It’s been two years since I did the last one ("Ask A VP in ER anything" ), so I figured I would do one more.
Let’s talk about the industry, MIFID, banks in general, trends in the industry, long term career outlooks, etc.
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I think it is feasible to make a career in equity research, but a challenge is that senior analysts historically stayed for a long time, so it was tough to get promoted to senior analyst. That could get harder or easier with MIFID depending on how things go. I would like to have a long career in the industry and believe I have a path to it, even with MIFID. That said, the industry may change dramatically in a few years... or it may not. Much is in the air.
You should always look at edit ops with any jobs. What attracts you to ER? Is it stock picking or investing? You may want to try to move to the buyside, and should consider that as an exit op. Do you like more of the client interaction side? Think about working in IR or even sales. Do you like the operations side? Going to a corporate is an option. You won’t really know until you have a year under your belt
All US banks already have MIFID procedures in place because many of our clients have European businesses and have implemented MIFID globally.
In a worse case scenario, my backup is somewhere within the bank (ECM or investment banking) or working for a company. I could also do ER on the buyside, but that is honestly my third choice.
There are predictions that MIFID will lead to a significant headcount cut in research. It’s possible, but I doubt it will be that drastic. Research headcounts are already down significantly (like many other areas of finance), and cuts now will really have an impact on the ability of banks to offer full coverage of equities. You need ER for both investing clients and ECM, so it is difficult to simply not have it. Many of the bulge bracket banks have kept their departments roughly the same size. I’ve seen some attrition from senior analysts at mid cap brokerages (some have left ahead of MIFID to go to corporates), but we haven’t yet seen a broad scale cut. It could happen later this year or in 2019, but I would guess associate jobs will still be there.
1) I have not heard about research being given out for free for three months. This may be a Europe specific thing or specific to a certain bank. And the thing about a year sounds like a bank specific policy - it’s certainly feasible that a bank may want to cut entire teams if they aren’t doing well. The question is what happens next? Do you just not cover a sector? What happens if you cut an underperforming research team, then a few months later the bankers come by with an IPO that needs covering? It’s a tough and fascinating dlimemma.
2) Goldman Sachs aims to bank all types of corporates, ranging from small cap to big cap. It’s hard for me to imagine them “switching” to mid cap research if that impacts their large cap advisory business. I could see them adding resources to cover more mid caps, but that means more spending on research total, not less (unless they somehow reallocate resources).
3) Everyone already buys JP Morgan research, so it’s not like they can gain market share. That $10,000 price is also just for research - I don’t believe it includes phone calls, corporate access, models, meetings, etc.
4) ECM remains important. DB has a bigger ECM franchise than HSBC, so the answer for the two banks may be different
I am based on the US, so forgive me if I miss some of details of MIFID in these answers
1) The best bets are banks in the top 10 or so in the Institutonal Investor ranking and banks in the top 10 or so of the equity capital markets league tables. Also banks that generate the most cash equities revenues. In the mid cap bank area, banks that generate a high percentage of their business from cash equities or ECM would the best bets. Banks where equities don’t seem to be essential to the strategy are the most at risk.
2) Network and show an interest in stock picking. If you can start studying for the CFA and pass level 1, that could help you get your foot in the door as well
3) Seniors that take the time to sit down and train you are the best mentors. Some seniors are more focused on what you can do for them when it should be a balance
1) MIFID can go a lot of different ways. My assumption is that "Top 10" research houses gain more market share. How you measure Top 10 is debatable - is it II rankings? Is it the research firm that covers the most IPOs or equity offerings? Is it the research firm at the banks with the biggest cash equity revenues? These lists overlap to some extent, but there are some firms that are in some of these categories but not the others. I think boutiques may struggle a bit.
2) I don't know much about macro research, but I would guess I would be reading all of the news on current exchange accounts, trade balances, different GDP growth rates for different areas, monetary and fiscal policy, etc.
3) Generally, IB analysts work about 10-15 hours more than ER analysts. ER analysts will have to be in very early during earnings season and may stay very late. In addition, during times when the team is working on projects like initiations or in depth reports, hours may be long.
4) As some have already pointed out, GS has usually been ranked lower in the Institutional Investor rankings than the pedigree of the overall bank would suggest. However, GS does do a lot of equity offerings, and they pay their research analysts probably a bit more than average. They also do offer pretty comprehensive research. I would consider GS "Top 10" in the matrix i described in bullet one.
There are multiple banks that don't pursue II (including mine and GS), so using II to rank banks is dumb. Having participated in II in the past, a big chunk of success is marketing to big pension funds that have lots of AUM (and votes) but tend to be less valuable as revenue generators. You spend a lot of time flying to Georgia and Tennessee to meet with these funds which takes away from engaging big HFs that are more valuable as clients. I also spent an insane amount of time reminding people to vote in subtle ways. I have come across analysts that hand out swag reminding clients to vote. It is absurd. Factors that matter more to measure quality of research: size of business, votes from major funds, pay, and banking deal flow (bad analysts tend not to have industry respect).