Credit vs Equity for a Long Term Career

Didn't really do much thinking here so keep your hate to yourself, but do you think that with a higher neutral rate + sharp rise in quants + more comprehensive data being available that equity investing isn't going to be able to produce as much alpha and is going to shrink dramatically and a bunch of people are going to be jobless.


Now before you go apeshit and say "a quant can't analyze a fundamental change in a business/industry/etc" there is also going to be a lot more people playing in the same names for various reasons which will naturally leave less alpha on the table (too much money chasing too few ideas). Part of that comes from the LO shops which are going to be cutting headcount (because of the move to passive). Part comes from HFs and PEs consolidating.

Obviously equity is still going to be there and there is still alpha that is going the be generated but if you were to start your career right now I think making an argument to lean towards equity would be hard (at least in public markets). I'm not trying to stroke the 'golden age of credit' that everyone and their mother is raising capital around but will equity be nearly as profitable as it was over the last 30 years going into the next 30. 


Also I'm not saying this is going to happen overnight but over the course of a 30 year career you start to wonder.


TL;DR: Is equity a dying asset class from a career perspective?

 

Based on the most helpful WSO content, the debate between the viability of a long-term career in credit versus equity is a common one, and there are several factors to consider:

  • Rise of Passive Investing: The shift towards passive investing strategies, such as index funds and ETFs, has been a significant trend. This has led to a reduction in the number of active equity management roles as more capital flows into passive vehicles.

  • Quantitative Investing: The growth of quantitative strategies has indeed changed the landscape of equity investing. Quants use algorithms and models to identify investment opportunities, which can sometimes limit the potential for traditional fundamental analysis to generate alpha.

  • Data Availability: With more comprehensive data available, the edge that equity analysts once had may be diminishing as information becomes more accessible and actionable by a larger pool of investors.

  • Market Efficiency: As you mentioned, with more capital chasing the same investment ideas, the market becomes more efficient, potentially reducing the opportunities for outsized returns (alpha).

  • Industry Consolidation: The consolidation of hedge funds and private equity firms could lead to fewer job opportunities in the equity space as larger players dominate the market.

  • Credit Market Complexity: The fixed income market is vast and complex, offering a variety of roles and opportunities for those interested in credit.

  • Interest Rates and Market Cycles: Interest rate environments and market cycles can affect the attractiveness of credit versus equity. For instance, in a rising rate environment, certain credit strategies might outperform equity strategies.

In conclusion, while equity investing may face challenges, it is unlikely to die as an asset class. There will always be a need for skilled investors who can navigate market complexities and find opportunities to generate returns. However, the industry is evolving, and those entering the field should be prepared for a landscape that is quite different from the past 30 years. It's wise to stay adaptable, continuously learn, and consider diversifying one's skill set to include understanding both credit and equity markets.

Sources: https://www.wallstreetoasis.com/forum/asset-management/will-asset-management-industry-just-wither-away?customgpt=1, Is Long/Short Equity Hedge Fund Dead??, HF Industry Dying?, Will asset management industry just wither away?, Q&A - Analyst at $1.5B Endowment Fund

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

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