Would you rather hire a junior out of IB or LO AM?

Your fund is hiring someone with 2 YoE. Would you be more likely to hire someone out of a solid IB coverage group (ie BofA, not GS TMT) or out of a research associate program at a solid long only asset manager (ie MFS, Lord Abbett, Brandes -- not Ruane Cuniff, D&C, Wellington)? Why?

(maybe specify what kind of fund you are. I am thinking mainly about SM fundamental equities)

Comments (21)

Aug 9, 2022 - 10:20pm
dickthesellsider, what's your opinion? Comment below:

Are you asking me to decide whether I will hire someone with directly relevant experience and one who doesn't? 

  • Intern in IB-M&A
Aug 9, 2022 - 10:30pm

I don't think it's as cut and dry as you're framing it. IB & PE people do very well in HF recruiting and largely populate the ranks of the top funds, even though SS ER (for example) is at surface level a much more relevant experience.

I recently spoke with a senior IP at a top fund who explicitly said many HFs prefer junior candidates without prior public equity experience, because they don't come in with a preconceived approach to equity investing and thus it is easier to mold them to the particular investment style of the fund.

Aug 9, 2022 - 10:33pm
dickthesellsider, what's your opinion? Comment below:

That's fair. Preconception is a huge issue - I have been through it as a LO-minded working at a near pod-shop like start-up environment. 

So you have spoken to people, clearly got the answer that seems to be quite valid, why are you even asking this question then (when you already know the answer)? 

  • Quant in HF - Other
Aug 11, 2022 - 9:09am

I don't think that holds much weight. Certainly not in my experience. Funds I've worked for desire cross-pollination of ideas, and they frequently recruit from other funds. This is especially the case at a MM where there simply isn't a predominant "investing style". I strongly believe you want people with a broad range of experiences and expertise. LO AM may not have as much relevance to a market-neutral MM, but there are long-biased strategies, and hedging can always be taught.

Aug 12, 2022 - 5:44am
HFPM, what's your opinion? Comment below:

I don't think it's as cut and dry as you're framing it. IB & PE people do very well in HF recruiting and largely populate the ranks of the top funds, even though SS ER (for example) is at surface level a much more relevant experience.

I recently spoke with a senior IP at a top fund who explicitly said many HFs prefer junior candidates without prior public equity experience, because they don't come in with a preconceived approach to equity investing and thus it is easier to mold them to the particular investment style of the fund.

This. Exactly how I hire. Less about style if the fund and more about learning my process

  • Analyst 2 in HF - EquityHedge
Aug 10, 2022 - 1:45am

For me: LO > ER > PE >>> IB, for most of industry: PE>> IB> LO~=ER

Aug 11, 2022 - 8:22am
Sequoia, what's your opinion? Comment below:

Why did this get MS? Is there really an IB analyst that triggered that you wouldn't immediately jump for their dime-a-dozen background?

Most Helpful
Aug 10, 2022 - 7:28am
herzyherzy, what's your opinion? Comment below:

As someone hired out of u/g with both internship experience in banking and hedge funds, think it's so PM dependent but I'd prefer someone with banking experience FT but potentially having interned at a HF. Think too many people these days from banking go to the buyside with no real intention or desire to do any particular job, they largely realize that's the natural path. Someone who perhaps interned at an HF but realized the conventional route was via IB is probably the best bet. But I think being in a LO AM role, you're 1) largely exposed to an investing style early on and 2) may have a difficult time learning to short sell / have neutrality in a L/S setting. What I mean by this is: being exposed to a LO fund who's typically leaning bullish in all regards is just a very different method of investing than L/S is. LO AM also can vary deeply across value, growth, large cap, small cap, etc. I think studying under that role early on can teach you to be an exceptional investor, but there are limitations to transferability in L/S - so unfortunately disagree w/ Dick here.

In essence the better L/S analysts are just raw "company analyzers" mixed with a half trading, half investing style. Recall across L/S there's different styles and durations as well, but at the analyst level your job is to spot pattern changes and inflection points in companies and then profit in both directions. A LO AM guy has been taught to screen effectively across their strategy and allocate capital appropriately to assets they believe can outperform in the medium/long term. They've been taught what makes a good holding, not what necessarily makes a good trade. An IB guy has no pre-conceived notion about the public mkts and likely has spent very little time focused there. He or she will know the basic fundamentals of a PnL / cash flow statement and can understand what makes a company 1) profitable and 2) good at allocating capital. He or she will understand the strategy that goes into an M&A strategy. But they'll have little to no understanding of what makes a good trade or investment and as long as you, the PM, are willing to hold their hand a little bit to lead them through the woods in the public mkts; given they have the passion for it can be a worthwhile hire.

Aug 10, 2022 - 4:38pm
dickthesellsider, what's your opinion? Comment below:

Haha, I am not building public presence with the hopes of finding agreements. Plausible arguments with good reasoning (and polite delivery) make me grow. 

  • Intern in HF - EquityHedge
Aug 10, 2022 - 4:48pm

What would you say the biggest weakness/issue you would have with a typical MM analyst hire is? i get you see the short-term market/beta neutral style aligned closer with trading rather than investing in the traditional definition of the term but i'm curious how (if any) your experience with Citadel/P72/whatever hires has been. We spoke earlier and you mentioned they tend to be the sharper guys on analysing specific names but how much has their factor/beta neutral investing XP affected your ability to innoculate them into a different strategy compared to the IB guys who also tend to be adept at looking at a company's profitability who have little to no prior market expsoure. 

Aug 11, 2022 - 7:58am
herzyherzy, what's your opinion? Comment below:

Biggest weakness is understanding the components of an investment. Again these guys are making bets across quarters that they think the company may miss or beat earnings, and the corresponding guidance will land here and that drives the stock on any given earnings day. There's just tons more that goes into successful investing and short selling but they don't have the duration to be making those 6-18 month bets, or in a LO capacity 2+ years. The large majority of capital is LO guys holding names because they have a LT thesis, or they feel they've identified a quality company trading at below what it's worth on that time frame. The SM model is meant to prove and/or disprove a LO thesis in some cases, where a LT holding has unforeseen obstacles and headwinds that make the underlying fundamentals less attractive over time OR they believe a name could be underowned where fundamentals are actually a lot better, and LO interest should increase as a result.

Think overall the MM guys are just super deep on a sector and know everything about the companies in the industry, so it makes them very knowledgeable. To the point above I'd doubt most LO guys know the cost of a car window and aren't betting the house that those glass costs are what's driving the miss in the quarter; simply put they don't care. Being forced to be both market & factor neutral shifts your mentality to extracting alpha between very similar companies and understanding the marginal drivers between businesses. What they lack is the ability to see how the ground can be moving underneath them - i.e. a great example would be autos to that same example. They may be betting that Ford increases production and are at trough numbers and that's why the stock should outperform after beating estimates. What they aren't realizing is that Ford's increased production is actually driving margins to over-earn and so when they start to ramp up EV investments simultaneously with increased production they're actually going to be far less profitable per car for the next 2-3 years. That has implications for the resulting valuation + fundamental earnings power over that timeframe. 

It's almost like they're missing the forest for the trees in the purest form of that cliche. Again though investing can be very subjective so what matters to different pools of capital doesn't have to be the same it's just the one consistency in investing is that companies are worth the value of their future free cash flow, pods are making near-term bets on the shorter dated velocity of that changing while maybe missing the big picture about trajectory.

  • PM in HF - EquityHedge
Aug 10, 2022 - 12:20pm

I can see how LO can be a bit of tricky situation. The LO candidate would be much more knowledgeable about stocks than his banking peer, but the LO candidate would have to come from a group that is stylistically consistent with the HF he is interviewing at. For example, if the LO candidate worked in small cap value, I can see how a growth-oriented HF manager that invests in larger names might not be interested (even though the LO candidate can probably change course pretty easily).  

Aug 10, 2022 - 4:35pm
jasp88, what's your opinion? Comment below:

Why aren't there more people from solid long only asset managers (structured associate programs) at the above-mentioned shops? Is it simply because the associate programs at places like MFS, Lord Abbett, Cap Group etc are so small?

Aug 11, 2022 - 8:28am
Sequoia, what's your opinion? Comment below:

LO AM is arguably the best seat in finance. Comp will likely be higher in IB / PE / HF but nowhere else in finance do you have the combination of a) good comp (Analysts make anywhere from 300k to high-6 figures on comp alone, not including partnership), b) reasonable hours (50-55hrs per week run-rate) and c) intellectually stimulating work (lots of thinking, reading, creative work in excel, speaking with CEOs, traveling to interesting parts of the world)

These seats are incredibly few in number and because of above dynamics, there's very little turnover at the Analyst / PM level (why would you ever leave with this type of gig) so that limits the pipeline of opps. You also have more fee pressure and underperformers (majority of industry in Equities world) that are going out of business which further limits seats. Fee pressure is the big negative headwind so unless you're at a top decile manager I don't think it's worth getting into the industry as # of seats will keep shrinking every year. So the space has its challenges

Aug 12, 2022 - 6:55am
Monkey_47, what's your opinion? Comment below:

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