I’ve noticed some recent debate about the desirability of equity research. I am a former equity research associate who is now a full coverage analyst, managing my own sector coverage and a team of associates. I usually do a Q&A around this time of year, and I figure now is a good time to do one again. Ask away.
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To kick things off, I do want to address some recent comments / concerns in other threads
1) The pay gap at the junior level relative to investment banking does seem to be increasing. To be frank, it was always there, but increases in base and bonus pay for bankers has outpaced those for research (and sales and trading) recently. This has been somewhat offset at the senior level as this most recent two years have been good for publishing analysts.
2) Exit options remain very strong for equity research. I have seen hedge funds, mutual funds, and most prominently, an increase in IR / treasury / strategy roles. Many of these corporate roles are seeing higher pay than in previous years as the war for talent increases. It is true that many people who spend years in research and who go to hedge funds don’t end up much better off - which is why I encourage those that want hedge funds to go that route quickly. Experience does you better opportunities at the biggest long only funds, and at corporates.
3) The job isn’t “lonely.” If it is lonely for associates, the manager is doing a piss poor job. I give my associates tasks including: calling companies for model clarifications, responding to simple client requests, collaborating data requests with sales and trading, taking with other teams when doing collaborative research. I encourage my associates to travel when it makes sense as well. The equity research job, both at the associate and analyst level, is a job about communicating with a wide variety of internal and external counterparties, which is frankly the best part of the job.
4) Upward may be increasing after stagnating for years. Due to a number of high profile departures of very tenured analysts to companies, mutual funds, and other positions, I have seen more young, “new” coverage analysts emerge recently across a number of firms. This is a great trend in an industry where internal promotion is historically difficult.
Thanks for doing this. Massive exodus to corporate this year at Media-land. Last year at Software-land.
Not a question, but a comment... What Fanalyst said right here is incredibly insightful/relevant and point 3 is hallmark best practices for Analyst managing Associates.
Thanks for doing this. I recently joined investment banking after my MBA and have realized it’s not for me. I’ve always been obsessed with the equity markets and have contemplated moving to a research role. I like both research and talking to clients so it seems like a good fit.
1. Do you think it makes sense for someone in my shoes? I would obviously take a pay cut but don’t know what to expect. I expect to make $300-350k this year, what do you think I could make in ER?
2. BB/Boutique/MM - What do you recommend? Which do you expect to focus on research going forward?
3. Do you need to be in NYC, SF or CHI? Can you recommend any decent research shops outside of the big metros?
1) Pay cut could be substantial - 1 first year associate (meaning corporate total) could be among 200K all in or less. If you are coming from banking, the hiring firm may try to accommodate you a bit, but that level (post MBA) is probably where the pay gap has brown the widest in recent years
2) There are some very strong boutiques and specialized MM firms, but over the long run, bulge brackets have shown a need / desire to fund research, and deal flow will be there
3) Most hiring is still in NY. Some firms (Goldman) have offices in Utah, and there are middle market firms elsewhere (Tampa, etc)
Would highlight Baird Milwaukee, RayJay Tampa, Truist ATL and Stephens Arkansas as decent middle market options. Many bulge healthcare ER teams are in Nashville too.
Thanks for doing this. How do you feel about your associates leaving for exits? How many grads typically stay on to become full covering analysts?
Thanks so much for holding this Q&A. My questions are the following:
1) I see analysts and firms trying to get away from the traditional research report and leveraging multimedia, podcasts, etc more (who knows if this actually works or not). Sentiment around ER will remain the same - there are always clients that need help getting up to speed on a name, getting access to corporates, news flow, and such.
2) Without getting too specific, Evercore continues to do well, and Truist/RayJay seem to be growing.
3) The best analysts actively mentor team members (by accentuating their strengths, helping them to improve weaknesses) and give them ownership of things that they can handle, increasing responsibility as they mature
Glad to see you handle it this way. Please keep taking the time to talk to your juniors and guide them.
Stop trying to make ER podcasts happen.
Sincerely,
Buyside.
How much of the your firm's business do you think comes from research vs strong trade execution? If execution is weaker than peers, can a strong research franchise overcome that?
Based on your tenure in ER so far, have you seen people going from buyside to sellside? Personally I've seen some sellside that went to buyside for a while, but came back afterwards. When would it make sense for buyside to go to sellside? Would you suggest such a move?
What are some of the characteristics of your favourite clients? What questions do you hate getting asked in analyst calls? How can clients help to get analyst recognized if they really appreciate the work (other than brokers vote/feedback?)
Also, not sure if you were in a IPO/SPAC heavy sector like internet/biotech but always just curious how did you guys manage both earnings coverage and deal roadshow. The deal activity last year just seemed insane when there's like 10 deals launching every week in 1H
Who decides what gets covered other than deals that your bank helped underwrite? When you publish an initiation note, is it a matter of seeing who can publish the fastest since most initiation notes are basically repeating the same thing from S-1...
Thanks for doing this!
1. What are your top tips for an MBA candidate joining ER as an associate (corporate title) to hit the ground running and succeed in the business?
2. Would working in a not so active sector in ER dampen your exit opportunities to say top HFs?
3. How has your role changed as you are now a full coverage analyst and VP? Was the journey to make VP a lot longer than your IBD/S&T peers?
Curious what your thoughts are on when this push to grow coverage at banks plateaus? Used to have an analyst and his team covering 15-20 stocks and now it is not uncommon to see teams covering 40-50+.
Hopefully it plateaus soon, but I don’t see it reversing as many banks see it as a way to drive efficiency / control costs, and many analysts see it as a way to maintain the broadest relevancy possible
Noob question:
40-50+? how many people in a team? Seem like it is really stressful to cover that many.
It certainly isn't not stressful. Typically the more mature teams will aim for 8-12 stocks per associate, but that number keeps rising and I wouldn't be surprised if 12-15 becomes the norm in 18 months. Sometimes there's some variability in a space like MLPs where companies are fairly commoditized so they can cover more stocks per person. But 8-12 per associate would be a good rule of thumb for larger TMT/Consumer/Industrials/Healthcare franchises.
ER teams can be anywhere between 1-15 people. High demand sectors will see teams of 10+, while low interest sectors might just be 3.
At what point did you feel like WLB was improving? Couple years in I find that you're constantly taking on more responsibility without giving up any prior responsibilities. Hard to get excited about launching on more names, taking on lead coverage of some names, or finding more marketing opportunities when you already have a full plate of 12-15 stocks you're responsible for as an associate.
Thanks for doing this. I’ve been working on an internal training guide for our analysts and would love to get some insight from you on a couple of questions:
1) What training materials do you run ER associates through? Are there any financial modeling vendors you like or prefer?
2) What are some resources you have for training associates on how to derive and craft a revenue build?
3) How do you train associates to develop differentiated views?
4) What other tips can you pass on regarding the process of equity research, model building, and model maintenance can you share with us?
Thank you!
1) Why not move to the buy-side? How does the comp compare to being on the buy side?
2) How many hours a week do you work? What are hours like during earnings season?
3) Do you have a CFA? Any plans to get one if not?
4) How plugged in are you during vacations (vs. barely checking your phone until post-vacation)?
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