will make the quick addendum that the above is in a fee-agnostic universe, assuming you are a very good manager--due to the economics of the business and scalability issues also, stuff like volatility arbitrage will always exist in the alternative universe I think where you can charge 2 and 20 off a strategy that doesn't scale super well once you have more money.

 
syntheticshit:
*I will make the quick addendum that the above is in a fee-agnostic universe, assuming you are a very good manager--due to the economics of the business and scalability issues also, stuff like volatility arbitrage will always exist in the alternative universe I think where you can charge 2 and 20 off a strategy that doesn't scale super well once you have more money.

Great posts. SB showers for you.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.
 

Thanks syntheticshit -

Dear WSO, that is how you become a Certified User without e-mail confirmation (will come later today).

We all appreciate you typing out that response...this is recruiting season and the value of contributions / advice from professionals to WSO this time of year can never be overstated.

-Patrick

 

I would say MSF only helps if you don't currently go to a school that has OCR, and the MSF program would have a lot of firms coming to campus. In terms of subject matter then it's not a huge bonus. The CFA Level I is not going to really help IMO either. It's the CFA charter after passing all three exams that will help you. Also, I mean that it helps in the extent that it shows your commitment to the IM/HF field as a career.

Networking can really go a long way in this industry, especially on the buyside where new hire classes (if firms even have a "class") will be much, much smaller than anything at a BB in S&T/IBD.

 

I appreciate all this feedback guys.

Syntheticshit: that was extremely helpful. Couldn't have asked for a better response.

Also, thanks to Sandhurst for that list of potential employers.

Does anyone care to share thoughts on which field would be best to get into if I am unable to break into the buy-side straight out of undergrad? Should my focus just be on getting a top MBA at that point, or is there actual relevant experience I can get doing something else that's a bit more undergrad friendly?

(side note): I have to say, an MBA isn't generally something I'm dying to do at an early point in my career. I'm fairly confident I could get into a top program if I focused my efforts on doing so, but it's not as if I'm eagerly awaiting the opportunity to pay 90k a year at Wharton, considering I will already be coming out of undergrad at my private semi-target with student loans to pay. I can appreciate that a top-10 MBA is essential for certain career choices though.

 

"BB" AM --> if you are referring to big banks i.e. Goldman, JPM, MS then I say only GSAM, JPM, and MS really matters.

"Traditional AM" is where it is at for "Buy Side", unless you are looking for Hedge Funds which is setup completely different from your function to compensation.

I only know about asset management for institutions, so I'll speak from there:

  1. CFA Charter does matter - not each individual level. The reason for this is Ethics and Marketing. You can't put "MBA" on a business card, but with the charter you can both put on business card and say " you have staff that abides by CFA Institute Ethics", which is in itself a huge marketing point

  2. Types of Asset Management firms (Institutional Level: Blackrock, SSgA, Frank Russell, BNYM Asset Management, PIMCO, etc... ) are some of the big shops with +$500 bn AUM. Types of "front office" roles they'll be looking for are: - Indexing Portfolio Managers to manage tracking risk and index replication - Asset allocation (strategic and tactical) for their asset allocation funds - Equity Trading - program traders using algo - Product Manager (for their investment products) - Sales guy ( very sales driven environments just like Sell Side) These are some examples

Back office type jobs: Fund accounting, middle office, Project management etc..

------ Finance Geek
 
The Riddler:
Coming out of a semi-target, how exactly does one break into the buy-side (i.e. from undergrad)? Do funds or AM divisions have junior analyst or rotational programs? If so, what is typical comp?

Of course CFA level 1 would help, but what about staying a year after undergrad for an MSF?

Also, could someone give me an overview of how AM works outside of mutual funds, hedge funds, pension funds - like how does BB AM or other AM firms differ from "funds" and such?

Thanks.

Not sure about MSF in the AM world. I think that the CFA might be more beneficial.

The above post was spot on in terms of AM outside of mutual funds, hedge funds, pension funds.

In terms of getting into this industry, I think there are various entry points and investment positions at each. I am not counting the sales/relationship positions, since I think OP is more inclined towards investing. To list them:

BB AM - select buyside research positions, either eq, fixed income, real estate, alternative assets. You also have more quant roles like QIS at GSAM. There are also FOF positions. If you are doing recruiting for a BB AM out of ugrad, your first round might probably be a weed out interview and during second rounds, you will be asked for your interest in a specific group. Obviously, some groups might not have openings and most of the openings will be FOF. Sometimes, you might not even have a choice (ie, JPMAM summers).

AM firms: Mutual fund companies (ie, Fidelity, Wellington, Putnam): Out of ugrad, there are a few spots in research or investment rotational programs. There aren't too many firms that actively seek out ugrads, so these spots are coveted and put you on track for a career in AM, perhaps towards PM. You don't recruit for a specific fund within the firm, rather it is general and you only get to choose which asset class you are interested in (usually equities or fixed income only).

Institutional AM (Blackrock,etc): Out of ugrad, you most likely wont be doing bottom up research on stocks/bonds. Rather it is more of asset allocation, looking at portfolio risk, benchmarking, etc. Pretty much what the above poster said. Usually, these are the PMG groups. A friend of mine will be in this position out of ugrad, and he will be working on fixed income models, looking at term structures, looking at duration/convexity of portfolios, etc.

In terms of getting in, you have to have some luck and having OCR at your school helps. I will be at a large mutual fund company FT in their investment program. My recruiting consisted of pretty much targeting 5-6 firms (the big ones that I mentioned). A friend of mine summered at a BB AM and he said it was mostly FoF stuff for ugrads, and that buyside research was pretty much filled up by the summers. So for a couple BB that were recruiting, I applied for sellside research. Everything else was buyside. Interviews were pretty tough, esp the first rounds. No one asks you what your biggest weakness is; that's cheesy. Within 30 seconds of your stock/bond pitch, they'll know if you are qualified. The second rounds also had a stock pitch but it was a mix of that and fit questions. I was more interested in research so I didnt pursue firms like BLK.

PM me if you have any questions. I'd be willing to share more of my experiences in depth, esp with IB/PE/HF interviews since I did a lot of that during my summer recruiting.

 

I just wanted to second everything YGCS said, and give a general "Damn, I'm impressed" to the quality of synthetic's post.

Keep in mind that breaking into the buy side is very much about fit. Most funds don't need -- and in most cases don't even want -- undergraduates, primarily because we're useless. So, when you go into an interview, it's all about developing a connection: Convincing a PM or Senior Analyst that despite your all-consuming mediocrity, to say nothing of your less-than-stellar pitch, you will soon find a way to be a value-add -- even if it's just memorizing everybody's Starbucks order. (They're investment professionals, so they love finding value in lowly places). Of course, you need to know your shit, and demonstrate a preferably long-held passion for investment management.

Obviously, I'm slightly exaggerating to make the point, but I believe it to be a valid one. Even at the major fund families, a la Fidelity, T. Rowe, Franklin, Wellington, etc., they're only going to take on a few Research Associates per year, so you're going to need to be top-flight.

As far as my own personal process went, I shared YGCS's strategy, targeting mostly Buy Side Research Associate roles. These roles do two things: (1) At many companies, they put you on PM track. When going through interviews, take note of how many Portfolio Managers came up through the Research Associate program. You're probably going to be impressed by the number, especially since WSO likes pretending the only way to be a PM is if you once toiled away on the Sell Side. (2) At any of the shops I mentioned, you'll be doing bottoms-up, fundamental analysis, giving you a readily transferable skill set. BlackRock's program is fantastic, but as YGCS noted, it's more about Portfolio Theory than it is about fundamental analysis. Of course, there's absolutely nothing wrong with that, but it's more of a personal preference thing that you'll need to decide for yourself.

Also: Be humble, because if you're not, the market is going to humble you. I can safely say that it's a quality nearly every fund manager is looking for.

 
atomic:
Also: Be humble, because if you're not, the market is going to humble you. I can safely say that it's a quality nearly every fund manager is looking for.

Great to see people are reviving this topic, and this has been the best advice given. There are going to be spells where your alpha goes into drawdown. Nothing works all the time. Be open to the possibility that you are very wrong despite your amazing track record and awesome intellectual capabilities.

 

OP here. Thanks to all for the great contributions to this thread.

If I may pose one more question: What are the most important items on a resume that would get noticed by these AM firms hiring undergrads? Of course it would be great to just be extremely well-rounded, but surely there must be something that particularly appeals to these buy-side shops.

 
The Riddler:
OP here. Thanks to all for the great contributions to this thread.

If I may pose one more question: What are the most important items on a resume that would get noticed by these AM firms hiring undergrads? Of course it would be great to just be extremely well-rounded, but surely there must be something that particularly appeals to these buy-side shops.

They want to be able to see a passion for investing. It may be through previous internships or being very involved in your school's investing clubs, but they'll want to see that this is something you eat, live, and breathe, not just something that you applied to because it sounded cool on your school's career site. If you get an interview then you'll definitely be asked about your PA, what you did in the clubs, what you think of the markets, etc. That's a huge part of the process, and it's very easy to tell who loves it and who doesn't.

 

When I graduated in December 2011, Passing CFA level I before graduating, 3.6 GPA accounting and finance from non-Target, none of this meant that much. I think the market was still recovering, and these places were not looking to hire, at least in the limited geographic locations I was pursuing. I got a decent back office job that utilized my accounting and finance majors and pursued options at that company which was large enough they did pretty much everything you listed. I kind of got stuck in the back office, where people would tell me, yeah you're doing everything right to go into Asset Management, but basically they didn't seem to care at all. I moved to a smaller company where I had an internship in college and had a different role but was close to and occasionally worked with the wealth management team. I learned the business, and various systems where I found a competitive advantage over anyone that would be coming in from outside, and just recently got a role on the wealth management side after just short of 4 years work experience.

I just wanted to tell you my story, but the market was different 4 years ago, definitely consider the CFA exam and take whatever classes you can but it is no guarantee. Networking will be the key difference, along with a hopefully better market in 3 years than I had. Try and find internships in Asset Management since that offers you relevant experience as well, you have plenty of time and a potential game plan, so it is possible!

 

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