Exit-Ops: Equity Research vs. Investment Banking - (A Definitive Guide, Part 2)

See part 1 here: Work/Life Balance: ER vs. IB - (A Definitive Guide, Part 1)

As someone who has worked in both areas, I wanted to touch on ER vs. IB exit-ops similar to my Work/Life balance post. Specifically, I'm focusing on details and clearing up some common misunderstandings. To give you some background, I exited from ER after initially doing IB. I wasn't set on any one exit-op and sent applications to just about everywhere and as a result got a pretty good feel on what's possible. Furthermore, the below post is based not only on my experience but the career outcomes of many friends, colleagues, and acquaintances in the business.

Asset Management

It's pretty well-accepted on the WSO forums that both IB and ER have a good shot at asset management, but which is better? Having worked with many buy side clients, I gotta say that it's a slam dunk for equity research. Don't get me wrong. There are a ton of people from IB working for hedge funds etc, but I ran into so many more with ER backgrounds. In my opinion, there are two reasons for this: more market knowledge and more contacts.

As far as market knowledge goes, you get way more experience in equity research. By my third year of ER, I understood more about my industry than your typical VP in IB. If you're working 80 hours a week in IB but 50 of those hours are spent on shading boxes in PowerPoint you're really not learning that much about the sector. An ER associate is working less at 60 - 70 hours per week but is following the market every second. Just do the math on those sample hours and you can see how an ER associate could overtake a VP in knowledge pretty quickly.

Another huge advantage is simply the contacts. In ER, you’re working with the buy side every single day. In IB, you never work with hedge funds, mutual funds etc. This part should be pretty self-explanatory. With either ER and IB, you’ve got a good shot, but if you’re really aiming for asset management, I’d recommend the ER route.

Private Equity

On private equity, I gotta say that IB is a slam dunk here. I really don’t know of any Equity Research Analysts currently in private equity. However, that said, I did get two private equity interviews when searching for exit-ops....unfortunately, they didn’t go that well. They liked my in-depth knowledge of the market but at the end of the day, they were looking for someone with more deal flow and modeling experience. They basically wanted an IB workhorse, not someone who knows the market.

Note that ER occasionally interacts with private equity but it’s pretty rare. If this is your route, I’d go with IB. However, if you're an ER associate looking for an exit-op, it wouldn't hurt to send a few resumes to private equity shops. As my experience showed, it's not likely that you'll get an interview but it's also not impossible.

Corporate Development

I used to think that Corp Dev. was reserved for the IB route. I mean it makes sense right? You’re doing M&A inside a company so it would make sense that you would have experience doing the same thing in IB. And yes, IB is probably the best route to go here, but at the same time, I’m surprised to know quite a lot of former ER associates working in corporate development. From my own experience, I managed to get an interview at a mid-cap. In my opinion, this is one of those misunderstood exit-ops. IB has an advantage but ER backgrounds seem to be able to consistently land these roles as well.

Investor Relations

ER is clearly the winner here, but I’ve seen a decent bit of bankers in the role as well, both from M&A as well as ECM bankers. The deal with investor relations is that lots of companies just pick some random person to take care of their IR efforts. In one case, I knew of a multi-billion dollar company which had promoted an executive assistant to director of investor relations….I’m not kidding. So yes, a banker has a shot at IR. However, if it’s ever a choice between a banker or a research analyst, the ER analyst will win every time.

Switching Sides

Not truly an exit-op, but I’ve seen a good bit of switches from IB to ER including myself. While this is very possible, at a certain point, it doesn’t make much sense. If you’ve made it to IB associate level, you’re going to take a major pay cut switching to an ER associate position. Also, it’s sort of like throwing away several painful years of IB. If you’re going to switch to ER, I would do it as soon as possible. If you can write well, most ER analysts would be happy to hire someone with a single year of IB experience.

The other way around is possible as well. I’ve seen several ER associates switch to being IB associates. I tried this route myself and did receive an IB associate interview. This is kind of an awesome route if you think about it. To go from ER associate to IB associate saves you a lot of pain. Instead of three years of 80 hours a week, you did two or three years of 60 - 70 hours per week and then got to the same place. That almost feels like cheating or something!

Unfortunately, this benefit goes away further up the ranks. I know several full-time ER analysts who have had to step down to IB associate in the switch – that’s worse pay for worse hours. In a very rare case, I’ve seen a rock star ER analyst move into an ED position. I’ve also once seen a full-time ER analyst move to a VP position at a LMM bank. The lesson here is pretty much the same. You can make the switch, but you want to do it the sooner the better. In ER, it can be worth waiting a few years to jump to IB associate but no longer than that.

Final Notes

The main takeaway from my experiences above is that there really aren’t any closed doors from either approach. If you can hustle, you can get open any door. On this forum, people seem to focus on very rigid formulaic routes. Is IB a way better route for PE or Corp Dev? Yes definitely. Is it impossible to get these roles through ER? Definitely not. The same goes vice versa for asset management or IR.

Networking

Also....just wanted to touch on two other topics regarding exit-ops. I would also note that a major advantage of ER is the networking. In IB, most junior analysts and associates never really get to meet anyone. The MD is trying to get face time with the client and so is the ED and the VP, plus the relationship banker and even the derivative sales guy. In most IB client interactions, I gave my card to the client and said nothing else in the meeting. In ER, I was on a first name basis with management teams and personally knew tons of people from the asset management world. If I met a management team, it was just me and the analyst. And then later on as an ER analyst, it would be just me and the management team in the meeting. Knowing so many people in the industry was a huge advantage in the exit-op search, and it ultimately got me my current role.

Examples of your work product

And one final thing which helped a lot during exit-op recruitment was the ability to show my ER work product. Yes, as an IB analyst, you can point to deal XYZ on your resume. However, you just worked on a small part of that deal. With my ER background, I would attach a 50 page industry report to an e-mail and could say that I wrote 90% of it. That's a pretty huge advantage.

Well jeez….that was a lot but as noted in the title, I'm trying to make this a definitive guide, but please do add your own experiences to make it even more definitive for others. I'll try to knock out another ER vs. IB comparison in a week or two but no promises. Thank you for all the silver bananas on the last post - I hope this one is helpful as well!