Do value funds tend to underpay analysts compared to growth funds?
So, one of my close friends works for a value fund, and it's been fascinating to see the different dynamics between the value and growth worlds. As you may know, value investors are all about paying less than what a stock is worth today, regardless of how much the business is likely to grow in the next five years. In other words, they never pay a "premium" for projected future growth.
But here's the thing - this kind of mentality doesn't just apply to stock picking. It also affects how they view and treat analysts. For instance, if there are two analysts - a good one and a mediocre one - with a market rate of $200k and $400k, respectively, some value funds will happily pay $150k to hire the mediocre one rather than shelling out $400k or more for the really good one, even if the latter may create more value for the firm in the long run.
Of course, my experience is limited, so I'm curious to know if any of you have had similar experiences.
Hi peter_wall, check out these threads:
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You're welcome.
It does make sense from my experience as well, but the reason they do it is more complicated than that. These funds' hiring process is typically more sophisticated, takes longer, overall they are more careful about the person they are bringing in to ensure they are the right fit. As they find a few candidates, they tend to go with the cheapest not only because of $ but also because it is a "cleaner" person (doesn't have to unlearn much, etc. can be molded), which sounds better for them vs. paying 3-4x for an experienced guy who might actually not fit into the fund's philosophy.
I was thinking of this too, but in terms of dating. Do value investors snag girls who are at their lowest point in life, when they are heavily discounted, and bet on the mean reversion? Or they could act as their own catalyst as well.
Growth investors would date girls who are on a momentum of success, and they are willing to pay the premium for that growth, betting on that future growth
Quant guys would run regressions and backtests and sift for desirable factors that they identify
What would Citadel do? Date 50 of them at once and cut the worst 5 of them every quarter?
Yes. They pile into girls that they think will beat next quarter's estimates by 1bp in 1 factor. That could be Instagram followings, TikTok views, Onlyfans messages, or number of times they go to the gym, you name it. They spend hours on the phone debating with Millennium whether the girl would go to the gym 40 times or 38 times next quarter
during my interview with a LO, I heard from HR saying that they can wait until they find the right person, which makes sense because downside of bringing in a wrong person in any fund - L/S or LO can be huge. This is not a pure labor intensive kinda job, i agree that they tend to hire more junior people to mold later. But I’d be shocked if they would hire any “mediocre “.
agree. Intellectual capital is all they have for these investing roles. The diff between a top quartile MD and a bottom at big PE funds goes into the tens of millions of dollars
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