Flexibility for ER to LO Transition
Finished 3rd year of ER. Pretty set on LO AM as my desired path and working to make that happen: networking, reading books to improve framework/process, and applying a LO perspective to coverage.
Jobs are tough to come by given the nature of the role so I recently expanded my search to beyond NYC and I’m even considering an MBA to break-in but idk how likely that is without buyside experience pre-MBA.
Given my coverage and what I’ve noticed from stocks I’ve liked in the past, a GARP/growth investment style would be a smoother transition and better fit. Should I still pursue openings that explicitly mention value investing even though I am less likely to be a good fit/would probably need to adjust or lateral in the future?
How else should I be flexible in the transition? Size-minimum AUM? Industry coverage in addition to sector coverage?
Based on the most helpful WSO content, here’s how you can approach your transition from ER to LO AM:
Pursue Value Investing Roles Despite GARP Preference: While GARP/growth investing might feel like a better fit, don’t shy away from value-focused roles. Many LO funds have a mix of strategies, and demonstrating flexibility and a willingness to adapt can make you a stronger candidate. Once you’re in, you can always lateral or adjust your focus over time.
Expand Your Flexibility:
MBA Consideration: Breaking into LO AM post-MBA without prior buy-side experience is challenging but not impossible. If you pursue this route, target MBA programs with strong finance placements and alumni networks in asset management. Use the MBA to network aggressively and secure internships at LO funds.
Networking and Skill Development:
Tailor Applications: For each role, align your pitch with the fund’s investment philosophy. Even if it’s value-focused, emphasize your ability to adapt and your understanding of their strategy.
Flexibility and persistence are key. Keep refining your approach, and don’t hesitate to take a slightly indirect path if it gets you closer to your goal.
Sources: Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Breaking into long only Asset Management, Private Equity vs Megafund Credit, Big LOs, Would you rather hire a junior out of IB or LO AM?
Bump
I would focus on firms that fit what your investment style is, it will be very beneficial when you actually get a job. It is tough to be a fake deep value investor. To display this have pitches/write ups ready to go that fit this style.
As for size and industry/sector coverage I would be flexible. Be willing to learn new coverage spots, many LO operate with generalist models so it could be a requirement to learn new coverage. In this industry many shops are smaller and small shops without formal processes will be the types of jobs you can win through networking. Breaking in is the key, don't exclude yourself just to the 10 mega firms everyone has heard of, competition is intense for them. You can do pretty well at a small $1B small cap boutique for example. After breaking in, it would be easier to go to a bigger shop with experience.
Appreciate the reply! Do you have any tips or tricks to identify the smaller firms and openings?
I can think of the usual methods: networking, job postings/LinkedIn, looking at past companies for people at similar/bigger funds, headhunters (largely out of my control) and google search and filter through the responses. If I find a firm that seems appealing but without any career page/listed openings, I’ll typically send an email to some info@xyz firm email with a resume and pitch.
The issue with smaller firms is that many times they won’t even be clients so I cannot leverage our CRM system.
I hundred percent agree with finding the right fit/style being most important and looking beyond the mega firms. However, as a PM who works at a boutique LO firm, one thing I might add is that it's hard to "do well" if a firm has too small of AUM, which I define as anything under $3bn for traditional LO shop with a traditional asset based fee structure. Think about the costs. Even for a small firm with, say $1bn AUM, you are likely going to have at least 3-4 investment professionals and 4-6 other employees (e.g., sales, marketing, operations, etc.) even if you don't have a designated trading desk, compliance, HR, etc. Add to that other fixed costs, including rent, Bloomberg/FactSet, research costs (e.g., prob have to pay out of pocket since soft dollar will cover very little at this level assuming a turnover of 50%, i.e., $500m book turn p.a. = ~$200k in soft dollars across ideally multiple sell-side equity research firms, and any large bulge bracket worth their weight like GS & MS won't give you any analyst access / conference access until you start paying six figures; smaller shops are much more lenient), and other infrastructure costs (especially if you have a mutual fund vs. mainly SMAs). And then variable costs like travel, marketing, etc. That's on the cost side. Now do the math on rev. Assuming say $1bn in AUM in a niche style small cap strategy, no one's charging more than 50bps these days unless you have a legacy book and/or have an incredible track record/brand name, so $5m in fees, and I think I am being generous here, since initial clients likely received more favorable terms and even if you exclude them from MFN clause for the future clients, blended fees will be less than 50bps.... let's not even get into model delivery assets which will further compress fees.
Bottomline is that while I agree there are awesome boutique LO shops out there with great products and great economics (I work at one fortunately), there are also a lot of firms with limited growth outlook that are pretty much run by old managers that are just happy to collect paycheck until they retire and/or wind down the firm. Just make sure to do the research on the firm's performance track record / style as well as the growth in AUM over time. In general, I would avoid companies with less than $3bn especially if it's been trending down or stagnant in recent years, unless you know the firm very well. Just my two cents.
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