Hi there,
I'm an analyst in a sector team in an investment bank in London. As everyone, I was looking at private equity exits but I start wondering about hedge funds / tactical opportunities / spécial situations. I guess the ones where the IB skillset would be the most relevant are: long / short, Merger arbitrage and high yield hedge funds. Has anyone gone to HF from IB here? How do you think the skillset is transferable?
Thanks a lot,
Sonper
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Went from BB IBD to value/fundamental-focused L/S HF. The key difference I have found is in IBD you learn how to crunch numbers, but you don’t learn (at least I didn’t) how to “think like an investor” and develop investment theses. In IBD, you are taught to take management/consensus as gospel. The hardest part of the HF job is understanding company/industry fundamentals and thinking about what/how something could happen that is out of line with what consensus or management is saying. The DCF/multiples analyses consume probably 10-15% of my time now at the HF and they are much more “back of the envelope” style than what was expected in IBD. Makes the HF job more interesting, but also a lot harder to do it well - there are a lot of smart people around, and to think otherwise is arrogant.
Another way to think about it is in IBD, other people give you model assumptions (from management, or ER consensus) and you spend 99% of your time plugging that into some DCF/comps templates. On the buyside, your main job is figuring out what the right model assumptions are (i.e. revenue growth, spend, etc) and be able to defend why you are right and why consensus/management is wrong. You spend 90% of your time figuring out what the right revenue growth rate / margins are, and 10% doing a quick DCF/multiples analysis.
This was my experience at least, I’m sure others have had different experiences based on their funds’ particular strategy.
Not necessary at all. While you're working on a deal in IBD, actually use a chunk of your brain and think about the strategic reasons why the deal does or doesn't make sense instead of just plugging and chugging numbers in your model and deck.
When deals get announced, do a mini-case study for yourself and think about the strategic rationale.
Same thing when activist funds announce positions - work and and try to think about it like they did.
If you do all of those things, you'll be a lot further ahead then most, and worse case scenario if you don't get the "almighty buyside job" you'll be a more thoughtful banker than most around.