Asset Management vs Investment Banking 101
Asset Management vs Investment Banking - What are They?
Before examining whether you’d like to work at an asset manager or investment bank, it’s important to first understand what exactly they do. To help understand the differences, understand that an investment bank is on the sell-side while an asset manager is on the buy-side.
- Sell-side: Create, promote, and sell various types of securities
- Buy-side: Buy various types of securities
On investment banks, here’s @Marcus_Halberstram" with a concise summary.
It's a financial institution that essentially creates markets by connecting buyers and sellers, and risk and capital. At a very high level, there is a sales and trading business and an investment banking business. And from what I understand, the investment banking division is structured into products (e.g. M&A, Leveraged Finance, ECM, DCM) and industries (e.g natural resources, consumer products, financial institutions).
Right, so what’s an asset manager? Asset manager's status as a buy-side firm means that they are concerned with the purchasing of securities. Here are three things that separate asset managers from other buy-side firms.
- Invest in a plethora of financial instruments and are typically long-only.
- Three different types of investors are attracted to three different categorizations of asset managers: retail clients via mutual funds, high-net worth individuals via separately-managed accounts, and institutional investors via large dedicated products.
- Significantly less aggressive investing strategy compared to hedge funds. This is because while hedge funds promise absolute returns (and are deeply incentivized by performance fees), asset managers benchmark themselves against a market-related standard.
Asset Management vs Investment Banking - Compensation
Compensation in investment banking is, on average, higher than compensation in asset management. Out of undergrad, research analysts/associates in AM make slightly less than their banking peers, with investment banking analysts making around $130k. Post-MBA associates in investment banking make $200-300k, and the same goes for post-MBA analysts in AM.
After 5-15 years, an analyst can get promoted to portfolio manager in AM. This is in direct contrast to IB where the post-MBA title is associate, who gets promoted to VP, then managing director/partner. On average, investment bankers make more than their peers in asset management at every level. There is one large exception to the rule: top performers in AM make far, far more than any banker. A portfolio manager at PIMCO will make something like $25m, more than any Wall Street CEO.
AM vs IB - Lifestyle and Culture
Lifestyle is the most significant difference between investment banking and asset management. In investment banking, there’s mostly a lack of lifestyle as you put in an average of 80 hours a week. The work week in asset management is more along the lines of 40-60 weeks, and the weekends are completely your own.
The intense work week in investment banking is conducive to burnout, which is why turnover is so high in investment banking. There’s a reason everyone talks about the exit opps in investment banking, few people stay in the industry. Jobs in asset management pay nearly as well as banking (more in cases of top performers), and you work fewer hours. Because of two reasons, asset management is incredibly appealing, which means turnover is far lower than in IB.
Private Wealth Management
Private wealth management is perhaps the most notable form of asset management. It is, as the name suggests, the management of wealth of high-net worth individuals. When we mentioned working with a view of the beach, private wealth management was the most likely candidate; where there’s money, there’s private wealth management.
First, what exactly separates private wealth management from the other two functions of asset management? Broadly, PWM deals with individuals and individual money, the other forms deal with institutions and institutional money.
As a summer internship, PWM is a good option, particularly for those from non-targets or for those without anything on their resume that indicates a propensity for finance. Having a private wealth management internship the summer following freshman or sophomore year is standard procedure, a lot of people do it. It’s nothing that will set you apart, but it will certainly demonstrate an interest in finance, which is all you can ask for in an internship as a lowerclassmen.
As a career, PWM is all about bringing in that sweet flow, or assets under management. This involves a lot of cold calling (a lot of rejection) and a lot of schmoozing clients to maintain relationships. It’s very much so a relationship-oriented business, but don’t let that fool you into thinking it’s an easy gig. It’s far from it, in fact. Here’s @Vancouver Canucks 2011" on why PWM is a difficult career to succeed in.
Honestly, PWM is an extremely tough business, a changing business, a ruthless business - but it is still an exceptional business. 95% of the people whom enter fail simple because they can't "make it" but the 5% who do make a very good living. The average PWM guys at wirehouses (upper echelon firms such as ML, MSSB & UBS) have $80mm in client assets and make about $300,000 per year on a 40 hour work week, doing mostly what they love (interacting with good friends / long-term clients on the phone or at wining & dining events).
If you’re an undergrad student, you may feel discouraged, and that feeling isn’t misplaced. You reap what you sow in PWM, it’s a reality that doesn’t appeal to people facing tens of thousands in student loans who’ve never worked a full-time job for over three months. @thebrofessor" recommends against becoming a financial advisor until you’re at least 25, and he shared some words of wisdom for those looking to pursue a career in PWM.
Confidence is key. if you think you'll be perceived as immature, you will come off that way. not going to lie, my first few months of calling I was petrified. over time that wanes, and you just get used to it. this gradual hardening gives you confidence and kinda reinforces itself. you act confident, you win business, leading to more confidence and selling better, which leads to more business, etc etc etc
AM vs IB - Which Should You Choose?
In reality, the two are completely different fields and you should choose which career to pursue based on that. Asset management is a career in investing, investment banking as a career is most notably a grind. The lifestyle are completely different, the compensation is comparable, and the career outlooks vary a good deal. In asset management, you choose investing as a career unless you choose to rebrand yourself, hedge funds and other asset managers are your most typical exit opportunities. In investment banking, leaving is the most typical exit opp, as people tend to feel symptoms of burnout within a few years. Private equity, hedge funds, venture capital, and business school are the your common exit opps out of investment banking.
Ultimately, they’re two completely different careers that bring a lot to the table in their own respects. If any one factor makes the decision for you, let it be the work itself.
Stepping stones to Asset Management
First, an important distinction: breaking into asset management out of undergrad and breaking in beyond that point are two different beasts. They should be treated as such, and we will discuss how to break in from each level.
Out of undergrad
You need to clearly demonstrate your passion in investing to get consideration for asset management jobs out of undergrad. Despite investment banking positions receiving all the buzz, these jobs are still highly competitive and the firm needs to know that you're willing to pursue investing as a career. Here are four books to help cultivate your investing savvy. If you find it difficult to read through these books, that's perhaps a moment to question whether this is the career for you.
- Intelligent Investor by Ben Graham (recommended by @thebrofessor") - “Skip Jason Zweig's commentary - same as above, if I were a high school principal, I would make this required reading before graduation. It's that important.”
- Margin of Safety by Seth Klarman (recommended by @thebrofessor") - “I know, I know, it costs several grand on Amazon. If you do some sleuthing, you might be able to find a PDF.” This and Intelligent Investor will develop your understanding of value investing and form the basis of your investing knowledge. Now we move on to some ancillary pieces.
- The Most Important Thing by Howard Marks (recommended by @thebrofessor") - “Newer book, but an instant classic. Compiled memos from Oaktree's Howard Marks, one of the smartest men to manage money that I've read.”
- Competition Demystified by Bruce Greenwald and Judd Kahn (recommended by @Extelleron") - “I think, if you've read Graham, then you know the basic concepts of value investing, as ^ suggested reading Margin of Safety by Klarman would be great to bring a more modern perspective and some specific examples. But I'd suggest branching out beyond basic value philosophy into understanding how to evaluate a business. You've probably heard of the concept of a moat/competitive advantage if you've been exposed to Buffett, but Competition Demystified by Greenwald is a great book which helps you understand how to identify a moat in reality.”
If you haven't already, start investing with a personal account. If you don't want to use real money, paper trading is a perfectly acceptable alternative. You should keep track of your portfolio and back up all of your investing ideas with sound due diligence. Not only will this provide a great opportunity to show off/discuss your investing chops on your resume and in interviews, it'll better you as an investor, which is ultimately what asset management is all about. Here's @N164" on the "model portfolio" and why it's incredibly helpful to have one.
A "model portfolio" - kind of like fantasy football for analysts. Pick a few companies, pretend to "buy" them as of a certain date that you think the stocks look cheap and keep an Excel spreadsheet. Update the prices every so often and see how you're doing. Are your names doing well? Why? Are they not? What did you miss? Then, when you interview, if you've never owned stocks before, you can say you've been running your own model portfolio, here are the names I have, here's why I bought them, here's how they've done. It also means you can answer the dreaded "what was your biggest mistake" question with: "I bought X at $10 and it fell, or I didn't buy Y at $20 and it went up, and here's what I missed"
In addition to investing, following the markets is critical to the job and your knowledge base in asset management. Get a subscription to Wall Street Journal, and read Bloomberg to develop a framework for the markets.
There are two different tiers of asset managers that will become apparent to you as you pursue the industry: notable asset managers and boutiques. The notable ones (could also be considered the top asset managers, but that doesn't necessarily correlate to performance) recruit almost entirely out of top target schools. If you are from one of those schools, you're in luck. Utilize on-campus recruiting and resume drops whenever possible. If you have a solid GPA, some finance internships beforehand, and a decent looking resume, then you should be able to get your foot in the door with a couple firms.
Boutiques are a far more ambiguous matter. The culture at the typical boutique is very tight-knit, develop talent from within, etc. Thus, turnover is extremely low, and positions are rarely open. You'll be hard-pressed to find any boutique asset managers recruiting on campus, your best bet is to send your resume in every direction and hope to get some hits.
Beyond undergrad
Breaking into asset management once you already have a few years under your belt is a trickier affair. First, consider an MBA (if you don't already have one) to rebrand yourself. Networking and headhunters are your friends, they're how you get your foot in the door. But before you network at all, you have to have a hook, something that makes you appealing to asset managers. At this stage, the CFA is your best bet to do just that. Be prepared, however, to consider asset management your career at this point, because the CFA takes 200-300 hours for most people to comfortably pass.
Original Thread
Here's my situation:
I got little or no connections to I-Banking except for a few people I met at RBC and BMO information sessions. I connected pretty well with them but that is the only time I've had contact and an occasional e-mail.
For Asset Management, my mom has some connections with Portfolio Managers who handle accounts/portfolios of $750,000 minimum and upwards both at HSBC and RBC. They are both coming over for dinner to meet me and to build a further connection directly with me.
I'm a 4th year BBA Honours (Accounting & Finance) student who has Financial Analyst internship experience.
Do you think I should stick to my original plan and keep trying to "break into" I-Banking or capitalize on my mom's connections and get a job within Asset Management with either HSBC or RBC? I plan to keep applying for I-Banking jobs but hedge myself with the Asset Management connections.
Also, is there any chance (or how often) that one can move from Asset Management to I-Banking after a couple years?
Also using connections as a hedge can be a mistake. In my experience, people don't like being used as a back up plan, and once you approach your connections in AM the first thing they are going to ask is: If we make an offer will you accept it?
If you tell them that you really want to be in banking but they are a good backup, any reputable person is going to tell you to take a hike. However, if you misrepresent your intentions, say you want to be in AM, and then bail on them because you get an IB offer, that's going to reflect poorly on you and you will have a difficult time using those connections later.
My suggestion is to take on honest look at your position right now. It's very late in the recruiting season for IB and I would be surprised if BB and MM offers are still going out in large numbers. Even if they are, if you haven't already attended a super day or have been invited to an upcoming one, you are probably not going to get an offer in IB - first round interviewing for FT is over. Your choice is really to try to get a fluke offer from a boutique with a later recruiting timeline, or go the AM route.
If I were you, I would forget about IB for now and use the connections to get an AM position. Spend a couple years in AM, do a good job, and then if you want to try to break back into IB at the analyst level, apply with some substantial full time experience under your belt. Honestly, if you've got personal connections with high-level portfolio managers, you'll probably learn a lot more working for them than you would as an IB analyst. Finance is an apprenticeship business, and as a recent grad it's important to build relationships with mentors. If the guys at the top care about your personal development, that goes a long way.
Asset Management vs IBD (Originally Posted: 05/13/2015)
Hello Everyone.
I realize there are a few threads out there that deal with this already. But none to my knowledge goes that deeply into what I am looking for.
How difficult is Asset Management to break into than IBD? Everyone I know is always gunning for the BB Investment Analyst role and then seeking to go to an HF or PE role after they get their MBA. But good AM positions seem much more lucrative.
What is the background of most AM people? Just from linkedin, I notice that there are a lot more non-targets in AM positions. But they're definitely people who know their shit. So do you get to meet a lot more non-traditional people in AM? Like the amateur-turned professional?
What's the career trajectory for AM? Do you just stick with one fund until you become a top-ranked portfolio manager? Is there any incentive for you to leave? Are you limited in exit opportunities once you do it for a few years?
What's the compensation/lifestyle? From anecdotal evidence and basic research, this is what I've been able to gather: ~12 hours/day (usually less) the first 2-3 years with an odd weekend here or there. This eventually becomes ~8-10 hours/day with no weekends after like 3 years.
0-3 years experience...........$130,000-$180,000 all in 3+ years experience.............$500,000+ all in 8+ years experience.............$1mil+ all in 15+ years experience...........Sky's the limit
From what I can gather, most people stick with one fund their entire lives. Very few people either leave or get fired. The hours and pay are amazing. Not to mention, there's very little bullshit face-to-face interaction with others. It basically guarantees you'll be a millionaire with little stress or political in-fighting by the time you're 35. It seems that most investment management funds really nurture you into a leadership role. Lastly, the intellectual nature of your work seems infinitely more interesting than entering data into Excel spreadsheets in 80+ hour weeks for 5 years of your life.
Is all the information I posted above true? Feel free to tear me a new one if I'm wrong.
But with such an amazing career, why the hell do America's best and brightest always go for the NYC BB investment banking analyst position?
I would say much more difficult. I know a ton of people that are in or did IBD that want to move into investment management, can't think of too many that want to do the reverse. Most people view IBD as a route into IM.
At the entry level prestige tends to matter. To the extent they recruit on campus, most firms only recruit at top school or perhaps some top regional schools. At the more senior levels, prestige doesn't matter and the top performers float to the top. I would also say that personal network tends to matter less in IM, so having an "Ivy Pedigree" or whatever doesn't count for jack, whereas it can matter in banking.
I also find that some of the most successful people in IM tend to be real weirdos and not your traditional Ivy material.
Jumping around is much more common. Senior people rarely leave, so to move up you generally have to move to another firm.
Varies tremendously but you're generally correct about lifestyle. Keep in mind travel can be a big factor at some firms if you're on the international equities side.
If you're talking about years experience out of undergrad you should lower your expectations. 0-3 years is more like $80-120k. 4-7 years is more like $150-500k. After that it's very unpredictable and the sky can be the limit. IM is very different than banking in that your responsibilities (i.e. are you generating ideas, or just supporting an analyst?) and performance have a much bigger role in your comp than your years of experience.
Not true at all in my experience, unless you get lucky and end up at a firm that is growing and promoting from within.
Generally true for long-only managers. Not true for hedge funds.
Generally true. This is why people like IM over IBD.
Not true at all. How are your leadership skills being developed staring at spreadsheets and 10-Ks? Also, I would say a fair number of firms don't want you to "learn the ropes" too quickly, otherwise you'll want to jump ship for a better gig.
Partially true. You're still spending a lot of time doing menial work though.
Most 21 year olds follow the crowd and find the prestige of a BB attractive. Additionally, there just aren't that many IM roles for people coming straight out of undergrad. Also, working at a BB can be a great route to entering PE, whereas it is very difficult to move from IM to PE.