Do new analysts get poor coverage at SMs?

People talk about great SM shops like Tiger Global or whatever but surely these places have analysts covering all the interesting and good names already no? What's the lure to join if you only get to cover the remaining scrappy companies (most likely names that the other analysts that have been there before you have passed). Don't know the culture but I assume analysts will likely be very territorial about the good names so that doesn't help either. Or is the passive learning and comp good enough such that it becomes better to just wait it out until people leave so you can pick up that coverage? Curious to hear any thoughts

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Comments (11)

Apr 12, 2021 - 3:40am

Don't you get to generate new ideas? So yes you may have to cover the leftover companies nobody wants to cover but you can also bring new companies to the forefront to your PMs once you've done your due diligence and eventually earn their respect as a newbie.

Apr 12, 2021 - 8:46pm

Has it ocurred to you that if you think you deserve to get paid millions per year, maybe the job is harder than just recommending FANG stocks and sitting on them for a decade?

Apr 12, 2021 - 11:41pm

Nope. I don't even know the meaning of the word 'deserve'. I think I saw it somewhere in the communist manifesto though. Maybe there was a 'does not' in front of it, or a 'labor', or a 'seize the means of production' idk.

In all seriousness, what counts as idea generation at hedge funds and 'coverage groups'. If you come up with a trading strategy for something in someone else's coverage is that essentially a faux-pas? If you're not in the coverage of a stock but still have a strong value thesis for it can you produce work product related to it? 

And last, say you were some brilliant analyst that told your team to buy FAANG stocks way back when. What do you do every year? Almost certainly the best pure investment decision is to tell your bosses, 'keep holding', but is there pressure to generate new ideas/reallocate some of the capital in those holdings, even when they are still doing very well and you expect them to outperform anything you can possibly suggest? I always get the feeling that hedge funds are very much a 'what have you done for me lately?' kind of place, that might frown on being told to continue holding Amazon for two decades.

Array

Apr 15, 2021 - 11:16am

No large hedge fund has owned all of faangm consistently.  And there has been huge dispersion among that group year to year. If you were long Nflx, short or on sidelines Aapl in 2019, your performance probably sucked.  If you were consensus long Fb in 1h18, got blindsided by 2q call, added at first, took more pain and then got shaken out or sized down late in the year so weren't still there coming into '19, that didn't work out too well for you!  Even charts that look like 'one decision stocks' when you zoom out with hindsight often had multiple significant drawdowns and controversies along the way.  Trading opportunities if you're shorter term or more commercial, sizing opportunities if you are longer term or more stylistic in approach.

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  • Associate 1 in IB-M&A
Apr 13, 2021 - 7:04am

MMPM

Has it ocurred to you that if you think you deserve to get paid millions per year, maybe the job is harder than just recommending FANG stocks and sitting on them for a decade?

OP here. Of course it's harder than that. I just think your job becomes infinitely harder (and why should you make it harder for yourself if you can choose otherwise?) if your universe is a bunch of crapcos and you need to make investment decisions with long term holding periods based on that. In the MM model maybe you can get away with that as you're running it very tightly hedged, and you can trade short term price inflections but I don't see how it works the same way in SMs that are longer term and take on the sector/factor risk. Maybe I'm just being overly extreme, I don't know.

  • Associate 2 in PE - Other
Apr 13, 2021 - 8:25am

I think you're being overly dramatic with this view. Just because no one actively covers a company doesn't mean its been written off as a shitco, it just doesn't have attention for a variety of reasons. Why would a fund hire someone to cover companies lacking coverage if a decision has already been made they're a pile of shitcos? Don't forget that no one analyst is the same and businesses are always evolving...something that may not have looked good 6 months ago could be interesting today and vise versa. 

  • Investment Analyst in HF - EquityHedge
Apr 13, 2021 - 9:02am

You (understandably) have a misconception of how hiring and coverage works. The prestige SMs don't arbitrarily hire junior analysts to monkey around all day and pitch random ideas. They are brought on because an analyst leaves the firm, an analyst is promoted, or the firm expands into a new sector as a focus area. They are hired to support a PM or junior PM who is doing the thesis generation. It may just be the case that the analyst who left covered large-cap SaaS. That's a relevant sector for Tiger. Congratulations, you now are responsible for CRM, WDAY, and ADBE! Or, imagine that the consumer Internet analyst is promoted and given a mandate to hire two junior analysts for modeling and coverage support. You may just be the one modeling the FAANG names.

The important distinction here is that Tiger isn't hiring someone with two years of banking experience to pitch names on day 1. Coleman doesn't want or need that; he's got plenty of ideas himself, as do his PMs. Your job as a junior analyst is to learn the names that your manager pitches, and to learn the Tiger way of thinking about value creation. So it's not really a matter of picking through the names that every other analyst passed over, and more a matter of doing the support work for someone else who is ideating within a hot sector. 

Ignoring all of that, I would also posit that you don't really want to cover the "sexy" or mega-cap names. Take Amazon, for example. It's such a popular and well-covered name that you have to work materially harder to uncover a catalyst for outperformance. Particularly at a GARP firm like Tiger, it's a lot more exciting to find the next midcap breakout than it is to have a coverage universe of mega-caps.

Apr 15, 2021 - 10:59am

Sort of right, but depends a lot on the fund. Usually hiring is attached to a coverage and a need, and it should be.  But some funds are pretty flat, and some are more structured.  There are definitely firms where there's one pm and everyone else has the same job: pitch ideas.  Some analysts just have equity, a lot of exposure on, limited friction getting stuff in or out, and high comp.  And others are newer and have training wheels on.  Places that work this way, new analysts can definitely be stuck pitching nothing but shorts because a couple senior analysts just sit on chunky quality longs and have attractive coverage so there is neither coverage that aligns well with the fund's style bias on long side, nor political incentive to create room in the book by selling things, for new analysts' long ideas to be meaningful.  
 

Now, that's a very stupid way to manage a team, a portfolio and a business in my view.  But places that have giant low turnover style bet in the long book, and a higher churn short book that seems to exist mostly to justify the fees, can definitely work this way.  Those funds shouldn't really exist, but many do, and some are 'tiger cubs'.

I wouldn't paint tiger global with that brush, exactly, because they are legit. But they do share some traits with what I just described.

  • Managing Director in S&T - Other
Apr 13, 2021 - 10:42am

Come on people seriously... As mentioned above you are getting hired cause the PM has to fill a role/need. If an area had "low/vol", "was poor", "no read alpha edge" the role you are being hired would not exist. The PM is hiring you with a long-term idea/mandate in their mind its your job to get it done. No fund small/large is going to just hire people to cover random stuff.

The MM model is worse typically they are expanding/changing a pod...you are expected to perform even sooner.

Further not to scare anyone...but really think some of you miss how intense KenG/Chase/Iggy etc...is in person. 

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