Why are Equity Research and Investment Management looked down upon?
It seems like there is a lack of content on WSO outside of the IB and PE forums on here. I would guess that this is because of the site's general focus toward IB, but I also noticed that are no WSO ER or AM guides? Personally, I would definitely get them if they were available but I guess there isn't enough interest for it to be created. As far as the looked down upon I've noticed some people really don't recognize that ER and AM both have decent balance and exit ops.
I think a big part of it is that there are not nearly as many roles available to undergrads in research/investment management as there are banking spots.
I would agree with rugbyladdy. I may catch some shit for this, but I think you're seeing equity research dwindle as an industry - it's not the same as it once was, and it may not be heading in the rosiest direction. I haven't been in finance for very long, but I've seen it and I've heard the same from those that have been in finance longer. There used to be a lot more brokers and thus analysts because commissions were more prosperous. I think a lot has changed since then and in particular, regulations have changed (in Europe, for example, MiFID looks to separate the traditional brokerage and research). My guess is that, in the long run, the BBs will survive and continue to offer that service (but I could be wrong, given Nomura's recent decision) and the very good analysts will always have a place, but we'll probably continue to see downsizing of the industry.
I hate to advertise WSO's competition (if they are anyways), but I always enjoyed reading Mergers and Inquisitions' "day in the life" posts. Check on that website for some material. If Patrick or Andy are reading this, I think it's also tough sometimes to find the old posts that are useful, so I wonder if there is some benefit to rehashing a few of the old posts that received several silver bananas (maybe more frequently than a TBT post). Maybe some weekly spotlight for certain industries would be good or a rank of best posts by industry, so that someone can quickly find those legendary posts.
In all seriousness, about 90% of this website is high schoolers asking which college they should attend, SAs asking what clothes are acceptable, and recent grads asking which offer they should take. Same ol', same ol'. You need to check in often and search deep for the material you want to read about.
EDIT - And I don't think that investment management is "looked down upon." I think IB is just more favorable for some people because of deal exposure and the other aspects. You'll still find a lot of people who would rather go the AM or ER route.
I don't think it's "looked down upon," but it's certainly a less well known career path. A few points:
1) As rugbylady said, there are far fewer ER positions (buy or sell side) than their are investment banking jobs, especially at the undergrad level. My guess is that in the U.S. alone the BBs and elite boutiques collectively hire 400-500 undergrads per year. There are probably Equity Research Analysts publishing research notes.
Also, there are definitely career and interview guides for ER out there. Vault used to have a pretty good one. Reading that guide made me think, "hey, maybe I should be looking at ER as a career." You can find a lot of good posts on this forum about ER; you just need to dig a little.
I'm not sure that I'd say that ER is "looked down upon" necessarily, moreso that (as others above have stated) it's simply not as visible/well-known as IB. At my target, perhaps there are 3-5 of us juniors at most who are doing ER internships, versus maybe 40-45 or so that are doing IB. This doesn't indicate to me that ER is easier or harder to get into than IB - perhaps marginally easier since the very top students are almost unanimously IB (or buy side in rare situations), but the lack of student interest is also offset by a lack of available spots - there are way more to fill in IB than ER, where even the BB summer analyst classes hit the mid-teens at most.
Despite the general lack of interest, there was still a considerable amount of on-campus recruiting for research positions from multiple bulges and a few smaller firms as well, which was nice and somewhat surprising to see given the aforementioned consolidation in the industry (which, if anything, makes it tougher to break in). As for why there aren't as many ER-focused prep guides, it's probably because the prep is very similar to IB - I used mostly IB guides and that was more than sufficient. The stock pitch portion is where the interviews diverge most notably, but I didn't find myself technically preparing for that (after all, if you're looking into ER you're probably well-versed in stock pitching already). I do think if ER was more widely-known you'd see more a lot more interest in it from undergrad students, but the IB hivemind is so strong (especially at targets/semi-targets) it's almost sad to see. I'd guess pay is also a consideration - base is the same, but bonuses diverge decently, albeit are offset by fewer hours in ER.
Unlike ER, I would say that IM/AM is looked down upon to an extent, and the pay being lower doesn't help either. Anecdotally, the quality of students that I've seen go into IM/AM are nowhere near as strong, and it also skews a lot less technical and tends to attract more girls (not that "more girls" should at all be connected to being looked down upon, but that's unfortunately the reality of the perception, at least among undergrads, many of whom are of the "IB or bust" mentality).
Not sure how you figure this. I compared notes with MBA classmates heading off to BB banks and their comp was equal to or lower than the comp for those of us headed to top tier investment managers. At the more senior level, comp in AM comp varies significantly based upon product AuM. My guess is the comp for most banking MDs caps at a few million with only the superstars bringing home >10mn. In any case, the real money is in PE in my opinion...
Yes, at the top tier AM's you will receive pay comparable to IB with a much better work/life. But we are only about talking about a handful of 'top tier' firms . On the other hand, the kids at my Bschool program who went to 2nd tier AM's (Good but not great), were offered good base salaries, but their expected bonuses were several multiples lower than those in banking.
I agree with you that senior level professionals in AM have the ability to earn much more due to AUM. But on average, banking will pay more.
I have not spent any time in equity research but here is my opinion on ER...
From what I understand, research analysts essentially gather publicly available information and tiny bits of insights through conversations with management teams of companies they cover. Through the funneling of said information, they derive insights that help guide readers on the current and projected financial health of a company.
That said, I believe that there are 2 primary phenomenon that are occurring in the financial services market. First, you have a wide spread network of information. It is much easier to gain access to information both financial and industry specific. Nothing reported in an equity research reports cannot be found through a good google search and maybe a subscription to an industry news database. This erodes the value proposition of a research analyst's report/product. Secondly, you have increasing competition amongst alternative asset managers, namely HFs and PEs. Growing competition results in lower average returns and increased scrutiny on finding good deals. You find these good deals/trades and value extraction strategies by employing industry experts. No longer can you come up with a generic investment thesis with just a high-level understanding of the related industry/sector. What does this mean? It means that the people who used to subscribe to the research put out by these ER shops, are now doing their own work. the value add of ER is decreasing over time. Will it go away forever? Probably not. If you've worked in IB, you know you need research reports to feed the pitchbooks you send out to clients.
Seeings as how there is lower value-add in ER, I can see students moving away from research roles to more transactional careers. Transaction centered jobs get you results of getting a company sold/bought, financing put in place, or a restructuring completed. Researchers, just publish reports that don't always get much serious attention (My firm subscribed to a few BB research shops but now only one. I can tell you that the stuff reported is not mind blowing or even accurate...) This might be the reason ER is less attractive.
Your knowledge of the subject is lacking. Analysts don't get paid for writing. They write to get clients on the phone. You get clients on the phone to drive votes, which drive commission allocations from large asset managers and hedge funds. Value add is industry knowledge, network, and read on sentiment.
Anything that doesn't have a well beaten path toward 9 figure earnings is looked down upon on this website. A partner at Deloitte who makes $750,000 a year is a loser compared to a private equity partner making 10x that. Forget that they probably go to the same country club, are great friends, live in the same neighborhood, both love their jobs, and are incredibly successful. Less than 8 zeros in the bank and you might as well pick up a job as a cashier on weekends so you can feed your family.