Best Time to Complete CFA
Hi everyone,
I'm currently a junior in college considering the CFA. I am going to be working at a top LO in investment research this summer, and I was wondering when you all believe the best time to get started on the CFA would be. I know I want to work in asset management in the long run, however, I am seeing that some companies sponsor the CFA exam. It would be really helpful for me not to have to pay the $1-2k in registration and additional exam prep materials, and instead have a company sponsor the process for me. Has anyone had their company successfully sponsor the process? Or would it be smarter for me to just get started and pay for the exam myself? Do you think completing L1 and L2 before I graduate would make me a significantly more competitive candidate in the industry?
I appreciate all of the help and feedback!
Honestly would tell you to go into private markets. I've been in this field for over half a decade now and I can tell you -- while private markets are not necessarily a bed of roses -- the future there is far less bleak than public markets. I don't think this industry (active fundamental LO) has enough juice for the next 30-40yrs. My base case right now is ~20yrs from now, you have headwinds of passive + impact of AI + rising sophistication of factors & quants. I could be wrong but most people you'll talk to on LO side will be pretty negative. I think active fundamental LO will still exist but with a fraction of the seats you have today, which is already a fraction of what was around 20yrs ago
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They will remain coveted, yes, and will pay well for a while. Thing is, all of these guys have big net outflows but market growth makes up for it. So they can stick around for a while, but you're also taking the risk of projecting a linear decline (vs. becoming more exponential). Active to passive can be projected linearly but the rise of quants / factors + AI can't be...so just be careful
Also just be aware there are precious few of those top seats you're talking about, and also that tbh most of those seats are not going to be intellectually engaging because of how narrow the coverage is. Will you be happy covering U.S. Restaurants or Japanese Capital Goods right now? Yes. Will you be happy covering that narrow vertical 10yrs from now? I 100% would not be....I started out covering one of the major sectors (Tech, Consumer, Industrials, Financials, Healthcare) at a global level and got a bit bored after 3-4yrs. Adding another sector made things exciting again but I think after another few years I'll even get a bit bored of that too and want to expand coverage more. You can't do that with most seats at the names you mention or get anywhere near that. Comp isn't the only thing to satisfaction, but then again different strokes
What that means is that most of the highest paying seats will be at the names you mentioned, but most of the really interesting, dynamic seats will be in coutique managers. If you're under $10bl you're not in a great position but as funds scale >$200bl you run into narrow coverage. So sweet spot is somewhere betw the two in my opinion for balancing both comp and interesting nature of work. But this is just my two cents
Outlook sucks all around for associates trying to get promoted to analyst...trust me, at my firm 10yrs ago maybe 50% would be promoted. Today it's definitely 20% and is fast approaching 10%. And probably 30-40% have the 'skill' to do the job, but only 10-15% have the 'luck' (boss is getting promoted, someone leaves with your exact coverage expertise, etc). Just so much out of your control in this industry
The skillset is different in private markets so you would have a hard time transitioning. In public markets, with some exception, liquidity is table stakes. Most of the job in private markets, beyond the junior level, is negotiating with people to be open to selling their business, and arriving at a price. That is why it is not as exposed to automation.
Also think about the access to information. In public markets you don’t get anywhere near as granular as you would in privates.
With all due respect people have been saying this for the past 20 years.
Yes, and it’s played out but to a lower magnitude
number of seats in active LO equities today is undoubtedly lower than it was in 2004
Get a real job instead.
Why MS him—he's right
Your number one priority should be graduating and enjoying college while putting yourself in position to succeed after. If you have extra time in college now or have a light semester, I would knock it out. The $1-2k now will suck, but in the grand scheme of things when you graduate it is nothing. Taking the CFA when you are working full-time blows. When you graduate you want to focus on your job and have fun when not working. I think it is much easier to do when you are in school, used to studying. Level 1 does help in recruiting. If you go into public markets or private, it won't hurt you, can only be a positive. For Long-only asset management it is almost required most places.
Also to the above negative take on long-only asset manage. I am not as optimistic on private markets - returns have compressed in private markets over time and the actual opportunities to add value are less given how much capital is chasing it now. I think you will see fees compress in private markets over time as well. I personally don't know if you are getting much alpha over public markets if you adjust for higher leverage and lower liquidity but that is beside the point.
The big long-only asset managers will be here. Small cap is where you need to go though. Active management will always be around in small cap. I love it. Liquidity constrains the size that a small cap fund can be making it so that there will always be alot of them. The small cap indexes suck and you have such a wide universe of companies that you can truly add value in active management. Real inefficiencies exist there due to lack of coverage, liquidity and less competition. If I was on a large cap long-only fund, I would feel much more bearish. Hard to compete with S&P and hard to add value when the whole world follows your names.
"I think you will see fees compress in private markets over time as well."
Exactly. We're roughly 3-4 years away from a sizable "blowup" in private market vehicle fundraising in the form of all these PE vehicles that were able to fundraise off of a secular headwind to the industry (oh durr hurr, private markets are just better) that when fund life is over and its time to return actual dollars, the mark-to-market accounting game that a lot of PE shops are using to overstate their unrealized performance is shown to be a game. Then, LPs will become much more fee conscious, and that'll compress it to a 1 & 15 at a lot of MM shops.
This will also be great for public active managers that are 1) already charging a 1 & 15 and/or 2) have had a great performance from 2020-2027/2028.
Personally I would not advise anyone to actively look for small cap seats if given alternate options. Much less assets under mgmt and continual underperformance vs SPY. Given there is more assets in large cap: the seats are more stable, plentiful and pay more. It doesnt even matter if your large cap fund cant generate alpha vs the bench if the allocators are not putting $ into Small/Mid. I sit in a SMID fund seat today but actively looking and most of the net new LO hiring is in large caps. As a candidate I'm profiled against and docked against competition that covers Large cap today
I'd argue large cap is the toughest spot to outperform as you are basically forced to be a closet indexer given concentration. You aren't picking stocks, you are deciding how much to be overweight or underweight Nvidia. At that point, I'd rather just save the fee and buy SPY. The argument to justify a fee in small cap is much stronger.
Maybe times have changed and S&P 500 permanently outperforms Small caps from here on out, but relative performance tends to be cyclical. If you look back over 100 years, small caps have had many periods of outperformance and underperformance, my guess is it will revert again.
The point on more AUM at large cap is fair but I'm trying to look at where I have the best chance of having a career 15 yrs from now. Where will have a better chance to fight AI and passive headwinds. I'd argue small cap will fare much better. The ceiling is lower for sure given scale, but the downside is lower LT in my view. We shall see.
Thanks for sharing your thoughts. As we see more and more retail investors pump up small cap stocks, will be advantages of being invested in the small cap space shrink meanginfully over time?
What really matters is if institutions move money to small cap and that hasn't really happened yet. The money has chased performance in SP 500 etc. but if tide turns and more assets move to small cap it could be interesting
You're in undergrad and you have a summer offer from a top LO. You're already on a great trajectory to be in a good public markets seat, even in a compressed industry. So don't take the top rated comment too seriously (they also outed themselves as someone fundamentally just "bored" with the work...if after covering Tech, Consumer, Industrials, Financials, Healthcare at a "global" level and getting bored after 3-4yrs, adding another sector to make things "exciting again" but yet already knowing that they'll get bored after another few years and want to expand coverage more? Come on lol).
To simply answer your question, I'd start on it in undergrad. I studied for lvl 1 while working full time in research, and a common refrain I told myself while studying was "man, I wish I studied for this earlier because not only is the material interesting, just playing around with it before starting full time in research would have let me hit the ground running better." The cost is very manageable, and think about it as an investment early enough in your career.
To address some of the wider doom and gloom though, I offer a counter point because I don't want you sitting around thinking "shit, I need to be on a private markets track right now." Because...truthfully? Your ability to end up at a reputable private equity fund at this point in your career has been significantly narrowed by you not already being on the IBD track. It is truly mad that to end up "on-cycle" for PE recruiting, which begins like 1 month into your IBD analyst program, you have to have secured a FT IBD position in a "top group," which you get through SA your rising senior summer, which the recruiting for that these days happens, in earnest, in your sophomore fall/super early sophomore spring. And then at the MBA level? MBA's ability to "career switch" into something like PE if you dont have PE experience before B school is practically nonexistent.
Please just enjoy your LO summer, start studying for the CFA and then once you've you been in the seat for a few years, you'll have a better understanding of the landscape and can plan accordingly from there.
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Yes equity l/s is doable from a LO. Unfortunately a lot of the headhunters these days that recruit for those roles target IBD heavily. I do have to admit, and I've indicated some of my negative thoughts towards IBD analyst programs in my prior message, but a shift that happened over my "recruiting trajectory" (graduated college in 2014, ended up in FI research out of undergrad then a mutual fund) was how standardized a lot of it has become for targeting IBD analysts.
You'll definitely get looks, but it will take some hustle on your part. Hustle btw that you'll have time for if you've knocked the studying for all 3 levels of the CFA out before you're 2 years into an LO seat.
However, I want to push back against what you said re: "active making a comeback." I do agree with the other poster that a good deal of these seats are going to downsized due to structural changes (improvement in quant strategies, low cost ETFs, AI). But that its going to wash out the less passionate (a lot of people in finance, generally, did it simply because it pays well and dont have an underlying interest in the work).
"Which other areas should I maybe consider looking into in case I need to exit."
I'm going to be anal when I suggest you need to reframe the question as "what other areas might I be interested in?" You might fall in love with a particular sector during your time at an LO and want to go into corp dev in that sector, which getting an MBA would be very helpful for. You might end up in equity L/S.
But I will say, you shouldn't be thinking about, in earnest, the "exit" so extensively when you're not even in the seat yet for your summer internship.
Would be curious to know about the potential of career switching into IBD out of AM (either through an MBA or just hustling my ass off to lateral). I have a FT offer from a large AM firm which is great (didn't know about IBD my sophomore year so I missed it) and am considering doing that change should I feel that it's worth it after a few years. To be honest, I'm very happy with my offer and am excited to do FI research, but know that I might switch my mind after a few years in the industry. Thanks.
What do you ultimately want to do long-term? If asset management is what you want to do in 5-10 yrs. why do IB? If you ultimately want to do PE or something that isn't asset management then that is worth considering.
Best time to complete the CFA is never
do the level 1 now if you can. I'm doing it now after 4 years in AM and it sucks ass having to study after work for months on end. Also if you're doing finance/economics in college then chances are the material will overlap quite a lot and not much study will be required.
I took it as a sophomore and it was only marginally helpful. Only take it when you absolutely have to.
I am in a similar boat to you. I am a junior going into a summer analyst role in FI at a BB. I'm curious whether taking the CFA in the spring/summer would increase my odds of getting a return offer or make life after school more chill.
It'll make life after school more chill.
You’re in a great spot. If your goal is asset management, the CFA helps, but many firms do sponsor it. Doing Level 1 before graduation can be a plus, but Level 2 is intense during school. I’d focus on nailing the internship first if you get a return offer, they may cover the cost.
Some firms give you time to do it. getting paid to do it is ideal
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