Are opportunities much worse than the IB-PE-HF route? Is it really just pods which are much more risky? Interested to hear how buy siders career progressed who came from sell side ER, any regrets?
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There are some SMs that take ER candidates, usually if they are focused on your sector or have sector specific teams. Look for HFs that historically have hired from ER.
For the most part 90%+ of exits i see from ER are MM. then again, probably 70-80%+ of hiring in general is to MM or MM-like funds (Holocene, etc).
Huh. SS ER exits better to MMs? I'd have thought ER exits better to SM since they're the more fundamental guys and SM L/S is pretty much the same job they do on the SS. Interesting
It doesn't make logical sense, but that's how the industry is
"SM are the more fundamental guys"?
What are you talking about
You got it reversed. SS ER exits well to MMHFs because they are looking for people to hop on coverage right away to churn and burn models and be intimately familiar with a smaller universe of names and be well versed in dissecting the market perception / sentiment of the names. SSER prepares you well for this because you are spending all of your time on the coverage already, with added bonus of more specific industry knowledge + fielding questions nonstop from buyside + connecting with management teams. So you are on top of the core drivers for a coverage pretty well (at least when it comes to basic market perception).
IB into PE gives you a more rounded experience when it comes to understanding how management teams think about creating value as owners of the business and driving shareholder returns. You spend more time becoming technically competent when it comes complex modeling (as in IB you will ideally have modeled out more situations in a company's life cycle) and then in PE you get added benefit of (potentially) strong investing skills where you dissect unit economics of different business, competitive moats, etc. - again with the lens of an operator and understanding what businesses can expand shareholder value.
This is a very very broad generalization, but again that is why recruiting paths exist - generalizations that make it easier to find qualified candidates that are well prepared to step in day 1. So the thinking tends to go that the IB into PE people are better for the longer duration more philosophical analysis of business quality and value creation, while SS ER are well prepared to quickly capture sentiment on a name, isolate the drivers that the market is focusing on the most, and more intimate experience already in the specific smaller coverage universe. The reality is that it obviously doesn't fully capture that you can build skills across all of these things, and it may not necessarily make you a better fit for one or the other, but thats just the thinking behind it AFAIK. As well as most investment processes are actually more similar than you'd imagine for most fundamental L/S funds (see my other thread where I ask about this).
Great answer. Thanks
Broad generalization here, but would you go so far as to say that IB PE guys are more skilled at what they do, than ER guys are at what they do, purely just cuz IB PE hours are longer than SS ER hours so they 'wax on wax off' more than SS ER
Thank you for the write up, very well-written.
It makes sense that those who go through IB and PE have experience modeling a greater breadth of transaction type, which would be more relevant for an activist HF. However, in ER, the day-to-day even at a junior level — answering buyside questions, writing fundamental reports, understanding market levers and the finest nuances of a specific industry, in addition to some pretty legitimate modeling — seems more attune to investment-oriented thinking than the intricacies of excel and PowerPoint central to the IB junior experience.
To me, applicability doesn’t seem to be the bulk of the reasoning here. It’s more that, as others have said here, there’s a certain “quality control” to the Ivy -> BB or EB IB -> MF PE path. No one without the required social capital, work ethic, and raw ability can fake such a path; it’s a “safe” hire for a Tiger Cub. Sure, there are plenty of people in ER with more applicable experience (maybe even most) and just as much intelligence and skill…and some of these people do place. But it’s a game of averages, and I suppose that there’s a certain prestige to IB that outshines what might be a more “applicable” field. It’s kind of like how an average business major probably knows more about finance than an Ivy history major, but that’s not why the banks would prefer the latter.
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Is it just the prestige trap of IVY/IB/PE?
I never understood why SS ER does not exit well into SM. My only theory after all these years is that it's a prestige thing.
If I had to generalize, "on average" SMs care more about 'prestige' than MMs and "on average" prestige is ranked as PE > IB > ER, and therefore it's harder as an ER background to exit to SM than MM. There is a perception that SMs are more fundamental and MMs are more tactical. Again, "on average" this might be true, but here the distribution has fatter tails. I know many MM analysts and PMs that are more fundamental than a median SM guy. And SM guys that are shallow and more tactical than a median MM guy. This spectrum is further complicated by the fact that more and more SM analysts have been jumping ship to Big 4 in the last 12-18 months.
In general, the best candidates / students have been going the IB / PE path for the last 10-20 years. These jobs are much more selective and pay better than their ER counterparts. I do think this ultimately matters when it comes to HF recruiting a few years down the line. The experiences are important but the quality of candidates matter as well.
Disagree on the much more selective. Plenty of ivys/targets/non targets in both IB and ER. ER has much fewer seats so I’d say landing a job is equally as hard.
I guess an EB would be a clear outlier
Disagree with your point. Yes, there are fewer seats, but most students generally want to go to IB / PE. There are of course exceptions, but I would venture to say 90-95% of top students at the target schools would rather pursue IB / PE than ER. The top students aren’t going to be ER associates… they are doing IB at GS/MS/Evercore or PE at BX/KKR/WP/Bain. Why would you go into ER which has been in structural decline for the last 10-20 years and pays much less out of college?
As someone who also came from ER background way back when, I wish this was true.
But objectively speaking, IB is more difficult to get into than ER despite the difference in number of seats. I think this is not even debatable at this point. The days of ER senior analysts taking home multiple 7 figures from banking fees are long gone, and these days ER is mostly seen as a cost center except for the 1 out of 10-20 top ranked analysts, that actually do real research or has commanding presence in their covered industry still.
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