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12/30/12

Pretty much every guy on that list has a strong track record over multiple years. I would imagine they get offers from HF's all the time to run money and with the current environment at investment banks, I doubt they are able to match what the HF's are willing to offer.

I'm guessing the people that do ER for a very long time have a lower risk tolerance than the guys that switch over to the buy side? Am I missing something here?

Btw, if a top rated research analyst made the switch to the buy side, how much money can they realistically expect to be running?

2012 All-American Research Team

Comments (94)

Best Response
12/30/12

I never post but too much bad information to let this one slide. I've got almost ten years of BB sell side ER, long/short HF and mutual fund experience. I work at a sector dedicated fund. In my small part of the universe virtually every guy on an investment team has sell side experience, this is not an exaggeration, I would bet in excess of 70% have sell side ER experience. This is the training ground for the buy side. These are for Senior Analyst positions where idea generation is the only thing that matters. IB experience is good for large concentrated funds where two guys are making all of the final decisions and they need people to crank out models, positions that require actual investment recommendations are filled with ex sell side guys because no one needs to train them on the sector. In my sector this holds true for funds with $50 million of AUM and $5 billion + of AUM.

Who shits on the sell side? Typically concentrated funds with big investment teams claim that the sell side is useless. If you only have 20 positions with very low turnover and an investment team of 10 guys you don't need the sell side but that isn't the typical fund structure. The typical fund has an investment team of less than 10 (often times less than 5) and have large coverage lists. We have a universe of 400 equities and three people dedicated to that universe. Without the sell side we would miss countless details, rumors, management thoughts, trade ideas, etc. etc. For small investment teams with position turnover near or above 100% the sell side is an important part of the investment process.

Most of the sell side hating clearly comes from people with no experience or very limited interaction with the sell side. I've been on both sides and i can tell you while lots of sell side "research" is not valuable on a stand alone basis if it was so worthless it is odd that funds of every size would consistently take my phone calls and spend their valuable time speaking with me. Hedge funds being the biggest users.

On the buy side now i start every morning reading sell side research and speak with at least a few SS guys per day.

In summary, sell side research use on the buyside typically has a direct correlation between the size of the investment team. The larger the team, the less sell side is relied upon but with small teams the sell side is truly just outsourced investment team members. This is why sell side ER is the go to place for finding buy side Analysts when the buy side needs someone other than a number cruncher. When recently looking for a junior guy i interviewed IB and ER guys equally and for a dedicated sector position I can tell you it made no sense to even bring an IB guy in for final rounds, while modeling skills were better I needed someone to truly hit the ground running and that was clearly not going to happen, these were sector dedicated IB candidates, they just couldn't compete with the knowledge the sell side guys have. People who don't interact with the sell side can hate all they want but once you guys have 5-10 years of experience and are actually making investment decisions on small teams (where most of you who are successful will end up) I think your opinions will change quickly.

Feel free to ask me questions if I wasn't clear.

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12/29/12

subtle point is the skill sets aren't 100% transferable. sell side ER is more of a volume business, churning out reports on a daily basis but buy side is dependent on coming up with investment ideas and their implementation which can involve a different decision making process.

and the money is highly variable on performance, conditions of coverage market and most importantly the buyside firm. buy side comp is nowhere near as structured as sell side and there is considerable variation.

12/29/12

Stability, Job Security, No real consequences for being wrong

In reply to ixjunitxi
12/29/12

ixjunitxi:
No real consequences for being wrong

Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."

12/29/12

ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

In reply to WestCoastEastCoast
12/29/12

WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

12/29/12

I work for a guy on that list. It pretty much comes down to comfort. My analyst clears a few million a year, has tons of respect from clients and works 30 hours a week. There's no incentive for him to leave. He doesn't need the extra money or the extra stress.

In reply to EfferCore
12/29/12

EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

In reply to WestCoastEastCoast
12/29/12

WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

Plenty of sell side analysts are shit and little more than spokespeople for their coverage list. But there is a lot of good research on the street and there are a lot of analysts that move stocks w/their ideas. To not acknowledge that is pretty myopic.

12/29/12

I work in ER, my boss is not on that list but is still a top analyst and has received offers, and he gave me one reason when I asked him a while back...lifestyle.

In reply to EfferCore
12/29/12

EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

Plenty of sell side analysts are shit and little more than spokespeople for their coverage list. But there is a lot of good research on the street and there are a lot of analysts that move stocks w/their ideas. To not acknowledge that is pretty myopic.

I'd agree. No one said the entire ER space is shit. Sure there are top analysts on the sell-side. But those are pretty rare. It's like saying there are some students at SUNY Stony Brook that are extremely smart, who should be at Harvard.

In reply to WestCoastEastCoast
12/29/12

WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

Plenty of sell side analysts are shit and little more than spokespeople for their coverage list. But there is a lot of good research on the street and there are a lot of analysts that move stocks w/their ideas. To not acknowledge that is pretty myopic.

I'd agree. No one said the entire ER space is shit. Sure there are top analysts on the sell-side. But those are pretty rare. It's like saying there are some students at SUNY Stony Brook that are extremely smart, who should be at Harvard.

lol. How often do you talk to sell siders?

In reply to EfferCore
12/29/12

EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

Plenty of sell side analysts are shit and little more than spokespeople for their coverage list. But there is a lot of good research on the street and there are a lot of analysts that move stocks w/their ideas. To not acknowledge that is pretty myopic.

I'd agree. No one said the entire ER space is shit. Sure there are top analysts on the sell-side. But those are pretty rare. It's like saying there are some students at SUNY Stony Brook that are extremely smart, who should be at Harvard.

lol. How often do you talk to sell siders?

How often do you talk to the buysiders?

Look, you're obviously not happy with me perceiving the overall ER industry as shitty investors and won't be satisfied until I admit defeat and say to you that ER people are great investors. No need to apply the spinning art you learn in ER on me. Get HFs to hire more ER guys if they're so stellar. I'm not interested in continuing this meanless exchange with you. Readers on this post can make their own judgment about ER from objective sources.

In reply to WestCoastEastCoast
12/29/12

WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
EfferCore:
WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

You are pretty far off base. We pitch short ideas (successfully) all the time.

I don't see a need to even debate on this one. Of course ER people will defend themselves. I won't bash you either. I'll let Einhorn and Klarman do the talking. Refer to "Margin of Safety" and "Fooling Some People" to see what these hedge fund managers think about ER.

Plenty of sell side analysts are shit and little more than spokespeople for their coverage list. But there is a lot of good research on the street and there are a lot of analysts that move stocks w/their ideas. To not acknowledge that is pretty myopic.

I'd agree. No one said the entire ER space is shit. Sure there are top analysts on the sell-side. But those are pretty rare. It's like saying there are some students at SUNY Stony Brook that are extremely smart, who should be at Harvard.

lol. How often do you talk to sell siders?

How often do you talk to the buysiders?

Look, you're obviously not happy with me perceiving the overall ER industry as shitty investors and won't be satisfied until I admit defeat and say to you that ER people are great investors. No need to apply the spinning art you learn in ER on me. Get HFs to hire more ER guys if they're so stellar. I'm not interested in continuing this meanless exchange with you. Readers on this post can make their own judgment about ER from objective sources.

You didn't answer the question. Do you talk to the sell side regularly?

I talk to buy side every day. So if you were implying that you talk to the sell side pretty often, then fair enough.

Just trying to gauge whether your opinion is based on actual experience or surface level analysis of research reports.

In reply to EfferCore
12/30/12

Dude just give up. Everybody on this board shits on ER and all have hard-ons for what they foresee to be the "models and bottles" life of IB or S&T.

Very few people actually understand the value that analysts add. And let me give all of you fuckers a hint - its not company estimates, ratings, or price targets.

Smokey, this is not 'Nam, this is bowling. There are rules.

12/30/12

OP I think you overestimate how easy it is to move from ER to HF, most ER guys are viewed quite poorly by the HF world.

for the guys that can switch its a matter of stress, convenience etc.

12/30/12

Sell-side ER and buy-side HF are completely different.

Sell-side ER can give buy-side access to information (ie: management of companies) that normally wouldn't be possible in some cases.

sell-side = pitching to clients and generating ideas, they could be wrong but that isn't really the point
buy-side = real investment thesis where you're rewarded on your picks

- V

In reply to leveredarb
12/30/12

This is just factually incorrect. I know probably 40 guys and top hedge funds who all started off in sell side ER. ER, just like Banking, depends on the MD/Analyst you work for. If you have a well respected analyst, you're fine. Just like if you have a dealmaker, you'll do more then waste your life making powerpoints and worthless charts.

In reply to roar19
12/30/12

roar19:
Dude just give up. Everybody on this board shits on ER and all have hard-ons for what they foresee to be the "models and bottles" life of IB or S&T.

Very few people actually understand the value that analysts add. And let me give all of you fuckers a hint - its not company estimates, ratings, or price targets.


your value add is giving the buyside corporate access and knowing the companies in your coverage universe very well (and thus being able to tell the buyside stuff they cant find out themselves).

ppl shit on ER cuz most of BB ER guys are bad and just repeat whatever mgmt tells them. The independent houses do some pretty damn good analysis but a lot of them still make the mistake of falling in love with a story and then fudging numbers to work with their story lol

12/30/12
In reply to yeahright
12/30/12

yeahright:
ixjunitxi:
No real consequences for being wrong
In reply to joblo1
12/30/12

joblo1:
I never post but too much bad information to let this one slide. I've got almost ten years of BB sell side ER, long/short HF and mutual fund experience. I work at a sector dedicated fund. In my small part of the universe virtually every guy on an investment team has sell side experience, this is not an exaggeration, I would bet in excess of 70% have sell side ER experience. This is the training ground for the buy side. These are for Senior Analyst positions where idea generation is the only thing that matters. IB experience is good for large concentrated funds where two guys are making all of the final decisions and they need people to crank out models, positions that require actual investment recommendations are filled with ex sell side guys because no one needs to train them on the sector. In my sector this holds true for funds with $50 million of AUM and $5 billion + of AUM.

Who shits on the sell side? Typically concentrated funds with big investment teams claim that the sell side is useless. If you only have 20 positions with very low turnover and an investment team of 10 guys you don't need the sell side but that isn't the typical fund structure. The typical fund has an investment team of less than 10 (often times less than 5) and have large coverage lists. We have a universe of 400 equities and three people dedicated to that universe. Without the sell side we would miss countless details, rumors, management thoughts, trade ideas, etc. etc. For small investment teams with position turnover near or above 100% the sell side is an important part of the investment process.

Most of the sell side hating clearly comes from people with no experience or very limited interaction with the sell side. I've been on both sides and i can tell you while lots of sell side "research" is not valuable on a stand alone basis if it was so worthless it is odd that funds of every size would consistently take my phone calls and spend their valuable time speaking with me. Hedge funds being the biggest users.

On the buy side now i start every morning reading sell side research and speak with at least a few SS guys per day.

In summary, sell side research use on the buyside typically has a direct correlation between the size of the investment team. The larger the team, the less sell side is relied upon but with small teams the sell side is truly just outsourced investment team members. This is why sell side ER is the go to place for finding buy side Analysts when the buy side needs someone other than a number cruncher. When recently looking for a junior guy i interviewed IB and ER guys equally and for a dedicated sector position I can tell you it made no sense to even bring an IB guy in for final rounds, while modeling skills were better I needed someone to truly hit the ground running and that was clearly not going to happen, these were sector dedicated IB candidates, they just couldn't compete with the knowledge the sell side guys have. People who don't interact with the sell side can hate all they want but once you guys have 5-10 years of experience and are actually making investment decisions on small teams (where most of you who are successful will end up) I think your opinions will change quickly.

Feel free to ask me questions if I wasn't clear.

I don't think anyone said that ER doesn't add value. Sure HF analysts will talk to the sellside and ask them about the details of certain companies. That's because they have better access to management teams. Of course, as soon as they give the company a "Sell" rating, management will refuse to talk to them. That's why most BB's ER divisions have like 99% of their covered companies as a "Buy". Even when a stock is set to be a disaster, ER recommends "Hold". So most of the HF guys call ER to get a better sense of facts like you said, but they lose interest when the ER analyst starts talking about his thesis. No one here's saying that you can't go from ER to HF. You can. Just a lot harder because a lot of HFs will want to make you unlearn what you learned in ER and then learn what they teach you. HFs wants to hire junior people on a clean slate that they can mold. Bankers, on the hand, come in with superior technicals and attention to detail. HF PMs then can take them to the next step by molding the way they think about investments. So that's why most of those prestigious funds would much rather hire IB guys than ER guys.

And don't mean to bash you or anything (I personally respect small funds since they can focus on small- and mid-cap stocks which tend to have more market inefficiencies) but most people on here really look after places like Eton Park, Och Ziff, Farallon, SAC, Tiger Global, Goldman Sachs Investment Partners. To be quite frank with you, while you and your fund may prefer the ER guy, the above places hires mostly bankers/PE associates for analyst roles and avoid ER like poison. Anyone unconvinced can do a search on their investment teams on their own and make their own conclusions. If you still think ER is the way to go for HF, then the rest of us wish you the best of luck.

12/30/12

Reality is virtually no one will work at any of the funds you mentioned so while they are fun to talk about aiming to be a big hitter at a top 20 fund is pretty unrealistic whether you do IB or ER. Also if you are hired with only two years of investment banking experience at a large fund you will sit there and crank out models and do shit work for other people praying that someone above you quits so you can move up to a decision making roll, no one will give a shit what your investment opinion is and few will have the opportunity to be "molded". The funny thing is the only time I've ever heard this thesis about "molding" bankers vs having ER guys "unlearn" things is WSO. And by the way I've worked at a multibillion shop shop and did extremely well, I prefer small shops because at this point in my career I want to be the guy running the marketing meetings as well as picking stocks and I can do this at a small shop in preparation for launching my own fund. Maybe you are the one lucky guy who a large hedge fund views as a charity case and wants to mold your young mind into an investing superstar so I congratulate you.

In reply to WestCoastEastCoast
12/30/12

WestCoastEastCoast:
joblo1:
I never post but too much bad information to let this one slide. I've got almost ten years of BB sell side ER, long/short HF and mutual fund experience. I work at a sector dedicated fund. In my small part of the universe virtually every guy on an investment team has sell side experience, this is not an exaggeration, I would bet in excess of 70% have sell side ER experience. This is the training ground for the buy side. These are for Senior Analyst positions where idea generation is the only thing that matters. IB experience is good for large concentrated funds where two guys are making all of the final decisions and they need people to crank out models, positions that require actual investment recommendations are filled with ex sell side guys because no one needs to train them on the sector. In my sector this holds true for funds with $50 million of AUM and $5 billion + of AUM.

Who shits on the sell side? Typically concentrated funds with big investment teams claim that the sell side is useless. If you only have 20 positions with very low turnover and an investment team of 10 guys you don't need the sell side but that isn't the typical fund structure. The typical fund has an investment team of less than 10 (often times less than 5) and have large coverage lists. We have a universe of 400 equities and three people dedicated to that universe. Without the sell side we would miss countless details, rumors, management thoughts, trade ideas, etc. etc. For small investment teams with position turnover near or above 100% the sell side is an important part of the investment process.

Most of the sell side hating clearly comes from people with no experience or very limited interaction with the sell side. I've been on both sides and i can tell you while lots of sell side "research" is not valuable on a stand alone basis if it was so worthless it is odd that funds of every size would consistently take my phone calls and spend their valuable time speaking with me. Hedge funds being the biggest users.

On the buy side now i start every morning reading sell side research and speak with at least a few SS guys per day.

In summary, sell side research use on the buyside typically has a direct correlation between the size of the investment team. The larger the team, the less sell side is relied upon but with small teams the sell side is truly just outsourced investment team members. This is why sell side ER is the go to place for finding buy side Analysts when the buy side needs someone other than a number cruncher. When recently looking for a junior guy i interviewed IB and ER guys equally and for a dedicated sector position I can tell you it made no sense to even bring an IB guy in for final rounds, while modeling skills were better I needed someone to truly hit the ground running and that was clearly not going to happen, these were sector dedicated IB candidates, they just couldn't compete with the knowledge the sell side guys have. People who don't interact with the sell side can hate all they want but once you guys have 5-10 years of experience and are actually making investment decisions on small teams (where most of you who are successful will end up) I think your opinions will change quickly.

Feel free to ask me questions if I wasn't clear.

I don't think anyone said that ER doesn't add value. Sure HF analysts will talk to the sellside and ask them about the details of certain companies. That's because they have better access to management teams. Of course, as soon as they give the company a "Sell" rating, management will refuse to talk to them. That's why most BB's ER divisions have like 99% of their covered companies as a "Buy". Even when a stock is set to be a disaster, ER recommends "Hold". So most of the HF guys call ER to get a better sense of facts like you said, but they lose interest when the ER analyst starts talking about his thesis. No one here's saying that you can't go from ER to HF. You can. Just a lot harder because a lot of HFs will want to make you unlearn what you learned in ER and then learn what they teach you. HFs wants to hire junior people on a clean slate that they can mold. Bankers, on the hand, come in with superior technicals and attention to detail. HF PMs then can take them to the next step by molding the way they think about investments. So that's why most of those prestigious funds would much rather hire IB guys than ER guys.

And don't mean to bash you or anything (I personally respect small funds since they can focus on small- and mid-cap stocks which tend to have more market inefficiencies) but most people on here really look after places like Eton Park, Och Ziff, Farallon, SAC, Tiger Global, Goldman Sachs Investment Partners. To be quite frank with you, while you and your fund may prefer the ER guy, the above places hires mostly bankers/PE associates for analyst roles and avoid ER like poison. Anyone unconvinced can do a search on their investment teams on their own and make their own conclusions. If you still think ER is the way to go for HF, then the rest of us wish you the best of luck.

There is so much untruth and/or hyperbole to your first paragraph that you lose all credibility.

"99% a buy" - no

"disaster..hold" - you don't get it. A hold on paper can mean something different on the phone. A thesis and a view on a stock aren't always driven by what is on paper.

"sure HF analysts will talk...better access" - again, no. That's about 1/34of why hedge fund or MF analysts/PMs talk to ER. Details of an industry. What contacts are saying. Views on where the stock can go. When is a good time to get in...etc, etc.

In reply to joblo1
12/30/12

joblo1:
Reality is virtually no one will work at any of the funds you mentioned so while they are fun to talk about aiming to be a big hitter at a top 20 fund is pretty unrealistic whether you do IB or ER. Also if you are hired with only two years of investment banking experience at a large fund you will sit there and crank out models and do shit work for other people praying that someone above you quits so you can move up to a decision making roll, no one will give a shit what your investment opinion is and few will have the opportunity to be "molded". The funny thing is the only time I've ever heard this thesis about "molding" bankers vs having ER guys "unlearn" things is WSO. And by the way I've worked at a multibillion shop shop and did extremely well, I prefer small shops because at this point in my career I want to be the guy running the marketing meetings as well as picking stocks and I can do this at a small shop in preparation for launching my own fund. Maybe you are the one lucky guy who a large hedge fund views as a charity case and wants to mold your young mind into an investing superstar so I congratulate you.

I named the firms above as examples. Most of the HF junior analysts I've came across, even at HF's websites (though most are secretive) can see that most don't come from ER. Seems like you're the lucky exception that broke in. But there's a trend. People who can't cut it in the large funds stay in the industry by moving lower to smaller funds. Of course, there are also the brilliant ones that leave and start their own funds.

In reply to EfferCore
12/30/12

EfferCore:
WestCoastEastCoast:
joblo1:
I never post but too much bad information to let this one slide. I've got almost ten years of BB sell side ER, long/short HF and mutual fund experience. I work at a sector dedicated fund. In my small part of the universe virtually every guy on an investment team has sell side experience, this is not an exaggeration, I would bet in excess of 70% have sell side ER experience. This is the training ground for the buy side. These are for Senior Analyst positions where idea generation is the only thing that matters. IB experience is good for large concentrated funds where two guys are making all of the final decisions and they need people to crank out models, positions that require actual investment recommendations are filled with ex sell side guys because no one needs to train them on the sector. In my sector this holds true for funds with $50 million of AUM and $5 billion + of AUM.

Who shits on the sell side? Typically concentrated funds with big investment teams claim that the sell side is useless. If you only have 20 positions with very low turnover and an investment team of 10 guys you don't need the sell side but that isn't the typical fund structure. The typical fund has an investment team of less than 10 (often times less than 5) and have large coverage lists. We have a universe of 400 equities and three people dedicated to that universe. Without the sell side we would miss countless details, rumors, management thoughts, trade ideas, etc. etc. For small investment teams with position turnover near or above 100% the sell side is an important part of the investment process.

Most of the sell side hating clearly comes from people with no experience or very limited interaction with the sell side. I've been on both sides and i can tell you while lots of sell side "research" is not valuable on a stand alone basis if it was so worthless it is odd that funds of every size would consistently take my phone calls and spend their valuable time speaking with me. Hedge funds being the biggest users.

On the buy side now i start every morning reading sell side research and speak with at least a few SS guys per day.

In summary, sell side research use on the buyside typically has a direct correlation between the size of the investment team. The larger the team, the less sell side is relied upon but with small teams the sell side is truly just outsourced investment team members. This is why sell side ER is the go to place for finding buy side Analysts when the buy side needs someone other than a number cruncher. When recently looking for a junior guy i interviewed IB and ER guys equally and for a dedicated sector position I can tell you it made no sense to even bring an IB guy in for final rounds, while modeling skills were better I needed someone to truly hit the ground running and that was clearly not going to happen, these were sector dedicated IB candidates, they just couldn't compete with the knowledge the sell side guys have. People who don't interact with the sell side can hate all they want but once you guys have 5-10 years of experience and are actually making investment decisions on small teams (where most of you who are successful will end up) I think your opinions will change quickly.

Feel free to ask me questions if I wasn't clear.

I don't think anyone said that ER doesn't add value. Sure HF analysts will talk to the sellside and ask them about the details of certain companies. That's because they have better access to management teams. Of course, as soon as they give the company a "Sell" rating, management will refuse to talk to them. That's why most BB's ER divisions have like 99% of their covered companies as a "Buy". Even when a stock is set to be a disaster, ER recommends "Hold". So most of the HF guys call ER to get a better sense of facts like you said, but they lose interest when the ER analyst starts talking about his thesis. No one here's saying that you can't go from ER to HF. You can. Just a lot harder because a lot of HFs will want to make you unlearn what you learned in ER and then learn what they teach you. HFs wants to hire junior people on a clean slate that they can mold. Bankers, on the hand, come in with superior technicals and attention to detail. HF PMs then can take them to the next step by molding the way they think about investments. So that's why most of those prestigious funds would much rather hire IB guys than ER guys.

And don't mean to bash you or anything (I personally respect small funds since they can focus on small- and mid-cap stocks which tend to have more market inefficiencies) but most people on here really look after places like Eton Park, Och Ziff, Farallon, SAC, Tiger Global, Goldman Sachs Investment Partners. To be quite frank with you, while you and your fund may prefer the ER guy, the above places hires mostly bankers/PE associates for analyst roles and avoid ER like poison. Anyone unconvinced can do a search on their investment teams on their own and make their own conclusions. If you still think ER is the way to go for HF, then the rest of us wish you the best of luck.

There is so much untruth and/or hyperbole to your first paragraph that you lose all credibility.

"99% a buy" - no

"disaster..hold" - you don't get it. A hold on paper can mean something different on the phone. A thesis and a view on a stock aren't always driven by what is on paper.

"sure HF analysts will talk...better access" - again, no. That's about 1/34of why hedge fund or MF analysts/PMs talk to ER. Details of an industry. What contacts are saying. Views on where the stock can go. When is a good time to get in...etc, etc.

Lol you sound like the management teams that cry false statements when short-sellers go public with their thesis.

Listen, no need to convince me or WSO. Go convince the HFs out there and get them to hire more from ER. Placement results speak for themselves. When junior HF professionals all have ER on their linkedin instead if IB, then WSO will automatically praise you and dismiss my posts.

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12/30/12

This is funny, you keep referring to searching linked in, the vast majority of buy side guys (hedge fund and Mutual fund) i deal with have worked in ER not banking, there must be a separate secret world of hedge funds that only hire bankers. Why do you have to constantly refer to LinkedIn, is it because you don't have any real experience to speak from? At the senior decision making level there are more ER guys than former bankers in my sector, maybe my sector is unique but i can assure you if you went to an industry conference there would be more former ER guys than bankers. Maybe the former bankers are back at the office building models while the former ER guys are meeting with management teams and working on generating investment ideas, no idea, I've just never come across this massive wave of bankers dominating the business that you speak of. Now on the credit side I will agree that there are far more bankers than research people but that is simply due to the fact that there are so few junior credit sell side research guys so even if every junior guy gets a buy side job after two years you would still barely notice them.

12/30/12

I would also add, just statistically given the massive amount of junior bankers vs equity research employees there should be significantly more bankers at every level in every aspect of finance. Some BB's may only hire a few people out of undergrad each year for equity research vs 100 or so for banking.

12/30/12

I definitely haven't worked at every firm, but I have met many multiples of people who started in equity research compared to banking who work as a PM in fundamental equities. My guess is about 10 to 1 research vs. banking of the people I've met.

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12/31/12

Oh pleasse, don't even get people started on how much mutual fund analysts & PMs suck. Retail investors might as well just invest on their own, saves them the fees.

In reply to WestCoastEastCoast
12/31/12

WestCoastEastCoast:
ER's real job is really figuring out how to support a 'Buy' rating on every stock, regardless of the quality stock. So really, they aren't trained right on generating investment ideas. And in terms of quality of analysts/associates themselves, let's just say it's pretty common to find mistakes and number inconsistencies in ER reports.

Ahhh come on now. It's true that clients are not concerned with the ratings, but they do want L/S pairs almost every time you handle a call or are marketing. For the OP, most Senior ER guys are happy with the 300-600k earnings and lower job risk. Once you are established, ER can be pretty rewarding especially if you have industry experience and actually care about what you are analyzing. HFs do come knocking if you are good and make them money. HF will pay more usually, but if you end up under an asshole PM or the overall strategy for the fund is not conducive to what you want to do, it can be a painful experience. Most HF guys have patchwork quilt resumes because of those reasons...

In reply to joblo1
12/31/12

joblo1:
I never post but too much bad information to let this one slide. I've got almost ten years of BB sell side ER, long/short HF and mutual fund experience. I work at a sector dedicated fund. In my small part of the universe virtually every guy on an investment team has sell side experience, this is not an exaggeration, I would bet in excess of 70% have sell side ER experience. This is the training ground for the buy side. These are for Senior Analyst positions where idea generation is the only thing that matters. IB experience is good for large concentrated funds where two guys are making all of the final decisions and they need people to crank out models, positions that require actual investment recommendations are filled with ex sell side guys because no one needs to train them on the sector. In my sector this holds true for funds with $50 million of AUM and $5 billion + of AUM.

Who shits on the sell side? Typically concentrated funds with big investment teams claim that the sell side is useless. If you only have 20 positions with very low turnover and an investment team of 10 guys you don't need the sell side but that isn't the typical fund structure. The typical fund has an investment team of less than 10 (often times less than 5) and have large coverage lists. We have a universe of 400 equities and three people dedicated to that universe. Without the sell side we would miss countless details, rumors, management thoughts, trade ideas, etc. etc. For small investment teams with position turnover near or above 100% the sell side is an important part of the investment process.

Most of the sell side hating clearly comes from people with no experience or very limited interaction with the sell side. I've been on both sides and i can tell you while lots of sell side "research" is not valuable on a stand alone basis if it was so worthless it is odd that funds of every size would consistently take my phone calls and spend their valuable time speaking with me. Hedge funds being the biggest users.

On the buy side now i start every morning reading sell side research and speak with at least a few SS guys per day.

In summary, sell side research use on the buyside typically has a direct correlation between the size of the investment team. The larger the team, the less sell side is relied upon but with small teams the sell side is truly just outsourced investment team members. This is why sell side ER is the go to place for finding buy side Analysts when the buy side needs someone other than a number cruncher. When recently looking for a junior guy i interviewed IB and ER guys equally and for a dedicated sector position I can tell you it made no sense to even bring an IB guy in for final rounds, while modeling skills were better I needed someone to truly hit the ground running and that was clearly not going to happen, these were sector dedicated IB candidates, they just couldn't compete with the knowledge the sell side guys have. People who don't interact with the sell side can hate all they want but once you guys have 5-10 years of experience and are actually making investment decisions on small teams (where most of you who are successful will end up) I think your opinions will change quickly.

Feel free to ask me questions if I wasn't clear.

Similar experience on my end. Well put. Sell Side ER is still very relevant and in many ways can be much better work than banking, especially if you know what you are talking about and have relevant experience. Corporate access and marketing to clients is a great feedback loop to be involved in with excellent networking rewards.

12/31/12

wow this thread actually delivered.

In reply to WestCoastEastCoast
12/31/12

WestCoastEastCoast:
Oh pleasse, don't even get people started on how much mutual fund analysts & PMs suck. Retail investors might as well just invest on their own, saves them the fees.

correct. Mutual fund management is probably the biggest scam in all of finance lol. If you invest in some traditional AM fund through the PWM arm of a BB you are underperforming the index by 3% already lol
In reply to leveredarb
12/31/12

I would say the above stated reasons of "lifestyle" and "lower risk" are very true.

But ER is a very stable job, considerably more so than IBD and S&T. As an II ranked analyst, you can break 7-figures. And you do that while working ~60 hours a week, with low risk of spontaneous termination.

Working for a HF sounds great in your 20s and 30s. But would you want to if you had a mortgage, a wife, and kids? Even if you have substantial savings, a market downturn could put you under considerable financial pressure. The marginal increase in salary probably doesn't seem worth the risk.

And, as I progress in my own career, I am realizing the HF industry is getting more competitive. HFs have more institutional clients, all desperate for yield and constantly comparing you to other managers. And, as Julian Robertson said in a recent interview, hedge funds' competition is now other hedge funds. It is much harder to consistently hit home runs now than 20-30 years ago.

leveredarb:
WestCoastEastCoast:
Oh pleasse, don't even get people started on how much mutual fund analysts & PMs suck. Retail investors might as well just invest on their own, saves them the fees.

correct. Mutual fund management is probably the biggest scam in all of finance lol. If you invest in some traditional AM fund through the PWM arm of a BB you are underperforming the index by 3% already lol

Very true. Sucks for the investors, but not a bad job if you are PM.

12/31/12

I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

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In reply to SirTradesaLot
12/31/12

SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

I'm trying to figure out if mutual fund guys make considerably less than HF guys because the fees are exponentially lower, or does this get balanced out by making it exponentially easier to manage a lot of money? Plus the target market for mutual funds is a lot bigger than the target market for HF's.

Competition is a sin.

-John D. Rockefeller

In reply to Hooked on LEAPS
12/31/12

Hooked on LEAPS:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

I'm trying to figure out if mutual fund guys make considerably less than HF guys because the fees are exponentially lower, or does this get balanced out by making it exponentially easier to manage a lot of money? Plus the target market for mutual funds is a lot bigger than the target market for HF's.


I think the bigger reason you see the discrepancy in pay between your average hedge fund manager and a mutual fund manager is that the hedge fund manager is usually the owner of the business and the mutual fund manager is not. Yes, hedge funds charge higher fees, but the mutual fund industry probably has 10X the amount of assets. I had a longer description here:
http://www.wallstreetoasis.com/forums/how-much-do-...

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12/31/12

mf comp is lot lower than hf comp because mfs employ 1000000x more people to cover every single stock in a given industry

In reply to leveredarb
12/31/12

leveredarb:
mf comp is lot lower than hf comp because mfs employ 1000000x more people to cover every single stock in a given industry

That is inaccurate. For a given fund, there are usually 4-8 investment professionals on a team and that number usually doesn't increase much (if at all) with AUM. I'm not even one to defend mutual fund management, but this is simply not true. Sometimes, this team manages more than one fund (maybe a small cap and a mid cap). I personally know a fund mgt team that manages over $10 billion in one fund with 6 investment professionals (4 senior and 2 junior). I know of another with 6 senior investment professionals managing more than $20 billion. They make a lot of money, but much less than a HF manager with the same amount of assets, because the fees are less and they aren't the primary owners of the firm. I don't think you will find many hedge funds with 10-20 billion in AUM with 6 investment professionals.

What is your source for this information?

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In reply to SirTradesaLot
12/31/12

SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Never understood that either.

12/31/12

SirTradesaLot:
Hooked on LEAPS:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

I'm trying to figure out if mutual fund guys make considerably less than HF guys because the fees are exponentially lower, or does this get balanced out by making it exponentially easier to manage a lot of money? Plus the target market for mutual funds is a lot bigger than the target market for HF's.


I think the bigger reason you see the discrepancy in pay between your average hedge fund manager and a mutual fund manager is that the hedge fund manager is usually the owner of the business and the mutual fund manager is not. Yes, hedge funds charge higher fees, but the mutual fund industry probably has 10X the amount of assets. I had a longer description here:
http://www.wallstreetoasis.com/forums/how-much-do-...

That makes sense. But....

http://www.glassdoor.com/Salary/Fidelity-Investments-Portfolio-Manager-Salaries-E2786_D_KO21,38.htm

PM's at Fidelity don't even break the $200,000 mark. Does someone not feel like reporting their bonus? Lol.

Seriously though, not saying $200,000 per year sucks, but I would think it would be a much higher number, even at a mutual fund.

Competition is a sin.

-John D. Rockefeller

12/31/12

SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

In reply to Hooked on LEAPS
12/31/12

Hooked on LEAPS:
SirTradesaLot:
Hooked on LEAPS:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

I'm trying to figure out if mutual fund guys make considerably less than HF guys because the fees are exponentially lower, or does this get balanced out by making it exponentially easier to manage a lot of money? Plus the target market for mutual funds is a lot bigger than the target market for HF's.


I think the bigger reason you see the discrepancy in pay between your average hedge fund manager and a mutual fund manager is that the hedge fund manager is usually the owner of the business and the mutual fund manager is not. Yes, hedge funds charge higher fees, but the mutual fund industry probably has 10X the amount of assets. I had a longer description here:
http://www.wallstreetoasis.com/forums/how-much-do-...

That makes sense. But....

http://www.glassdoor.com/Salary/Fidelity-Investments-Portfolio-Manager-Salaries-E2786_D_KO21,38.htm

PM's at Fidelity don't even break the $200,000 mark. Does someone not feel like reporting their bonus? Lol.

Seriously though, not saying $200,000 per year sucks, but I would think it would be a much higher number, even at a mutual fund.


I don't believe that for a second. At my last firm, the lowest paid PM made about $400k (basically a junior PM who took over an old fund) the highest over $25 million (a very senior guy with a lot of assets). The median was in the $1 million range, but the average was higher due to a few groups that had outsized assets and revenues. We had higher than average comp. the more you have a retail mutual fund complex where the average fund investor doesn't know or care who the PM is, the less they get paid. Still, $200k seems really light, to the point where it is literally unbelievable.

Probably the 50 year old guys don't know about Glassdoor and aren't filling out surveys. Probably not a random sample.

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In reply to WestCoastEastCoast
12/31/12

WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.


If anybody has interest, I can write a more detailed description of the differences/similarities between hedge funds and mutual funds. I was thinking of the incentives, legal structures, the advantages of starting one firm type or the other, and similar topics. Let me know.

adapt or die:
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In reply to Hooked on LEAPS
12/31/12

Hooked on LEAPS:
SirTradesaLot:
Hooked on LEAPS:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

I'm trying to figure out if mutual fund guys make considerably less than HF guys because the fees are exponentially lower, or does this get balanced out by making it exponentially easier to manage a lot of money? Plus the target market for mutual funds is a lot bigger than the target market for HF's.


I think the bigger reason you see the discrepancy in pay between your average hedge fund manager and a mutual fund manager is that the hedge fund manager is usually the owner of the business and the mutual fund manager is not. Yes, hedge funds charge higher fees, but the mutual fund industry probably has 10X the amount of assets. I had a longer description here:
http://www.wallstreetoasis.com/forums/how-much-do-...

That makes sense. But....

http://www.glassdoor.com/Salary/Fidelity-Investments-Portfolio-Manager-Salaries-E2786_D_KO21,38.htm

PM's at Fidelity don't even break the $200,000 mark. Does someone not feel like reporting their bonus? Lol.

Seriously though, not saying $200,000 per year sucks, but I would think it would be a much higher number, even at a mutual fund.

Double that for Senior Analysts at Fidelity and elsewhere. PMs (w/more than $1b - $2b) probably 3x-4x that to start.

In reply to WestCoastEastCoast
12/31/12

WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

You are over your head dude. What you have heard and read on WSO (because you clearly aren't in industry) is not based in fact. Most mutual funds and analysts are as focused on fundamentals and stock picking as anyone on the HF side. Guys at Capital Group, MFS, T Rowe, and Wellington are some of the smartest investors I've met and they take overweight positions based on pretty deep fundamental analysis (think multiple meetings with mgmt, expert networks, deep dives with sell-side, industry conferences, etc.).

In reply to EfferCore
12/31/12

EfferCore:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

You are over your head dude. What you have heard and read on WSO (because you clearly aren't in industry) is not based in fact. Most mutual funds and analysts are as focused on fundamentals and stock picking as anyone on the HF side. Guys at Capital Group, MFS, T Rowe, and Wellington are some of the smartest investors I've met and they take overweight positions based on pretty deep fundamental analysis (think multiple meetings with mgmt, expert networks, deep dives with sell-side, industry conferences, etc.).

lol actually, if your username is any indicator of your firm, I'm not only in the industry but also at a firm that receives resumes from Evercore guys trying to lateral pretty often. You seem to think mutual fund guys are great investors. Then go invest with them. I recommend you put in all your savings (you'll get more money!!).

12/31/12

A lot of strong views and misinformation here. I come in somewhere in the middle. I am at a fund that hires only ex-IB or ex-PE guys. We have interviewed guys that had ER experience, but they had also worked at HFs as well. The ex-IB HF guys I have met are more numerous, but that is to be expected given the relative class sizes. I think that either can be good, but there are pros and cons. IB guys are more raw but have less bad habits to unlearn. ER guys have a lot of sector knowledge but are used to a somewhat different game. The unlearning aspect is very real, that is also why some HFs don't like to hire from other HFs. Yes, it is frustrating to interview bankers, because most of them don't know shit about investing. Frankly I would personally be more open to hiring ER guys, but for whatever reason, it is part of the culture of my firm that we hire bankers. I'm sure there are places that hold the opposite view. Remember, HFs are all very different, they do not just fall into a certain mold, they take on the character and personality of their founders.

We definitely believe that ER guys add value, but have mixed feelings. We are quick to laugh when we discover a mistake in a model (see this all the time) and sometimes use upgrades/downgrades as a contrarian indicator, but when someone is good, we will respect that as well. They are obviously helpful for getting ramped up on a new company/sector quickly. They are also very useful for gauging sentiment and trying to get a sense of how other funds are positioned. The management access part is actually not as valuable for me, I generally just ask the company myself, although in the cases where the company is in a quiet period or something than I will ask the analyst.

The main gripe we have with ER is not necessarily that they aren't smart, but the conflicts of interest. Sometimes IBD really wants to get a certain deal. Sometimes a certain big HF client has undue influence on them. Sometimes they get too close to management. I'm not saying this is always (or even often) the case, but it is inherently a seat where it can be difficult to be objective at times. I've seen what ER guys go through when they put out an unpopular call, they get shit on all day by pissed off buysiders, and it is tough to go against the tide. There is a big herd mentality amongst the sell-side, I am often amazed by how tight street consensus numbers can be, or how many people can have overweights on a company that sucks. But I will admit that this can happen on the buyside as well, this is human nature after all, it's just that in the HF world you have less knowledge about what others are doing.

As for why they don't move over, I'm sure there are a multitude of reasons. Being at a HF is very stressful. ER has more stability, although I've seen a ton of guys get blown out this year. Some guys might like talking more than trading, there is nothing wrong with that, and for them being in ER makes more sense. Some guys are more professorial types that like doing deep research. I'm sure some guys take pride in being known for owning their sector, like Craig Moffet.

As far as the mutual fund debate, it is hilarious that someone is citing GlassDoor as a source for Fidelity PM comp. Does it make any sense that a guy running billions at Fidelity would not be making 7 figures? Think about the math. Yes, HF guys like to shit on the long onlys because they are unsophisticated, but there are some smart mutual fund guys too. Also there are actually more HF analysts out there than MF analysts, so whoever said that MFs have more coverage guys is totally wrong. The AUM/head ratio of a MF is exponentially larger than a HF, does it make any sense that this would not be the case, given the disparity in fee structures?

I think working at a MF could be an interesting job, it just depends, although to be honest I know much less about that world. I would love to be educated if someone has close knowledge of how compensation/hierarchy/promotions/etc work. SirTradesaLot, I would definitely be interested in hearing your take on the legal differences.

1/1/13

Sellside ER and MF background here.

1. To say buyside ER is not needed is 100% ludicrous. That's why expert networks are routinely used by different HF and MFs. And yes, they are still around. Impossible to have depth with 100+ equities universe at sellside vs. 20- at buyside; just imagine in the coming earning season listening to multiple dozens of con calls, updating model, and actually *understand* what's going on.

2. Not every MF is closet indexing but many top HF are basically behaving like MF, very long biased and shuffle money into HF hotels like AAPL, QCOM, BAC, etc.

3. ER skill set remains the same across MF and HF space. Modeling is only a small part of the equation.

4. Sellside ER is more of a relationship business; maintaining relationship with company executives, paying clients, voting clients, distribution lists, industry contacts, house bankers, etc. Not every sellside ER make good buyside analyst/investor, but it sure is much easier to get someone who understand the industry than some art history banking monkey that would need years in grooming.

5. HF sounds awesome but there are a lot of them around with high turnover/bellyup rates.

1/1/13

I'm at one of the MFs mentioned above, and ER is useful for me only for the companies they bring around in-house and organizing trips. My shop is not very big on talking to the street and I don't believe you get much out of it, but I know that a lot of places use them more and it can be especially helpful when you have such a large universe to cover as an analyst. The reason I am not a big ER fan is because of the inherent conflict of interest highlighted above. There's no question this is the case. Doesn't mean they aren't smart and don't add value for some, they just have different incentives for comp than those on the buyside (i.e. marketing companies for IB/trading revenue or adding some insight for broker votes vs. actually crafting investment thesis). I choose not to use them much.

As far as MF vs. HF, I know and meet a lot of HF guys at various conferences/trips and we talk a lot about our roles. The fundamental analysis that takes place is the same. To make a generalization, the differences are in the comp structure and the time horizon for investments. The comp is pretty similar at my fund vs. HFs when you're hired out of MBA. After that there's usually a different path, as you can get handed your own fund to run at a MF way before you would at a HF, the reason being that there aren't many PMs at a HF. PMs easily make 7 figures and the best make 8. Obviously not as much as a HF principal, but more job security and less blowup risk.

In reply to BeastMode
1/1/13

BeastMode:
I'm at one of the MFs mentioned above, and ER is useful for me only for the companies they bring around in-house and organizing trips. My shop is not very big on talking to the street and I don't believe you get much out of it, but I know that a lot of places use them more and it can be especially helpful when you have such a large universe to cover as an analyst. The reason I am not a big ER fan is because of the inherent conflict of interest highlighted above. There's no question this is the case. Doesn't mean they aren't smart and don't add value for some, they just have different incentives for comp than those on the buyside (i.e. marketing companies for IB/trading revenue or adding some insight for broker votes vs. actually crafting investment thesis). I choose not to use them much.

As far as MF vs. HF, I know and meet a lot of HF guys at various conferences/trips and we talk a lot about our roles. The fundamental analysis that takes place is the same. To make a generalization, the differences are in the comp structure and the time horizon for investments. The comp is pretty similar at my fund vs. HFs when you're hired out of MBA. After that there's usually a different path, as you can get handed your own fund to run at a MF way before you would at a HF, the reason being that there aren't many PMs at a HF. PMs easily make 7 figures and the best make 8. Obviously not as much as a HF principal, but more job security and less blowup risk.

Im guessing the CFA is very valuable in moving up at a MF. Would you say it is a suitable substitue for an MBA in that industry or is an MBA a necessity?

Competition is a sin.

-John D. Rockefeller

In reply to slowdive
1/1/13

slowdive:

As far as the mutual fund debate, it is hilarious that someone is citing GlassDoor as a source for Fidelity PM comp. Does it make any sense that a guy running billions at Fidelity would not be making 7 figures? Think about the math. Yes, HF guys like to shit on the long onlys because they are unsophisticated, but there are some smart mutual fund guys too. Also there are actually more HF analysts out there than MF analysts, so whoever said that MFs have more coverage guys is totally wrong. The AUM/head ratio of a MF is exponentially larger than a HF, does it make any sense that this would not be the case, given the disparity in fee structures?

I know glassdoor probably isn't the most reliable source but Fidelity isn't the only MF with low pay on that website. It's fairly common to see analysts at major MF's to pull in less than $60,000 per year.

I'd find links. But posted from a Galaxy.

Competition is a sin.

-John D. Rockefeller

1/1/13

The glassdoor numbers refer to base salary only, not bonus.

In reply to Hooked on LEAPS
1/2/13

Hooked on LEAPS:
BeastMode:
I'm at one of the MFs mentioned above, and ER is useful for me only for the companies they bring around in-house and organizing trips. My shop is not very big on talking to the street and I don't believe you get much out of it, but I know that a lot of places use them more and it can be especially helpful when you have such a large universe to cover as an analyst. The reason I am not a big ER fan is because of the inherent conflict of interest highlighted above. There's no question this is the case. Doesn't mean they aren't smart and don't add value for some, they just have different incentives for comp than those on the buyside (i.e. marketing companies for IB/trading revenue or adding some insight for broker votes vs. actually crafting investment thesis). I choose not to use them much.

As far as MF vs. HF, I know and meet a lot of HF guys at various conferences/trips and we talk a lot about our roles. The fundamental analysis that takes place is the same. To make a generalization, the differences are in the comp structure and the time horizon for investments. The comp is pretty similar at my fund vs. HFs when you're hired out of MBA. After that there's usually a different path, as you can get handed your own fund to run at a MF way before you would at a HF, the reason being that there aren't many PMs at a HF. PMs easily make 7 figures and the best make 8. Obviously not as much as a HF principal, but more job security and less blowup risk.

Im guessing the CFA is very valuable in moving up at a MF. Would you say it is a suitable substitue for an MBA in that industry or is an MBA a necessity?

Neither is a necessity at all for moving up. Similar to HFs, you'll move up solely based on performance. The MBA can be a way to get hired with OCR, and the CFA obviously looks good on a resume, but one you're in the role neither really matters. No PM knows or cares what degrees or certifications anyone has. Maybe this varies by firm, but this is my experience.

Also to the guy who says analysts get paid 60k at mutual funds that's not accurate at all for the shops mentioned in this thread. I have no experience at smaller places.

In reply to WestCoastEastCoast
1/4/13

WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

" Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued" This is the line that made me realize you have no idea how a relative return manager manages his/her portfolio and I don't even need to work in equities. Why do you think people in real money shops keep talking about alpha. What do you think that is, food?

In reply to larasing
1/4/13

larasing:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

" Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued" This is the line that made me realize you have no idea how a relative return manager manages his/her portfolio and I don't even need to work in equities. Why do you think people in real money shops keep talking about alpha. What do you think that is, food?

Um, actually, yes. Food. Seriously, I wouldn't be surprised if these guys spend the entire morning thinking about what lunch to get and the entire afternoon exchanging emails with one another discussing group orders for Seamless.

Maybe you're looking for a serious answer. So here it is. First, I don't think you know what you're talking about. Mutual funds generating alpha? You make me laugh. I'd start respecting those guys at mutual funds if they even perform on par with the S&P. I'm sure you're tempted to list several funds that outperformed (I have no interest). Overwhelming majority still suck.

In reply to WestCoastEastCoast
1/4/13
1/5/13

We've heard about the relative strengths and weaknesses of bankers and ER guys but no one else. Are the majority of HF hires from those two talent pools? Or are there other places that guys come from?

"Do not go gentle into that good night"

1/5/13

Vast majority at the more senior level have banking or research backgrounds but you will sometimes see someone come from the industry they are covering especially if they did something like healthcare at a fortune 500 and then CFA progress or CPA designation. I haven't seen too many of those people at a more senior level but i have seen them in junior analyst roles. Pretty decent combination but very, very difficult to break in. No reason in 5-10 years there won't be more at senior level.

In reply to vitaminc
1/5/13

A lot has already been saidbut after 5 years of experience i reckon i can share some instances of real world:
1./ Assumption 1: ER gets paid like crap and is the lowest rung of order in BB - The answer is no and no. I used to sit next to a 32 year old research MD who was consulted by the Treasury, ministers & politicians on his opinions during the 2008 crisis. Some of these suggestions were incorporated completely in the policy frameworks. ER in BB is a highly visible position. The head of European equities would request his presence when he wanted to speak to the analyst. This guy's comp was well north of what his IBD peers at MS and GS were paid. MD to MD he outclassed them in pay big time (8m+)...and he wasn't an exception. The equity strategists in several banks are tapped by their own bank's boards. They are untouchable. But yes, you have to be good....if you are, you are paid well. What do u reckon an average guy at a HF or worse a MF makes?

2./ Assumption 2: IBD matters more than Markets - This debate between IBD vs markets was settled long time back in the BB's. Look at the CEO's and senior management and you will understand what i am trying to convey.

3./ Assumption 3: ER top ranked analysts are dying to get into HF's - At HF's the guy who makes most of the money is a partner. If you are good and can move markets, why would you go private, lose your visibility and network and have the partner screw you behind the back. Happens a lot more than you think. Fortress' EM guys have a trail of great sell side guys behind them.

4./ Assumption 4: Everyone at every HF is killing it like Einhorn -

5./ Assumption 5: Investing is the key buyside skillset - Raising money vs investing are different skillsets. Think of recently closed Edoma Partners. 3 years of suboptimal returns investing in European blue chips and charging clients 2 and 20 (or pretty close) for that. They went to over 750 bucks in AUM at one stage. Many successful hedge fund managers in Asia are not able to go above 200 m. 500 is where scale based efficiency really kicks in.

6./ Assumption 6: Sellside product is crap - For every crap sellsider i can show you 2 crap buysiders. The number of dumb fund managers i see in London and NY is worse than most of my peers in BB ER. A sellsider may be devious with data and cunning but is not dumb. Buysiders are generally dumb. And the dumber they are and the most numerous their teamsize the more the refrain of "no value add from sellside". In my domain i have one guy who says it the most and across the street from him is another buyside guy who is very humble. The AUM's of the dumb guy fall every year while rising at the fund for the humble guy. Guys like fidelity are notorious for making field trips and making big shit out of news which is in public domain from 3-6 months back. Fido has some great analysts but average is pretty poor.

And BB ER pays better than MF and average HF... like for like...

vitaminc:
Sellside ER and MF background here.

1. To say buyside ER is not needed is 100% ludicrous. That's why expert networks are routinely used by different HF and MFs. And yes, they are still around. Impossible to have depth with 100+ equities universe at sellside vs. 20- at buyside; just imagine in the coming earning season listening to multiple dozens of con calls, updating model, and actually *understand* what's going on.

2. Not every MF is closet indexing but many top HF are basically behaving like MF, very long biased and shuffle money into HF hotels like AAPL, QCOM, BAC, etc.

3. ER skill set remains the same across MF and HF space. Modeling is only a small part of the equation.

4. Sellside ER is more of a relationship business; maintaining relationship with company executives, paying clients, voting clients, distribution lists, industry contacts, house bankers, etc. Not every sellside ER make good buyside analyst/investor, but it sure is much easier to get someone who understand the industry than some art history banking monkey that would need years in grooming.

5. HF sounds awesome but there are a lot of them around with high turnover/bellyup rates.

In reply to lostinwilderness
1/5/13

lostinwilderness:

2./ Assumption 2: IBD matters more than Markets - This debate between IBD vs markets was settled long time back in the BB's. Look at the CEO's and senior management and you will understand what i am trying to convey.

I'm calling you out. Don't deceive the unsuspecting kids on this board. I was wondering why you didn't say ER in this one and used the word "markets". Nice try on glorifying ER with the "markets" association. No one on here is debating about markets vs IB. Earth to lostinwilderness and WSO, yes, some CEO and senior management of the BB's are from a markets role, but most of these "markets" guys are from S&T rather than ER.

In reply to WestCoastEastCoast
1/5/13

No glrification by association. Different banks have different political heirarchies. Firstly there are derivative traders then cash traders therafter equity sales and then research. But beyond traders the comp could follow a different pattern. Most senior management comes from derivative desks because they generated the most PnL during an old era. As prop risk gets wound the story is beginning to look very different. if you are in client/agency business the first thing you need is a decent content platform - meaning ER and sales. 4 years ago you would be very right. Then again the GS model is different from ML model in equities. And the question was ER vs HF vs MF.
Within the bank ER comes at the bottom rung of ladder politically, but a strong analyst is untouchable and is compensated well. Sales guys come and go, traders milk the system but your ER guy still makes better than his counterparts in other industries.

WestCoastEastCoast:
lostinwilderness:

2./ Assumption 2: IBD matters more than Markets - This debate between IBD vs markets was settled long time back in the BB's. Look at the CEO's and senior management and you will understand what i am trying to convey.

I'm calling you out. Don't deceive the unsuspecting kids on this board. I was wondering why you didn't say ER in this one and used the word "markets". Nice try on glorifying ER with the "markets" association. No one on here is debating about markets vs IB. Earth to lostinwilderness and WSO, yes, some CEO and senior management of the BB's are from a markets role, but most of these "markets" guys are from S&T rather than ER.

In reply to lostinwilderness
1/6/13

lostinwilderness:
No glrification by association. Different banks have different political heirarchies. Firstly there are derivative traders then cash traders therafter equity sales and then research. But beyond traders the comp could follow a different pattern. Most senior management comes from derivative desks because they generated the most PnL during an old era. As prop risk gets wound the story is beginning to look very different. if you are in client/agency business the first thing you need is a decent content platform - meaning ER and sales. 4 years ago you would be very right. Then again the GS model is different from ML model in equities. And the question was ER vs HF vs MF.
Within the bank ER comes at the bottom rung of ladder politically, but a strong analyst is untouchable and is compensated well. Sales guys come and go, traders milk the system but your ER guy still makes better than his counterparts in other industries.

WestCoastEastCoast:
lostinwilderness:

2./ Assumption 2: IBD matters more than Markets - This debate between IBD vs markets was settled long time back in the BB's. Look at the CEO's and senior management and you will understand what i am trying to convey.

I'm calling you out. Don't deceive the unsuspecting kids on this board. I was wondering why you didn't say ER in this one and used the word "markets". Nice try on glorifying ER with the "markets" association. No one on here is debating about markets vs IB. Earth to lostinwilderness and WSO, yes, some CEO and senior management of the BB's are from a markets role, but most of these "markets" guys are from S&T rather than ER.

lol bro, no one was talking about what you're saying lol. Glad you clarified that your "Assumption 2 Demystification" is misleading as ER is at the bottom rung of the ladder.

In reply to Hooked on LEAPS
1/7/13

PMs at Fidelity make money that are comparable to what hedgefunds pay

1/7/13

If hedgis are so smart, how come most of these guys are massively lagging the market? Also realize that no performance = no pay

In reply to WestCoastEastCoast
1/7/13

WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

'

You are so wrong its not even funny. You are both underestimating the quality of analysis at MFs and over estimating the quality of analysis at HFs. Also, PMs at HFs are not immune from the career risk associate with underperforming a benchmark, even if they claim to be "focused on absolute return".

Not every single HF is Einhorn/Ackman/Klarman. Just as many HFs under-perform the index as MFs. And higher leverage does not make the PM a better stock picker.

There are literally only a dozen or so HFs would I consider working at over the best MFs.

The worst part about your post is that individuals with experience are telling you that you're wrong but you refuse to listen. That's a bad trait in this industry.
http://www.jgriffin.info/Research/hedge.pdf

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, have higher turnover, and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32 percent per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find no evidence of consistent differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers

Follow me on Twitter: https://twitter.com/_KarateBoy_

In reply to KarateBoy
1/8/13

KarateBoy:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

'

You are so wrong its not even funny. You are both underestimating the quality of analysis at MFs and over estimating the quality of analysis at HFs. Also, PMs at HFs are not immune from the career risk associate with underperforming a benchmark, even if they claim to be "focused on absolute return".

Not every single HF is Einhorn/Ackman/Klarman. Just as many HFs under-perform the index as MFs. And higher leverage does not make the PM a better stock picker.

There are literally only a dozen or so HFs would I consider working at over the best MFs.

The worst part about your post is that individuals with experience are telling you that you're wrong but you refuse to listen. That's a bad trait in this industry.
http://www.jgriffin.info/Research/hedge.pdf

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, have higher turnover, and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32 percent per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find no evidence of consistent differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers

Whatever you need to believe but I have a feeling those who will defend mutual funds to death happen to work there. Frankly, I despise mutual funds. Looking at their returns, I just think they're useless. People on this board can make their own opinions.

1/8/13

It's fine for you to "hate MFs because of their returns." But you should also "hate HFs because their returns are the same as MFs"

Follow me on Twitter: https://twitter.com/_KarateBoy_

In reply to KarateBoy
1/8/13

KarateBoy:
It's fine for you to "hate MFs because of their returns." But you should also "hate HFs because their returns are the same as MFs"

And on top of that, hate them even more because they charge higher fees than MFs.

In reply to KarateBoy
1/9/13

KarateBoy:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

'

You are so wrong its not even funny. You are both underestimating the quality of analysis at MFs and over estimating the quality of analysis at HFs. Also, PMs at HFs are not immune from the career risk associate with underperforming a benchmark, even if they claim to be "focused on absolute return".

Not every single HF is Einhorn/Ackman/Klarman. Just as many HFs under-perform the index as MFs. And higher leverage does not make the PM a better stock picker.

There are literally only a dozen or so HFs would I consider working at over the best MFs.

The worst part about your post is that individuals with experience are telling you that you're wrong but you refuse to listen. That's a bad trait in this industry.
http://www.jgriffin.info/Research/hedge.pdf

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, have higher turnover, and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32 percent per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find no evidence of consistent differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers

That's...wow that's just hopelessly stupid. HF are absolute return investors that generate superior returns over the long term. Can they underperform any single MF or indices in a single given year? Sure. If that's what you're looking for, go pursue a career in MF.

In reply to KarateBoy
1/9/13

KarateBoy:
It's fine for you to "hate MFs because of their returns." But you should also "hate HFs because their returns are the same as MFs"

Did I hurt your self worth that bad? lol. I can understand. Here, take it up with David Einhorn & Seth Klarman. Show them that you're an amazing investor at a mutual fund.

"We consider ourselves to be "absolute-return" investors and do not compare our results to long-only indices. That means that our goal is to try to achieve positive results over time regardless of the environment. I believe the enormous attraction of hedge funds comes from their absolute-return orientation. Most long-only investors, including mutual funds, are relative-return investors; their goal is to outperform a benchmark, generally the S&P 500. In assessing an investment opportunity, a relative-return investor asks, "Will this investment outperform my benchmark?" In contrast, an absolute- return investor asks, "Does the reward of this investment outweigh the risk?" This leads to a completely different analytical framework. As a result, both investors might look at the same situation and come to opposite investment conclusions.

The popular misperception is that investors are attracted to hedge funds for the status,the secrecy, the leverage, and, according to one preposterous magazine account, the high fees. The truth is simpler: Asking the better question of risk-versus-reward gives hedge funds an enormous opportunity to create superior risk-adjusted returns compared to relative-return strategies."

- David Einhorn.

1/9/13

No, you did not hurt my self-worth. I don't work at a MF. And you're not the only person on this forum who has read Margin of Safety or Fooling Some Of The People All Of The Time.

You're still completely missing the point. But it's been explained to you 7 different way by multiple professionals and you're not willing to listen the other side.

Follow me on Twitter: https://twitter.com/_KarateBoy_

In reply to WestCoastEastCoast
1/9/13

WestCoastEastCoast:
KarateBoy:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

'

You are so wrong its not even funny. You are both underestimating the quality of analysis at MFs and over estimating the quality of analysis at HFs. Also, PMs at HFs are not immune from the career risk associate with underperforming a benchmark, even if they claim to be "focused on absolute return".

Not every single HF is Einhorn/Ackman/Klarman. Just as many HFs under-perform the index as MFs. And higher leverage does not make the PM a better stock picker.

There are literally only a dozen or so HFs would I consider working at over the best MFs.

The worst part about your post is that individuals with experience are telling you that you're wrong but you refuse to listen. That's a bad trait in this industry.
http://www.jgriffin.info/Research/hedge.pdf

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, have higher turnover, and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32 percent per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find no evidence of consistent differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers

That's...wow that's just hopelessly stupid. HF are absolute return investors that generate superior returns over the long term. Can they underperform any single MF or indices in a single given year? Sure. If that's what you're looking for, go pursue a career in MF.


Do you work at a hedge fund?

adapt or die:
What would P.T. Barnum say about you?

MY BLOG

In reply to SirTradesaLot
1/9/13

SirTradesaLot:
WestCoastEastCoast:
KarateBoy:
WestCoastEastCoast:
SirTradesaLot:
I find it funny that people shit on mutual fund management, but want to go into a 'stock picking' role at a hedge fund. It's basically the same job in a different wrapper.

Well mutual funds and hedge funds have pretty different investing styles. Mutual funds add stock to their portfolio not because after deep analysis they believe it is undervalued/overvalued but rather because it will better imitate whatever indices they're being compared to. The former focuses on relative returns and the latter on absolute returns. So I guess some can argue that HFs better hone your analytical/investment ability.

'

You are so wrong its not even funny. You are both underestimating the quality of analysis at MFs and over estimating the quality of analysis at HFs. Also, PMs at HFs are not immune from the career risk associate with underperforming a benchmark, even if they claim to be "focused on absolute return".

Not every single HF is Einhorn/Ackman/Klarman. Just as many HFs under-perform the index as MFs. And higher leverage does not make the PM a better stock picker.

There are literally only a dozen or so HFs would I consider working at over the best MFs.

The worst part about your post is that individuals with experience are telling you that you're wrong but you refuse to listen. That's a bad trait in this industry.
http://www.jgriffin.info/Research/hedge.pdf

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, have higher turnover, and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32 percent per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find no evidence of consistent differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers

That's...wow that's just hopelessly stupid. HF are absolute return investors that generate superior returns over the long term. Can they underperform any single MF or indices in a single given year? Sure. If that's what you're looking for, go pursue a career in MF.


Do you work at a hedge fund?

No, I don't work for a HF.

In reply to KarateBoy
1/9/13

KarateBoy:
No, you did not hurt my self-worth. I don't work at a MF. And you're not the only person on this forum who has read Margin of Safety or Fooling Some Of The People All Of The Time.

You're still completely missing the point. But it's been explained to you 7 different way by multiple professionals and you're not willing to listen the other side.

Bro, I've explained it to you several times. i don't understand how you still don't understand.

In reply to WestCoastEastCoast
1/9/13

WestCoastEastCoast:
No, I don't work for a HF.

I've worked in this industry for 15 years both for hedge funds and traditional asset managers. I've met some people who are brilliant and some who are surprisingly dimwitted at both types of firms/strategies. There is nothing special or mystical about a 3(c)7 fund structure that makes people magically smarter than their '40 act peers. There are plenty of teams who I know who run their mutual funds with an absolute return focus. Certainly, there is nothing that prevents someone from opening an absolute return mutual fund and many are surprised to learn that there are long-short mutual funds. Yes, most mutual funds are relative return focused, but that's not a flaw inherent to mutual funds, that is a client driven outcome. Some would argue it's not a flaw at all. I think it just depends

I wrote this last week because there is a large amount of misconceptions about mutual funds and hedge funds on this forum:
http://www.wallstreetoasis.com/blog/hedge-funds-vs...

adapt or die:
What would P.T. Barnum say about you?

MY BLOG

1/9/13

Let me get this straight: someone actually believes that simply by virtue of being a mutual fund the stock pickers can't be as good as someone at a hedge fund? And that mutual fund PMs are a joke?
http://www.sequoiafund.com/Reports/Annual/Ann11.pdf

I hate victims who respect their executioners

In reply to BlackHat
1/9/13

BlackHat:
Let me get this straight: someone actually believes that simply by virtue of being a mutual fund the stock pickers can't be as good as someone at a hedge fund? And that mutual fund PMs are a joke?
http://www.sequoiafund.com/Reports/Annual/Ann11.pd...

My favorite line in that document:

"Looking ahead, we humbly submit that we have no idea what the stock market will do in 2012."

Why can't everyone be that honest?

adapt or die:
What would P.T. Barnum say about you?

MY BLOG

In reply to BlackHat
1/9/13

BlackHat:
Let me get this straight: someone actually believes that simply by virtue of being a mutual fund the stock pickers can't be as good as someone at a hedge fund? And that mutual fund PMs are a joke?
http://www.sequoiafund.com/Reports/Annual/Ann11.pd...

The stupidity of a few on this forum astounds me everyday man. Especially by those who claim to be experts.

In reply to slowdive
1/9/13

slowdive:
A lot of strong views and misinformation here. I come in somewhere in the middle. I am at a fund that hires only ex-IB or ex-PE guys. We have interviewed guys that had ER experience, but they had also worked at HFs as well. The ex-IB HF guys I have met are more numerous, but that is to be expected given the relative class sizes. I think that either can be good, but there are pros and cons. IB guys are more raw but have less bad habits to unlearn. ER guys have a lot of sector knowledge but are used to a somewhat different game. The unlearning aspect is very real, that is also why some HFs don't like to hire from other HFs. Yes, it is frustrating to interview bankers, because most of them don't know shit about investing. Frankly I would personally be more open to hiring ER guys, but for whatever reason, it is part of the culture of my firm that we hire bankers. I'm sure there are places that hold the opposite view. Remember, HFs are all very different, they do not just fall into a certain mold, they take on the character and personality of their founders.

We definitely believe that ER guys add value, but have mixed feelings. We are quick to laugh when we discover a mistake in a model (see this all the time) and sometimes use upgrades/downgrades as a contrarian indicator, but when someone is good, we will respect that as well. They are obviously helpful for getting ramped up on a new company/sector quickly. They are also very useful for gauging sentiment and trying to get a sense of how other funds are positioned. The management access part is actually not as valuable for me, I generally just ask the company myself, although in the cases where the company is in a quiet period or something than I will ask the analyst.

The main gripe we have with ER is not necessarily that they aren't smart, but the conflicts of interest. Sometimes IBD really wants to get a certain deal. Sometimes a certain big HF client has undue influence on them. Sometimes they get too close to management. I'm not saying this is always (or even often) the case, but it is inherently a seat where it can be difficult to be objective at times. I've seen what ER guys go through when they put out an unpopular call, they get shit on all day by pissed off buysiders, and it is tough to go against the tide. There is a big herd mentality amongst the sell-side, I am often amazed by how tight street consensus numbers can be, or how many people can have overweights on a company that sucks. But I will admit that this can happen on the buyside as well, this is human nature after all, it's just that in the HF world you have less knowledge about what others are doing.

As for why they don't move over, I'm sure there are a multitude of reasons. Being at a HF is very stressful. ER has more stability, although I've seen a ton of guys get blown out this year. Some guys might like talking more than trading, there is nothing wrong with that, and for them being in ER makes more sense. Some guys are more professorial types that like doing deep research. I'm sure some guys take pride in being known for owning their sector, like Craig Moffet.

This post pretty much sums up my experience of sellsiders. There is definitely value there, and I can see why it would be a good career. I value their insight - on the company, on the management, on what other market participants are thinking. Some of them are very very smart people (and others are not). I also have no hesitation to assume that any analysis that doesn't make sense to me is insane.

Modeling mistakes are rampant. I've only been doing this for a short while and already avoided losing substantial amounts of money just by modeling better than sellsiders - multiple discrete instances where the sellside just models a company completely ass-backwards, and the result is massively divergent earnings in a quarter with a 15-30% stock move after the print (yeah, these kinds of moves happen ALL THE TIME). Which is why I would value modeling skill in any analyst that I would ever hire were I to be in a position to hire.

As for HF vs MF - I can't comment directly never having worked in a MF - but I think that the guys there are usually very smart as well. However, I do think that you see less good analysis at a MF because their incentive structures and investment products are all kind of crazy. Trying to outperform an index instead of perform absolutely, need for longer term investment horizons when it is often hard to justify for some positions (high turnover portfolios get pilloried by morningstar I think), need to confine yourself to a certain style (mid-cap growth stocks or value stocks or whatever), inability to hedge and short (which makes it tough to make money in a down market when correlations are just all over the place) - just a lot of institutional constraints. Mutual funds aren't designed to make money and they're not compensated for that -- they're compensated for gathering assets; no big surprise then that PMs at MFs do not manage to get returns as high as possible (even though they well may be capable of performing better if they were incentivized to do so).

In reply to SirTradesaLot
1/9/13

SirTradesaLot:
BlackHat:
Let me get this straight: someone actually believes that simply by virtue of being a mutual fund the stock pickers can't be as good as someone at a hedge fund? And that mutual fund PMs are a joke?
http://www.sequoiafund.com/Reports/Annual/Ann11.pd...

My favorite line in that document:

"Looking ahead, we humbly submit that we have no idea what the stock market will do in 2012."

Why can't everyone be that honest?

Because everyone else has to act like they know what they're doing to offset shitty returns!

I hate victims who respect their executioners

In reply to BlackHat
1/10/13

BlackHat:
Let me get this straight: someone actually believes that simply by virtue of being a mutual fund the stock pickers can't be as good as someone at a hedge fund? And that mutual fund PMs are a joke?
http://www.sequoiafund.com/Reports/Annual/Ann11.pd...

No, that's what people on this board is twisting this into. Can a PM at MF be as good as one at HF? Sure. Of course. In the earliest form, I merely mentioned the different strategies that HF and MF use in response to SirTradeaLot, during which I mentioned how some mutual funds try to perform on par as the indices but often underperform the benchmark and all these people came our crying that I'm wrong and attacking my credibility and hedge funds.

At this point, I'm tired. Believe whatever you want. Students reading this board can decide ER/MF/HF on themselves.

In reply to xqtrack
1/10/13

xqtrack:
slowdive:
A lot of strong views and misinformation here. I come in somewhere in the middle. I am at a fund that hires only ex-IB or ex-PE guys. We have interviewed guys that had ER experience, but they had also worked at HFs as well. The ex-IB HF guys I have met are more numerous, but that is to be expected given the relative class sizes. I think that either can be good, but there are pros and cons. IB guys are more raw but have less bad habits to unlearn. ER guys have a lot of sector knowledge but are used to a somewhat different game. The unlearning aspect is very real, that is also why some HFs don't like to hire from other HFs. Yes, it is frustrating to interview bankers, because most of them don't know shit about investing. Frankly I would personally be more open to hiring ER guys, but for whatever reason, it is part of the culture of my firm that we hire bankers. I'm sure there are places that hold the opposite view. Remember, HFs are all very different, they do not just fall into a certain mold, they take on the character and personality of their founders.

We definitely believe that ER guys add value, but have mixed feelings. We are quick to laugh when we discover a mistake in a model (see this all the time) and sometimes use upgrades/downgrades as a contrarian indicator, but when someone is good, we will respect that as well. They are obviously helpful for getting ramped up on a new company/sector quickly. They are also very useful for gauging sentiment and trying to get a sense of how other funds are positioned. The management access part is actually not as valuable for me, I generally just ask the company myself, although in the cases where the company is in a quiet period or something than I will ask the analyst.

The main gripe we have with ER is not necessarily that they aren't smart, but the conflicts of interest. Sometimes IBD really wants to get a certain deal. Sometimes a certain big HF client has undue influence on them. Sometimes they get too close to management. I'm not saying this is always (or even often) the case, but it is inherently a seat where it can be difficult to be objective at times. I've seen what ER guys go through when they put out an unpopular call, they get shit on all day by pissed off buysiders, and it is tough to go against the tide. There is a big herd mentality amongst the sell-side, I am often amazed by how tight street consensus numbers can be, or how many people can have overweights on a company that sucks. But I will admit that this can happen on the buyside as well, this is human nature after all, it's just that in the HF world you have less knowledge about what others are doing.

As for why they don't move over, I'm sure there are a multitude of reasons. Being at a HF is very stressful. ER has more stability, although I've seen a ton of guys get blown out this year. Some guys might like talking more than trading, there is nothing wrong with that, and for them being in ER makes more sense. Some guys are more professorial types that like doing deep research. I'm sure some guys take pride in being known for owning their sector, like Craig Moffet.

This post pretty much sums up my experience of sellsiders. There is definitely value there, and I can see why it would be a good career. I value their insight - on the company, on the management, on what other market participants are thinking. Some of them are very very smart people (and others are not). I also have no hesitation to assume that any analysis that doesn't make sense to me is insane.

Modeling mistakes are rampant. I've only been doing this for a short while and already avoided losing substantial amounts of money just by modeling better than sellsiders - multiple discrete instances where the sellside just models a company completely ass-backwards, and the result is massively divergent earnings in a quarter with a 15-30% stock move after the print (yeah, these kinds of moves happen ALL THE TIME). Which is why I would value modeling skill in any analyst that I would ever hire were I to be in a position to hire.

As for HF vs MF - I can't comment directly never having worked in a MF - but I think that the guys there are usually very smart as well. However, I do think that you see less good analysis at a MF because their incentive structures and investment products are all kind of crazy. Trying to outperform an index instead of perform absolutely, need for longer term investment horizons when it is often hard to justify for some positions (high turnover portfolios get pilloried by morningstar I think), need to confine yourself to a certain style (mid-cap growth stocks or value stocks or whatever), inability to hedge and short (which makes it tough to make money in a down market when correlations are just all over the place) - just a lot of institutional constraints. Mutual funds aren't designed to make money and they're not compensated for that -- they're compensated for gathering assets; no big surprise then that PMs at MFs do not manage to get returns as high as possible (even though they well may be capable of performing better if they were incentivized to do so).

Glad to see someone in the industry backing up some of the points I made that the starred "experts" on this board just don't accept.

In reply to xqtrack
1/10/13

xqtrack:

Modeling mistakes are rampant. I've only been doing this for a short while and already avoided losing substantial amounts of money just by modeling better than sellsiders - multiple discrete instances where the sellside just models a company completely ass-backwards, and the result is massively divergent earnings in a quarter with a 15-30% stock move after the print (yeah, these kinds of moves happen ALL THE TIME). Which is why I would value modeling skill in any analyst that I would ever hire were I to be in a position to hire.

Hi xqtrack, was your past experience in M&A? Or did you come from sellside ER?

Would like to know more on your perspectives/opinions on how sellside ER modelling is valued / seen by Hedge fund recruiters and whether experienced ER professionals tend to lose mostly to experienced M&A professionals in terms of hiring.

In reply to aspharagus
1/11/13

aspharagus:
xqtrack:

Modeling mistakes are rampant. I've only been doing this for a short while and already avoided losing substantial amounts of money just by modeling better than sellsiders - multiple discrete instances where the sellside just models a company completely ass-backwards, and the result is massively divergent earnings in a quarter with a 15-30% stock move after the print (yeah, these kinds of moves happen ALL THE TIME). Which is why I would value modeling skill in any analyst that I would ever hire were I to be in a position to hire.

Hi xqtrack, was your past experience in M&A? Or did you come from sellside ER?

Would like to know more on your perspectives/opinions on how sellside ER modelling is valued / seen by Hedge fund recruiters and whether experienced ER professionals tend to lose mostly to experienced M&A professionals in terms of hiring.

My experience was in M&A. Note that 'experienced' professionals are not primarily the ones typically being hired into hedge funds, especially by recruiters - those are junior folks. At the junior level, recruiters definitely prefer people from a banking background for the major institutional hedge funds (ie, the ones you read about in the news). And actually, oftentimes funds will want people with 2 years of PE as well, and won't consider people without the 2+2 banking/pe. At the more senior level, I don't know (I am junior), but my guess is that you'd be far far more likely to see an ER person get hired than a banker. But most people break in to public equities buyside at a junior point in their careers - it's much harder to learn how to work on the buyside after a long career on the sellside (in corp finance). I can't talk about mutual funds - I wasn't recruiting for them - wouldn't surprise me if they preferred ER though (the same way they prefer CFAs, which is a by and large useless credential).

And as to modelling, honestly neither bankers nor equity research tends to model well. When I first started in my current job from banking, my models (in terms of business drivers etc) were absolute crap. My team taught me how to think about modelling differently, and that's what really improved my work product. I think both bankers and equity research will typically have the corporate finance background that they'd have the baseline that they can be taught effectively. Whether you're smart enough is a completely different question though.

I think the main difference is that ER is considered less prestigious, and so a lot of top funds would rather not hire their junior staff from those places (but not all funds). If you took economics, it's the signalling theory - going to a top Ivy league school or working at the most prestigious finance job out of college may not have taught you much useful stuff, but you're more likely to be smart enough to succeed. These days, ER is considered less prestigious for somebody right out of school than working in IBD. It is what it is, and it's not up for debate. And everything follows from that.

1/13/13

Research departments are smaller and banking analyst program pools are bigger - my firm hires 50 banking analysts and maybe 6-8 research analyst. From what I have seen the placement of the research analysts has been pretty good - top business schools and top hedge funds, long onlys. The key point is that smart analysts (we call undergrads at my firm analysts whether they do IB, S&T, or Research) are not at a disadvantage by working in research My advice to undergrads is to focus on the firms that they like and areas where they think they will enjoy themselves professionally. There are ton of hedge funds out there ran by ex analysts and a lot of ex analysts PMs, there are also a ton of ex bankers who have done well. Keep in mind that most people who start out in finance leave the industry at a fairly junior level so don't be delusional about your chances to make it to the top.

In reply to ILOVENYGUY
1/13/13

ILOVENYGUY:
Research departments are smaller and banking analyst program pools are bigger - my firm hires 50 banking analysts and maybe 6-8 research analyst. From what I have seen the placement of the research analysts has been pretty good - top business schools and top hedge funds, long onlys. The key point is that smart analysts (we call undergrads at my firm analysts whether they do IB, S&T, or Research) are not at a disadvantage by working in research My advice to undergrads is to focus on the firms that they like and areas where they think they will enjoy themselves professionally. There are ton of hedge funds out there ran by ex analysts and a lot of ex analysts PMs, there are also a ton of ex bankers who have done well. Keep in mind that most people who start out in finance leave the industry at a fairly junior level so don't be delusional about your chances to make it to the top.

The whole 'not being at a disadvantage' thing just isn't true. The only reason I say it is 1) I know junior analysts at all the top institutional hedge funds, and I can't think of any who came from equity research (not that they don't exist, they do), and 2) the recruiter I used at Dynamics outright said to me, 'it's good you're from banking, none of our clients want kids from equity research'.

In reply to xqtrack
1/15/13

I am speaking from years of experience, so I am not sure how to reply to you. I work for one of the bigger places, and have been there for a while - maybe we have stronger candidates, but my old firm also has a huge alumni base on the buy side. I think that there are many more direct hires on the buy side from research because there is day to day interaction with the funds, so that's why you don't see as many people going through recruiters.

1/15/13

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