Growing more convinced that associate positions at AMs will die off at an accelerated rate moving forward. We've already been seeing a lot of this happen as a result of a) dollars shifting to passive and b) active mgmt fees compressing (both of which leave less to go around for bloat).
The new force that we weren't seeing before but I'm increasingly seeing is tools that effectively automate / remove the modeling function (one of the bigger jobs of an associate). Canalyst is just the start, recently came across another tool that will literally update quarterly data in your own custom model for you. Industry will still have some associates but not I think to the same ratio as before where it was often 1 analyst : 1 associate. Increasingly it seems likely to be 2-3 analysts : 1 associate which both decreases the # of associate positions but also reduces investment of analysts into developing an associate as a true apprentice
Not sure if any others have thoughts on this. I'm just hoping to be an analyst within next 2-3yrs because in 5+yrs the outlook seems to be getting bleaker for junior staff, as it it wasn't already given limited upward mobility at top shops due to the active world now taking a shrinking piece of a shrinking pie. Any agreement / disagreement on this?
Interesting to hear this perspective from someone with boots on the ground. I once covered asset managers and worked on a white paper with a radical conclusion that in the next 10 years the industry will be solely dominated by single digit firms each managing $5T+ in assets and half of the current roster of asset managers will disappear. The theory was supported by the big trends we've come to accept (fee compression, shift to passive) but it was also based around the fact that technology is rapidly changing every aspect of the industry.
This is where it all becomes a bit circular for me. In order to remain at the tip of the spear, companies will likely need to spend 10-15% of their revenues to invest in and maintain technology resources at the same time that the revenue pie is shrinking (at the end of '19, 20%+ of managed US funds had 5 consecutive years of net outflows) and costs are rising rapidly. The natural conclusion is that technology costs would replace the human capital costs but how long it takes is a big question. The institutions are like cruise ships, they aren't exactly turning on a dime.
Anyway, I realize this isn't much of a contribution but it's a relevant topic and good to get some thoughts.
just wanted to say great work against smoke frog the other night lol. i had your back
Would say you really have 3 sets of AMs:
Large, top notch managers -- T. Rowe, Capital Group, Wellington. These guys will do just fine, will accrue a lot more assets (who you're referring to)
Elite boutiques -- smaller managers under $100bl AUM generally but who have a very differentiated offering (and likely offer the best investment results pre-fee)
Fat middle -- these are the closet indexers who will be the share doners to the above 2 parties (and passive). Probably comprises 60% of the industry on a global basis. These guys are screwed and will face the highest pressures (esp on the associates)
The top 2 categories of firms because of AUM growth should be able to offset fee pressures for the most part. That said, our industry is also focused on efficiency / rationalization so if there are ways of driving greater leverage out of existing analysts they will. So even these firms will see headcount reductions in associates. I've already seen some of this happen or the other scenario where there are still a lot of associates but almost none of them convert into analysts...and not like there are many analyst seats floating around in our industry so very hard to get that seat even if you leave. All in all, great seat if you have it and it will become increasingly rare to have it at a top shop
1) What are structural reasons for the top guys to be taking market share? How do things actually pan out and what mechanisms are involved?
2) Should someone try for a top manager (Capital Group, Wellington, TROW, D&C, PIMCO for FI) now while it's comparatively easier to get? Hard to imagine these seats becoming even more coveted. Recruiting would be a shitshow. Would probably see more people going to other stuff like tiger cubs at this point. I'd imagine that LO as an industry would become less attainable/feasible and therefore less attractive. This might actually shift the equilibrium backwards to make things less competitive.
Remember it’s a cyclical industry and the big players have an insanely attractive business model. The fact that there’s all this doom and gloom probably means we’re closer to the bottom of the cycle than the top. If you’re a college student or a younger professional reading this - my advice is to do what you are passionate about and try to work in an environment that suits you and will allow you to reach your potential. If that’s PE or a pod shop, great. If its a LO - also great. Do not drive yourself crazy thinking about what may or may not happen
https://www.wallstreetoasis.com/forum/off-topic/the-irony-of-index-funds
TLDR: pendulum thesis. When too many people start investing in index funds, market inefficiency increases, which makes active asset managers more profitable. This drives money towards active, which reduces market inefficiency and lowers the average return of active. This drives money back towards passive. The pendulum swings back and forth but active and passive will always be the two forces in eternal counterbalance with each other. Both are here to stay.
In my opinion, the area of concern here is the fact that within the active category, there is competition and it is unclear who will win. The rise of HFT's in the last 2 decades have been eating into LO AM returns. And I don't believe those who claim that HFT doesn't "price fundamentals" and whatnot; at the end of the day, they are identifying inefficiencies and arbing them, which reduces the total pool of "inefficiency" that active seeks to benefit off of. They may not be doing deep research on the fundamentals, but they use indicators that ultimately act as proxies for fundamentals, thus allowing them to assist in price discovery.
Id go into private debt - it’s the future
Sir you must explain