Some of these messages are very old but I'm going to answer them anyway b/c I’m in a helpful mood.
Question: How would I know what the career path for [this particular hedge fund]?
Every fund has their own "career path"...it just depends what the founder thinks. Some give a shit and want to develop junior people. Others don't care at all and will churn and burn you. A good proxy for a quality career path is employee turnover. Are guys sticking around or not?
Question: Also, how do you tactfully talk about salary?
As long as you’re at a quality fund (which doesn’t mean high AUMs), don’t worry about salary for your first buyside job. LEARN. Honestly, most new guys are useless for the first 1-2 years and are basically highly compensated apprentices. Realize the skill sets and mentorship you get early on will materially compound your value over time.
Question: I saw that you mentioned you were going to post a case study awhile back and was wondering if you could possibly send that to me? I am trying to read and learn as much as possible about the industry before the recruiting process kicks off in April
Sorry about the delay. I’ve been buried in a bunker the last 12 months. I hope you got a gig after the April recruiting process. Don’t know if I have time to put together a case but generally I put together scenarios that require candidates to think about what a company is trying to accomplish based on the financials and supplemental information. Can you figure out a company’s strategy based on deconstructing the financials and supplemental disclosures? What’s the catalyst that will drive value creation? This requires looking at the segment data, incremental ROIC trends, changes in capital intensity, etc.
Question: [Paraphrasing] Should I (first year analyst) jump to HF after first year or wait until the second year?
It’s up to you. I’ve seen people have success leaving after 1 or 2 years. It actually might be helpful to go through the process your first year with some funds to get a feel for the questions you’ll be asked and see if your modeling/finance skills are competitive. If you get an offer…great. Otherwise you have another year to focus on areas to improve in order to be a competitive candidate the second year.
Question: What key areas would you focus on to determine if you should take a long position on the target in a merger arb position?
I really don’t do merger arb situations. I’ve been fortunate enough to be invested in a few companies that were acquired and I usually always sell on the day of the acquisition announcement and don’t bother waiting for the deal to close to get the incremental cents/dollars. I let the merger arbs deal with that lol. That said I’ll take a crack at the question…I’d key in on:
1. The size of the target relative to the acquirer. Obviously a bigger deal takes longer the close.
2. The financial health of the acquirer. Can they close the deal without relying heavily on the capital markets? Is it a cash deal or does it require debt financing?
3. The structure of the acquisition. Are you getting cash or is a portion of the buyout some random security/warrant (which may or may not be an opportunity)
4. Regulatory issues. Are these companies playing in a highly concentrated market and would get a lot of scrutiny from regulators?
Question: What do you feel is the "best" route to be a PM and why?
This is going to sound really broad, but a good route is to find a role where you are given a lot of responsibility and freedom to find names/investment situations (or at least a role that eventually leads to this kind of responsibility). I started out analyzing specific names curated by senior people but now am responsible for a bunch of sectors and pitch/find my own names. You learn very quickly that you must pitch ideas in the context of the whole portfolio (is there already a ton of exposure in an existing position, etc.).
Question: Can you be a value investor and utilize an event-driven investing strategy?
Yes. Value stocks without a catalyst are value traps.
Question: How do I transition from non-brand IB (with non-brand school credentials) to HF?
This is a challenge if you’re trying to go through a headhunter. They act as filters and would honestly get run out by a HF manager if the resume book had a bunch on non-brand name people (i.e. “What am I paying you for?!”) . It is what it is. If you want to make the jump, expect to put in some leg work. Identify funds you’re interested in (smaller is probably better since the bigger institutional places can be snobby) and start sending quality pitches or critiques of existing positions. Great analysis/ideas coupled with hustle trumps brand.
Question: Are there any books that will prime me on capital structure theory at different stages of the business cycle?
Not that I know of. I learned on the job. Although you an learn a ton reading investor letters from smart investors.
Question: Do you know of any other blogs that are written in the spirit of Distressed-debt-investing.com?
Nope. That site is solid. You can always check out valueinvestorclub to get some flavor on equity analysis (some of those write-ups suck though)
Question: If my ultimate goal is becoming a PM at a Hedge Fund, would the BB Analyst Role or Buy-Side (Traditional Asset Management) serve me better?
Depends. You can learn a ton analytically at the right asset manager, but the modeling skills that many funds are looking for is best found at investment banks. Also, many headhunters are given a clear mandate to look for BB analysts. And to be honest, the recruiting pipeline is already very established between the banks and headhunters…why put in the effort to make inroads with an asset manager that doesn’t have the kind of churn a bank annually produces.
I'll chime in on the banker vs. ER discussion.
I hired two people earlier this year to help me at a top L/S fund. It was very difficult to find what I wanted, and I ended up interviewing ~50 people before making a decision. My general impression was that nobody knew anything about anything, even if they had worked in junior roles on BB M&A teams or even at other well known HFs and PE shops. So it was more about fit, potential, and the likelihood that they would stay with the firm for a few years. As Mr. Pink implied above, it's not really worth my time to train someone who leaves after a year or two. Where I work, we ask for a minimum 4 year committment -- basically two years to move up the curve (people are practically useless for the first year) and then two years of solid contribution. Of course, no one HAS to stay, but that's what we are looking for.
I found that bankers had better technical skill sets in terms of modeling and valuation than the ER people I met. The investment style of the firm is looking at whole businesses, and bankers were also better at that, versus ER who seemed much more concerned with what the stock was going to do in the next 10 minutes (which we don't care about). Someone who thinks they have a call that a company will beat EPS by a penny next quarter and that the stock is 20% undervalued in that context is not going to make a good impression on me. OTOH, someone who pitches me on the stock of a company that has a clear value proposition and would be a good buyout candidate in a consolidating industry, but which is trading at a low multiple with good fundamentals is going to make a much better impression.
My ideal candidate would be a smart liberal arts major with solid accounting skills and a couple of years of experience in finance. You don't need a CFA or MBA to work here, and I don't care where anyone went to school. I'm looking for someone who loves to learn, is entrepreneurial and aggressive in finding information, and who knows enough about the technical aspects to get us on the map. Someone who loves games would be a plus (chess champion, poker player, Risk, online strategy games, etc.). We employ people who are good at all of those games, and if you claim to be good, we will test you (lol).
My advice to anyone starting out in their career is to take a job where you will learn as much as possible. I made an offer to someone three years out of UG who had worked at GS M&A who was considering our firm and a well known PE firm -- he chose the latter because they offered him more money. I told him it was probably a mistake, that he would be 8th man on the deal team and wouldn't learn much of value. About six months later, he called me and said he felt stuck in his current role (manning the copy machine or whatever bitch jobs they gave him) and wanted to know if he could take me up on the previous offer. I said no of course. If you look at the entirety of your career, it's obvious that the goal should be to maximize your NPV. First year earnings are not the priority.
Just my opinion, it varies widely by fund.
long time reader, first time poster. My background - 2 years in M&A group at boutique, now 5 years buyside equity research at two different smaller hedge funds. I will try to avoid saying "it depends" and share my experience.
1) Day in the life The time you arrive in the office is dictated by when your morning meeting or call is. Before this, it is your job to round up all the news (company and industry) and sell-side notes from the prior evening or out that morning. You'll want to do a lot more than re-hash the headlines - providing commentary on industry news and how it affects the portfolio is what a good analyst does. You'll also want to see where the names you cover are trading pre-market, in case there is something you missed.
Morning meeting - go over news/ events with team. Discuss new ideas, research you've completed, or update your PM / the team on where your research is pointing to. Also discuss how you will be spending your time. PM may add new names to your list, re-route your research, or re-prioritize your efforts. Meetings tend to be under 1 hr, so this is where it is important to "communicate effectively".
Back to work - check portfolio for any dramatic moves and why. Be prepared for a call at any point in the day - "XYZ is down 4%?! Why? Find out!". You'll also be getting calls throughout the day from your sell-side brokers pitching you on ideas, lunches, conferences.
What is actual work? The basics are reading filings, transcripts, flipping through presentations, speaking with management, attending both industry and wall street conferences. Modeling is more of a "check the box" in most cases. I don't mean to be dismissive, but the best models I've seen from people I work with are ugly and simple. Quick quarterly models with a few key drivers that can give you a upside/base/downside EBITDA/FCF/EPS/Cash EPS number.
In my roles, I've also spent a lot of time generating "primary" / "proprietary" research. Channel checks, calling people throughout the industry to get the latest scoop, supplier/customer calls, former employees, etc. This tends to be difficult work for a lot of people and can really make you stand out. As i've talked to others, this seems to be growing in importance (perhaps b/c everything I mentioned before this is publicly available and looked at by thousands of people).
Having said how important it can be, in reality, I think it's more confirmatory due diligence. Occasionally you can get a gem, i.e. customer says "we haven't ordered in 2 months, got 4 months inventory", but more often then not it is very qualitative - dealer/salesperson says "business has been slow, but good pipeline". You need to use that, along with the rest of your work to figure out if that is priced in. In my experience, this kind of work is never handled with enough rigor, but I'd be interested to see what others have seen.
If you come across a gem, or complete your work on a name, you'll probably circle back to your PM to see if they have free time (often after the close) to discuss, get feedback, make plans to answer new questions, etc.
After the close, it's more research. Make due diligence calls to west coast. Keep an eye on the calendar and know what is coming tomorrow and what you'll need to be prepared for.
2) Superstar - being prepared/not missing anything. The worst is when a stock has moved 5% and you tell your PM it's b/c of a conference they are attending nearby that you missed and you don't know what they said that is making the stock move.
Low level analyst - provide data (headlines, regurgitate sell-side research, etc.) Superstar - provide insight from data, have an educated opinion, do differentiated work, understand what the street knows and what they are focused on
3) modelling - unless you are talking about some type of corporate event, models aren't that hard. The key is understanding the catalyst in the stock, and if/how you can incorporate that into your model.
4) maintain models - I do. Even if it is a name we've passed on, I try to keep them up to date. Best case is that the stock of a company you know well tanks one day and you can buy it cheap. You need to be ontop of your PM at 9:30am getting him/her to buy and have all the up to date info
5) Pay - I did 2 years banking, now in my 5th year buyside. I make $200,000 all in because I work for a smaller firm that has struggled recently (frustrating). Peers of mine at firms that haven't had troubles are making $200k to $300k (is my understanding). A few are at $400k or thereabouts. Not sure what ER associate makes. Anyone else care to share their comp?
6) Hours per week - typically, I would say I work 8am to 630pm. It moves around. I see my peers online and go offline and get the sense they work similar hours (maybe a bit later).