Ask a VP in Equity Research anything - 2018 Edition

It's been two years since I did the last one ("Ask A VP in ER anything" ), so I figured I would do one more.

Let's talk about the industry, MIFID, banks in general, trends in the industry, long term career outlooks, etc.

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Comments (76)

Feb 24, 2018

First of all, thank you for taking time to do this.

As someone who is beginning in ER this summer, is it feasible to expect to make a career in ER, or should I already be looking for exit ops for down the road?

Feb 24, 2018
ERorBust:

First of all, thank you for taking time to do this.

As someone who is beginning in ER this summer, is it feasible to expect to make a career in ER, or should I already be looking for exit ops for down the road?

I think it is feasible to make a career in equity research, but a challenge is that senior analysts historically stayed for a long time, so it was tough to get promoted to senior analyst. That could get harder or easier with MIFID depending on how things go. I would like to have a long career in the industry and believe I have a path to it, even with MIFID. That said, the industry may change dramatically in a few years... or it may not. Much is in the air.

You should always look at edit ops with any jobs. What attracts you to ER? Is it stock picking or investing? You may want to try to move to the buyside, and should consider that as an exit op. Do you like more of the client interaction side? Think about working in IR or even sales. Do you like the operations side? Going to a corporate is an option. You won't really know until you have a year under your belt

    • 3
Feb 24, 2018

Thank you very much for the reply. I find myself fascinated with stock picking, and particularly enjoy discussing and debating my decisions which makes me think I will enjoy the sell-side. I am interested in IR to a point, but would be fearful that it limits opportunities being pegged to one particular sector/sub-sector for the duration of my career after that role.

Feb 26, 2018

Thanks for doing this OP, Do you see anyone moving from IR to ER in the same sector?

Mar 4, 2018

That's not as common - though I guess it is possible, especially if the IR person is a former analyst

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Mar 1, 2018

Can you please elaborate on "MIFID?"

Mar 4, 2018

When we talk about MIFID, we are specifically talking about MIFID II - Markets in Financial Instruments Directive. For research, it basically means that institutional asset managers in Europe (mutual funds and hedge funds) need to specify how much they pay for equity research, disclose it to their investors, and decide whether they pass the cost on to their investors or absorb it out of their on fee structure. It also legally bars investment banks for giving away research for "free" or for charging for it as part of an overall package that includes prime brokerage, trading, etc. Basically the goal is that it puts a hard dollar amount on the cost of research in Europe. Theoretically, this would lead to asset managers spending as little money on research as possible, which leads to fee pressure. This is a European rule - it doesn't apply in the US. However, global asset mangers with offices in Europe have adopted parts of it.

    • 2
Feb 24, 2018

With MiFid II already implemented in the UK, what's your bank doing in preparation for its adoption in the US (assuming you work in the US)? Do you have any backup plans for worst-case scenario?

I'm interested in entering ER in beginning of 2019. Would MiFid affect the number of associates getting hired in the US?

Thank you. Love the username by the way.

Feb 24, 2018
fine-nance:

With MiFid II already implemented in the UK, what's your bank doing in preparation for its adoption in the US (assuming you work in the US)? Do you have any backup plans for worst-case scenario?

I'm interested in entering ER in beginning of 2019. Would MiFid affect the number of associates getting hired in the US?

Thank you. Love the username by the way.

All US banks already have MIFID procedures in place because many of our clients have European businesses and have implemented MIFID globally.

In a worse case scenario, my backup is somewhere within the bank (ECM or investment banking) or working for a company. I could also do ER on the buyside, but that is honestly my third choice.

There are predictions that MIFID will lead to a significant headcount cut in research. It's possible, but I doubt it will be that drastic. Research headcounts are already down significantly (like many other areas of finance), and cuts now will really have an impact on the ability of banks to offer full coverage of equities. You need ER for both investing clients and ECM, so it is difficult to simply not have it. Many of the bulge bracket banks have kept their departments roughly the same size. I've seen some attrition from senior analysts at mid cap brokerages (some have left ahead of MIFID to go to corporates), but we haven't yet seen a broad scale cut. It could happen later this year or in 2019, but I would guess associate jobs will still be there.

    • 3
Mar 10, 2018

Thanks for doing this. I am 1.5 years into my role in a finance graduate program at BB (Think Product Control middle office type role). I come from a semi-target school near NYC.. Unfortunately my GPA is under 3.5 as I didn't fully apply myself in college.

I looking to move internally into ER at my BB. If not that then externally in ER at BB which would be much harder.

My biggest weaknesses are my GPA and the fact that I don't have prior modelling experience.

What steps would you recommend I take? I'm hoping to network within the firm and hopefully land an interview. I still need to prepare some stock pitches and read through technical interview guides. Ideally, i would like to create a sample research report to send in applications but not sure where to start.

I understand MFID II makes ER as a long term prospect less attractive but hoping that turnover will at least create more openings. If you could give your thoughts on MFID II's short term impact on ER that'd be great as well.

Should I avoid smaller research firms due to MFID II?

Feb 24, 2018
bg944:

Thanks for doing this. I am 1.5 years into my role in a finance graduate program at BB (Think Product Control middle office type role). I come from a semi-target school near NYC. Passed L1 CFA this past December. Unfortunately my GPA is under 3.5 as I didn't fully apply myself in college.

I looking to move internally into ER at my BB. If not that then externally in ER at BB which would be much harder.

My biggest weaknesses are my GPA and the fact that I don't have prior modelling experience.

What steps would you recommend I take? I'm hoping to network within the firm and hopefully land an interview. I still need to prepare some stock pitches and read through technical interview guides. Ideally, i would like to create a sample research report to send in applications but not sure where to start.

I understand MFID II makes ER as a long term prospect less attractive but hoping that turnover will at least create more openings. If you could give your thoughts on MFID II's short term impact on ER that'd be great as well.

Should I avoid smaller research firms due to MFID II?

I would network within the firm and get your resume to whomever handles research recruiting and hiring at your bank. Come up with some stock pitches, keep track of the markets, etc. Modeling skills will be a concern - some senior analysts like teaching associates modeling skills while others expect them to come in with a skill base already. You would likely need to find a team where the senior analyst or someone else on the team would be willing to help train you.

    • 2
Feb 25, 2018
bg944:

Thanks for doing this. I am 1.5 years into my role in a finance graduate program at BB (Think Product Control middle office type role). I come from a semi-target school near NYC. Passed L1 CFA this past December. Unfortunately my GPA is under 3.5 as I didn't fully apply myself in college.

I looking to move internally into ER at my BB. If not that then externally in ER at BB which would be much harder.

My biggest weaknesses are my GPA and the fact that I don't have prior modelling experience.

What steps would you recommend I take? I'm hoping to network within the firm and hopefully land an interview. I still need to prepare some stock pitches and read through technical interview guides. Ideally, i would like to create a sample research report to send in applications but not sure where to start.

I understand MFID II makes ER as a long term prospect less attractive but hoping that turnover will at least create more openings. If you could give your thoughts on MFID II's short term impact on ER that'd be great as well.

Should I avoid smaller research firms due to MFID II?

Not sure if it's very different in the US, but I myself had average grades and did a summer internship in product control at a BB in London. After the summer, I managed to convert it into another summer and received offers for both equity and credit research. So the move is definitely doable.

I have also heard from some people doing internal moves, such as one working in private banking, one being in financial reporting and moving to equity research. The key for both seems to have been the CFA exam, since it is quite highly regarded in the industry and my firm actually has us take the exam during graduate programs.

If you were to want to move to ER, I'd say the best would be to network your way in, while trying to get at least CFA level 2 done - it's the toughest and thus more recognized compared to level 1, and its curriculum focused on equity valuation is quite useful.

Mar 3, 2018

seen a guy from ops move to ER in a BB after a year or two. He just networked with the md of the group. had to do some pitches and about 6 interviews after that.

Feb 24, 2018

How did you deal with your progression from analyst (associate) to vp and offers from buy side? Also what would you say is something you really admire in an analyst (associate) that you wish more people had?

Mar 4, 2018

A few buy-side firms reached out to me through recruiters - I would explore them to an extent, but I haven't really gone through the interview process. Typically, people in ER that want to go to the buyside are making it known and are networking directly or through recruiters.

I wish more analysts (whether they are an "associate" on a team or a senior analyst) would mix it up with buyside clients a bit more when it comes to debating an idea - don't be afraid to challenge an investing client, as I believe doing that (when your arguments are sound) makes the client respect you more.

    • 2
Mar 4, 2018

Thanks for your thoughts.

What are some of the most annoying things buyside guys you interact with do?

What's your relationship/interaction level like with your main sales guy?

Are these guys on buyside that you talk to not frequently than others? How did you develop that relationship ship?

Thanks in advance!

Feb 24, 2018

Thanks for doing this, these are really helpful. All these questions are specific to ER in Europe:

  • Read that MIFID II allows for a 3 month "free trial period" where research can still be given out for free, any thoughts on whether there are going to be big shifts when that runs out in April? Similarly, I've heard a lot of teams are going to be given one year to "prove themselves" in the MIFID II world before the hammer drops and underperformers get culled, any thoughts on this?
  • Read that GS Europe might switch to covering midcaps to differentiate, do you see teams at other banks who are outside the top 5 on II trying this and do you see it working?
  • Read that JPM is planning to charge only 10 grand for basic research, way below other BBs. Any thoughts on that and do you see them taking significantly more market share with that strategy (good franchise + undercutting competitors)?
  • How much cross subsidy do you see happening due to research's importance for ECM? Do you see banks like DB/HSBC keeping research headcount regardless of revenue to help ECM business?

Sorry for the battery of questions.

Best Response
Feb 24, 2018
integratedRebuttal:

Thanks for doing this, these are really helpful. All these questions are specific to ER in Europe:

  • Read that MIFID II allows for a 3 month "free trial period" where research can still be given out for free, any thoughts on whether there are going to be big shifts when that runs out in April? Similarly, I've heard a lot of teams are going to be given one year to "prove themselves" in the MIFID II world before the hammer drops and underperformers get culled, any thoughts on this?
  • Read that GS Europe might switch to covering midcaps to differentiate, do you see teams at other banks who are outside the top 5 on II trying this and do you see it working?
  • Read that JPM is planning to charge only 10 grand for basic research, way below other BBs. Any thoughts on that and do you see them taking significantly more market share with that strategy (good franchise + undercutting competitors)?
  • How much cross subsidy do you see happening due to research's importance for ECM? Do you see banks like DB/HSBC keeping research headcount regardless of revenue to help ECM business?

Sorry for the battery of questions.

1) I have not heard about research being given out for free for three months. This may be a Europe specific thing or specific to a certain bank. And the thing about a year sounds like a bank specific policy - it's certainly feasible that a bank may want to cut entire teams if they aren't doing well. The question is what happens next? Do you just not cover a sector? What happens if you cut an underperforming research team, then a few months later the bankers come by with an IPO that needs covering? It's a tough and fascinating dlimemma.

2) Goldman Sachs aims to bank all types of corporates, ranging from small cap to big cap. It's hard for me to imagine them "switching" to mid cap research if that impacts their large cap advisory business. I could see them adding resources to cover more mid caps, but that means more spending on research total, not less (unless they somehow reallocate resources).

3) Everyone already buys JP Morgan research, so it's not like they can gain market share. That $10,000 price is also just for research - I don't believe it includes phone calls, corporate access, models, meetings, etc.

4) ECM remains important. DB has a bigger ECM franchise than HSBC, so the answer for the two banks may be different

I am based on the US, so forgive me if I miss some of details of MIFID in these answers

    • 6
Mar 3, 2018
integratedRebuttal:

Thanks for doing this, these are really helpful. All these questions are specific to ER in Europe:

  • Read that MIFID II allows for a 3 month "free trial period" where research can still be given out for free, any thoughts on whether there are going to be big shifts when that runs out in April? Similarly, I've heard a lot of teams are going to be given one year to "prove themselves" in the MIFID II world before the hammer drops and underperformers get culled, any thoughts on this?
  • Read that GS Europe might switch to covering midcaps to differentiate, do you see teams at other banks who are outside the top 5 on II trying this and do you see it working?
  • Read that JPM is planning to charge only 10 grand for basic research, way below other BBs. Any thoughts on that and do you see them taking significantly more market share with that strategy (good franchise + undercutting competitors)?
  • How much cross subsidy do you see happening due to research's importance for ECM? Do you see banks like DB/HSBC keeping research headcount regardless of revenue to help ECM business?

Sorry for the battery of questions.

To reply to some of these points from a consumer of these services:

1/ The MIFID II trial thing is a regulatory way to stop constant free trials being given out. I think there may be big shifts in April but I don't see how any reasonably sized fund with a history will get away with paying everyone historically then getting everything for free for a quarter. From a consumer of these services, I'd agree that I can see the pressure from sell-side teams to be my number one and do regular calls with me just to update and log hours in their systems of activity to justify their existence.

2/ On GS, it has a large IBD and ECM franchise in Europe and that needs support. GS has some good teams in Europe but overall will probably not be hitting the top 10 lists of banks and this has to change. I have seen them bringing in talent from leading banks in Europe this year.

3/ JPM charges $10k but this simply gives you a basic login/Bloomberg enablement. The next level of their service (e.g. sales, models, spec sales, expert events) is not out of sync with other banks in a MIFID world.

4/ I'd agree with the latter but ECM issuance tends to be targeted in certain sectors which will likely be favoured e.g. TMT, business services, leisure, industrials, perhaps energy.

    • 1
Feb 24, 2018

Hey - thanks for taking the time. Three quick questions come to mind.

-Which research platforms would you recommend amid the current sell-side landscape
-What interview advice would you give someone that has a non-traditional background and no pedigree
-Aside from speaking with former employees, how would you gauge if the senior analyst is a good person/mentor

Thanks again.

Feb 24, 2018
pktkid10:

Hey - thanks for taking the time. Three quick questions come to mind.

-Which research platforms would you recommend amid the current sell-side landscape
-What interview advice would you give someone that has a non-traditional background and no pedigree
-Aside from speaking with former employees, how would you gauge if the senior analyst is a good person/mentor

Thanks again.

1) The best bets are banks in the top 10 or so in the Institutonal Investor ranking and banks in the top 10 or so of the equity capital markets league tables. Also banks that generate the most cash equities revenues. In the mid cap bank area, banks that generate a high percentage of their business from cash equities or ECM would the best bets. Banks where equities don't seem to be essential to the strategy are the most at risk.

2) Network and show an interest in stock picking. If you can start studying for the CFA and pass level 1, that could help you get your foot in the door as well

3) Seniors that take the time to sit down and train you are the best mentors. Some seniors are more focused on what you can do for them when it should be a balance

    • 4
Feb 24, 2018

Why would moving to the buy side be your last choice?

Also for someone that is looking to lateral into another equity research role, what's the best way to gauge if a senior analyst would be a good mentor or not? In my current role I pretty much fly solo and my senior analyst is never in the office. Interested to hear your thoughts

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Feb 24, 2018

Thanks for doing this.

  1. Have you started to study for the CFA or are you not really considering it at this point? What are your thoughts on getting a MBA?
  2. What is your team structure?
  3. What are your general thoughts on the buy side vs. sell side over the longer term and which side do you think will be able to whether the various headwinds (fee pressures, flow to passive, mifid, declining trading volumes, etc.) better?
    • 1
Mar 2, 2018
chimp_g:

Thanks for doing this.

  1. Have you started to study for the CFA or are you not really considering it at this point? What are your thoughts on getting a MBA?
  2. What is your team structure?
  3. What are your general thoughts on the buy side vs. sell side over the longer term and which side do you think will be able to whether the various headwinds (fee pressures, flow to passive, mifid, declining trading volumes, etc.) better?

Yes, I am particularly interested in the flow to passive. It actually concerns me so much that I am inclined to avoid asset management roles altogether.

Is a career in asset management viable in the long run?

Mar 4, 2018

The flow to passive is a headwind, but it could go in cycles. I haven't seen performance data this year, but it wouldn't surprise me if active managers are outperforming year to date. We've had very placid markets really since the financial crisis - over a 20 or 30 year period though, that may not always be the case. More volatile markets lead to more trading volumes and potentially gives avenues for active managers to perform (or so we would hope.

    • 1
Mar 5, 2018
Fanalyst:

The flow to passive is a headwind, but it could go in cycles. I haven't seen performance data this year, but it wouldn't surprise me if active managers are outperforming year to date. We've had very placid markets really since the financial crisis - over a 20 or 30 year period though, that may not always be the case. More volatile markets lead to more trading volumes and potentially gives avenues for active managers to perform (or so we would hope.

Thank you!

Mar 25, 2018

Re passive. It's a huge issue. Perhaps as much as mifid. Sadly the active equity business and the sell side are both slowly dying. And it's related obviously. Most major asset management firms are having negative flows. Sure they're doing fine but that's a function of equity market prices being strong. Their fees are under pressure and flows are negative so this is resulting in them all finding ways to cut costs. One of those costs is the street. I am a 20 year analyst MD and this is unlike anything I've seen. Most firms are going to pay less. Because they can and because they have to. Sell side pay unfortunately will keep going down as revenues decline. It's early, but mifid and passive trend is having a real impact so far in 2018. I would say regionals firms down 15-30, and some more than 30. Bulge are flat to down 10 but revenues more driven by electronic trading as buy side using the machines more and more for trading. That business is a penny or less per share vs the 3-5 cent we saw on the desk. Next 6-18 months will be major shakeout.

Mar 4, 2018

1) I have not started the CFA - by the time I could do it, I was busy with work and had a few other things going on in life, so I couldn't devote the hours. I would never rule it out, though

2) Won't get too much into specifics, but most equity research teams have a senior analysts and two to three junior analysts. The junior analyst may or may not specialize in certain areas of the coverage universe depending on how big the coverage universe is.

3) When I have meals or drinks with friends on the buyside, we wonder when the industry will reach an equilibrium... All stock investing cannot go to passive and or electronics because an efficient market demands analysis to figure out valuation, trends, etc. However, there probably still is a ways to go in the move towards passive. To my amazement, flows to hedge funds remain pretty healthy, and people still plow money into 401Ks (which invest in mutual funds). But fees and pay will go down. Same as on the sell side - I think the industry will see a bit of a shaking out with MIFID, then be pretty stable from then. Overall, there is probably some more pressure on the sell side, but you need to figure out if you prefer to be on the sell side or buy side and choose a career that way, not on where the pressure will be

    • 2
Feb 25, 2018

Thanks a lot for doing this. I just have a few more personal questions:

1) How do you or the people around you (to the best of your knowledge) try to create alpha on your research reports? In other words, what do you sometimes do to differentiate yourself from the pack?

2) If you have been exposed to other sectors, what would you say is the toughest (easiest) sector to cover? The most special one? etc.

3) Is there anything that you have personally done to survive MiFID II?

Feb 25, 2018

Really appreciate this post.

I'm a first year credit analyst at a rating agency. For a number of reasons, I want to break into ER (exit opps, fascination with equity markets, work environment, etc.). I have fully prepared to make this transition (modeling courses, CFA L1, networking with associates, etc.). What would help me (non-target, high GPA, 1 year at RA) stand out from an application perspective?

Also, given that SS ER might be a shrinking industry, would I be better off pursuing IB if my end goal is buy-side ER?

Thanks again for the post.

"The ceiling is the roof"

Feb 26, 2018

thanks for doing this, i'll keep it on the frontpage this week

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Feb 26, 2018

Hi,

Thank you. Could you talk about what is stance on hiring MBAs to fill the associate roles, for your firm and firms that you are familiar with?

Mar 4, 2018

A lot of firms hire MBAs to fill associate roles. Some senior analysts prefer associates with MBAs and some actually prefer their associates NOT have MBAs (some think MBAs want to take on more responsibility too quickly). A lot of equity research hiring is really driven by senior analyst preference, more than most other areas of finance.

    • 2
Feb 26, 2018

Thank you so much for doing this:

I'm about to begin my career in research, however, unlike most people on this thread, I'll be in fixed income research as opposed to equity research. I find that much of the information on the research thread is tailored to ER. I have a couple questions listed below.

I was wondering how MIFID will effect FI research, will it be to the same extent as ER? Also would love to get your thoughts on FI research as a whole and the nature of work as compared to equity research. What's your outlook for FI research?

What differences do you see in terms of publishing, modeling and coverage between equity and fixed income research?

Are there certain "less favorable/desirable" sectors or less intensive sectors in FI research?

I'd like to establish a long-term career in research, but in case things don't go favorably, is it feasible to jump from FI research to a credit focused hedge fund? Do headhunters/recruiters reach out to research analysts?

    • 1
Mar 4, 2018

1) Fixed income research is a broad category. I am most familiar with credit research, but macro, commodities, FX, etc are obviously important.

2) MIFID does impact fixed income research as well, but in all honestly I am less familiar with how managers account for fixed income research payment, so I can't offer much help there.

3) Equity research analysts tend to publish more research pieces overall. Fixed income analysts tend to have more day to day interaction with traders. I can't help on which areas are more desirable than others - I would guess whatever area the bank trades the most.

4) I know of many credit analysts that have moved to the buyside. Recruitment should be the same as equity research - clients may reach out directly, you may go to recruiters, etc.

    • 2
Feb 26, 2018

Thank you so much for doing this!

As a sophomore interested in ECM/ER, what do you think is the most important skill to learn to be best prepared for recruiting?

  1. What kind of technicals are expected? The usual IB but more market based?
  2. Where can I find sample reports and learn to do them myself - to attach to emails and apps?

Regards,
CP

"It is not our circumstance that controls us, but our thoughts that control our circumstance." -James Allen

Feb 26, 2018

Currently in ER, and I'm sure your previous post helped me get here with a 3.2 GPA from a nontarget. I have a few brief questions:

1) Over the next 1-3 years, what can I do to best position myself for a hop to the buyside?

2) How much would a lateral from a lower MM firm to a top-10 firm hurt my resume after 6 months at the lower MM firm? Benefits would be covering TMT instead of a niche sector, much better pay, II-ranked analyst. Downside would be leaving current team high and dry.

Feb 26, 2018

DP33, I am in no position to give ER to buy-side related advice. However, in terms of lateraling, here are some points to think about (I am in a similar situation).

Reasons to leave:
1. You would rather cover TMT than your current sector
2. Broader focus is better for the buy-side / exit opps
3. BB / top-10 is better for the buy-side / exit opps
4. The analyst's credentials are important, but you need to make sure that he / she will actually help your career. If you think they will, then good
5. Your company would not think twice about letting you go, so be selfish (but make the transition easy for team)

Reasons not to leave:
1. You received a solid sign-on bonus that you want to keep
2. Your Analyst is a "nice house in a bad neighborhood" - meaning he / she is a stud but for some reason is at a lower MM firm
3. You plan on leaving the top-10 firm in less than 2-3 years
4. You're only reason for leaving is more $
5. If your niche focus is a high-growth industry

"The ceiling is the roof"

Feb 26, 2018

What are your thoughts on a former trader (interest rates, commodities) changing careers and moving over into equity research?

Strengths/weaknesses (as a candidate)?
What would you want to know in the hiring process?
What would make such a person stand out as more likely to get hired?

just google it...you're welcome

Feb 28, 2018

Thanks for doing this again Fanalyst.

  1. You mentioned you had a somewhat photographic memory. Any tips on retaining all the information you read on 10Ks and other sources? I find that after reading something I end up forgetting about the details a couple of days after when I read about something else.
  2. What are the main things to keep note of when analyzing small/mid cap stocks with less liquidity compared to the common larger names? How do you address the liquidity concern most investors have?
Mar 1, 2018

Thanks for sharing.

What level of accounting skills does an analyst expect from his/her associate?
When initiating a new coverage, do you have your associate transcribe all the financial report information into a new excel spreadsheet and build a pro forma from scratch? Or is there an existing model to use as a template?

How detailed is the financial modeling in ER? Do you dig to the level of estimating variables such as receivables and Impairments?

Thanks.

Wayne

Mar 1, 2018

I'll throw my 2 cents in here. You'll get 10 different answers from 10 different analysts with these questions, but generally speaking (from perspective of associate):
- The more accounting knowledge the better but it's not something you can't learn or improve in on the job (google is your friend).
- I've used current models as templates for initiations in the same industry. A company with different drivers than any of your current models will require more custom work on the driver tab/s but there should be ample IS/BS/CF templates from other models that would only require minimal edits.
-This will entirely depend on the analyst. Some pay a lot of attention to forecasting the balance sheet, others will plug numbers to get it to balance. The difference in detail from my models to those on others teams is very wide and depends on industry as well.

    • 2
Mar 1, 2018

Thank you for taking time to answer questions.

i. With the recent implementation of MIFID II, do you see an increasing concentration of investment research in "go to" banks with historical reputation for outstanding research quality (and simultaneously shrinking IR at less reputable banks)? Meaning it will be good for the former and bad for the latter?

ii. How would you spend time preparing for an internship in equity/ macro research? What do you think are the key skills to be successful?

iii. Based on your experience, how does equity research compare to IB in terms of hours and stress? Obviously I expect long hours, but could you give some rough estimates (daily, weekends, etc.).

iv. Any views on Goldman Sach's investment research arm (any league table to recommend for IR/ ER)? Although the brand is strong, how does GS compare to other BB for IR? How would you rate exit ops?

Sorry for the long questions and thanks a lot in advance for the precious help!

Mar 1, 2018

GS IR is garbage - II rankings are your go-to metric

    • 4
Mar 3, 2018
Hank_xiv:

Thank you for taking time to answer questions.

i. With the recent implementation of MIFID II, do you see an increasing concentration of investment research in "go to" banks with historical reputation for outstanding research quality (and simultaneously shrinking IR at less reputable banks)? Meaning it will be good for the former and bad for the latter?

ii. How would you spend time preparing for an internship in equity/ macro research? What do you think are the key skills to be successful?

iii. Based on your experience, how does equity research compare to IB in terms of hours and stress? Obviously I expect long hours, but could you give some rough estimates (daily, weekends, etc.).

iv. Any views on Goldman Sach's investment research arm (any league table to recommend for IR/ ER)? Although the brand is strong, how does GS compare to other BB for IR? How would you rate exit ops?

Sorry for the long questions and thanks a lot in advance for the precious help!

1/ I'd expect my budget to be concentrated on five key providers where I get an exceptional service. Big banks have large balance sheets and ECM franchises so can invest for a certain period. I'm already seeing cuts across the street in Europe. There are five big winners in Europe that I see.

2/ If you know the industry, read as much as possible so you can try to work out what is important. I'd ask the team you're joining to send you their latest deep dives so that you can really get to grips with their views. You're there to help them do their jobs and add value to their clients - remembering that you have two ears and one mouth is pretty important too.

3/ ER - depends on team. Normal hours are somewhere between get in at 6-7 and leave at between 6 and 8 in the evening. Earnings will be way different as will if you are working on a year ahead or deep dive report ahead of marketing.

4/ GS is improving in research I think but is still some way behind the leaders (Exane, UBS, MS) in Europe. The exit opportunities are still good given where I see GS people going but every hiring decision is person specific when you're exiting to the buyside. Buyside teams are small - it is more about can I work with this person going forward.

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Mar 4, 2018

1) MIFID can go a lot of different ways. My assumption is that "Top 10" research houses gain more market share. How you measure Top 10 is debatable - is it II rankings? Is it the research firm that covers the most IPOs or equity offerings? Is it the research firm at the banks with the biggest cash equity revenues? These lists overlap to some extent, but there are some firms that are in some of these categories but not the others. I think boutiques may struggle a bit.

2) I don't know much about macro research, but I would guess I would be reading all of the news on current exchange accounts, trade balances, different GDP growth rates for different areas, monetary and fiscal policy, etc.

3) Generally, IB analysts work about 10-15 hours more than ER analysts. ER analysts will have to be in very early during earnings season and may stay very late. In addition, during times when the team is working on projects like initiations or in depth reports, hours may be long.

4) As some have already pointed out, GS has usually been ranked lower in the Institutional Investor rankings than the pedigree of the overall bank would suggest. However, GS does do a lot of equity offerings, and they pay their research analysts probably a bit more than average. They also do offer pretty comprehensive research. I would consider GS "Top 10" in the matrix i described in bullet one.

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Mar 4, 2018

There are multiple banks that don't pursue II (including mine and GS), so using II to rank banks is dumb. Having participated in II in the past, a big chunk of success is marketing to big pension funds that have lots of AUM (and votes) but tend to be less valuable as revenue generators. You spend a lot of time flying to Georgia and Tennessee to meet with these funds which takes away from engaging big HFs that are more valuable as clients. I also spent an insane amount of time reminding people to vote in subtle ways. I have come across analysts that hand out swag reminding clients to vote. It is absurd. Factors that matter more to measure quality of research: size of business, votes from major funds, pay, and banking deal flow (bad analysts tend not to have industry respect).

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Mar 2, 2018

All - I've been very busy this week, I'll get to your questions over the weekend

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Mar 3, 2018

How important is it to have a good analyst boss? What can you do if you work for an analyst of terrible personality? Quitting the company is the only way?

Thanks.....

Mar 4, 2018

Thanks for taking the time to do this. I'm currently trying to break into O&G ER with a non-financial background (my undergrad and work experience have been focused on O&G geoscience so far).

To improve my financial knowledge I decided to take the CFA L1 next June, purchase an online O&G financial modeling course, and have done some other online courses on capital markets (coursera style).

So far I managed to get a hold of some research analysts from a boutique that I'm interested in, and I feel that I might get called for an interview soon.

I'm a little worried about how technical this interview could be, especially since I'm just starting to grasp the essential concepts of financial analysis.
Do you have any comment on what I could expect? What would you ask a candidate like me if you were the one interviewing?

"Drill, Baby, Drill" - Sarah Palin

Mar 4, 2018

Hi, thank you so much for doing this.

I'm an analyst in S&T and had a few questions for you!

1) Do you think MIFID 2 will disrupt the cash equities business? I'm a sales-trader and am growing increasingly wary of the shift that is taking place.

2) I'm taking level 2 of CFA this year and hope to pass level 3 next year. How would you view a n MBA with previous experience in cash equities with CFA recruiting as an associate position?

Thanks!

Mar 5, 2018

How possible is it to move to ER from a buyside quant role focusing on using fundamental factors to invest and with the CFA charter?

Mar 11, 2018

What do you think about technology in IBD? Are bankers (at least at the junior level) going to be obsolete 10 years down the road?

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Mar 11, 2018

What do you think about the long term future of BB ER (as opposed to Bernstein or other independent ER shops)?

Mar 13, 2018

Can you comment on compensation and what is a reasonable # per year? I just started at a place 3 months ago and have no idea if I was lowballed or not (1.5 years ER experience, 1.5 industry, non finance background before). How is compensation at the VP level?

Should it be based on how many hours you work, at least on the junior level (some teams work much longer hours)?

Mar 22, 2018

I am a senior sector analyst in ER and here's my take.

Everybody who is in a junior role in ER right now should save themselves and move to a different role asap. Everybody who is considering getting into ER should do so with the clear understanding that this will be a 1- 1.5 yr. job used a stepping stone to get to greener pastures. MIFID is real and it is coming fast. It may not kill ER but it will further marginalize it. Think about it. Whenever you see unbundling in any industry, it is bad for the incumbents (think cable companies). This will be no different. ER pay, which is already dismal compared to other areas of finance, will get even worse. In the medium to long run, I see ER being a base-salary-only type of job similar to any other corporate job out there, only with much worse hours and concentrated in expensive cities. This is already happening now as a nmber of banks have handed out "bonuses" of $10K to some associates. I see bonus driven culture in ER going away and comps being compressed further. And lets get real. This is Wall Street. People don't come here to cure cancer or because they have "passion for stock picking". They come here to make money. If there's no money to be made, why would you bother?

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Mar 22, 2018

I'm not as pessimistic as you. It comp truly does decline to just a normal corporate job, then that would be tough. However, I'm seeing a lot of guys in their mid 30s that are being paid up decently and are being poached at good salaries to move banks. A VP/Director level analyst can still make $400k or higher if they are are up and coming, with more upside if they do better. And frankly, if you are at that level, the hours are relatively good compared to banking, there is travel (which some people like), etc.

The race to get out of equity research can also have costs, like loss of deferred comp, loss of built up industry contact list and knowledge base (if you switch sectors, etc).

Basically, my view is wait a couple of years before we get too dire

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Mar 22, 2018

I guess you could call me an "up and coming" director. I make betwen $300 - $400K of which $200k is base. This is just to put some numbers on it. The guys who "do better" right now make about 100K more. But we are talking about guys who entered this space 7-10 years ago. When they entered, 7 figures for senior analysts were still happening. Not anymore. The declining comp trend is clear. You're an analyst. So analyze it. This is an industry that has been going ex-growth for almost 2 decades. It is now facing a regulatory change that will do away with bundling and introduce price transparency (which is NEVER good for margins, in any business by the way). If this was a company, would you buy its stock? And if not, why invest your most valuable resource - time? In our positions (VP/Dir level) sure we can milk it for a couple more years before it totally goes to sh#$t, but for people just starting out it doesn't make any sense. By the time they make it to our level today, the reward will not be there. I want to be very clear on that.

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Mar 22, 2018

But do you think the unbundling effect of MIFID will hit the US just as hard? do you think it will depend on how european your client base is or do you think this is a global trend regardless of any regulatory changes in the US?

Mar 23, 2018

unfortunately, we are seeing that the impact on the U.S. is very hard. I don't want to say more on a public forum, but google some news articles on this - and believe what you read.

Mar 23, 2018
sg2015:

I guess you could call me an "up and coming" director. I make betwen $300 - $400K of which $200k is base. This is just to put some numbers on it. The guys who "do better" right now make about 100K more. But we are talking about guys who entered this space 7-10 years ago. When they entered, 7 figures for senior analysts were still happening. Not anymore. The declining comp trend is clear. You're an analyst. So analyze it. This is an industry that has been going ex-growth for almost 2 decades. It is now facing a regulatory change that will do away with bundling and introduce price transparency (which is NEVER good for margins, in any business by the way). If this was a company, would you buy its stock? And if not, why invest your most valuable resource - time? In our positions (VP/Dir level) sure we can milk it for a couple more years before it totally goes to sh#$t, but for people just starting out it doesn't make any sense. By the time they make it to our level today, the reward will not be there. I want to be very clear on that.

This is wrong. High six-figure and seven-figure comp is still common.

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Mar 22, 2018

What greener pastures are there to go to after 1-1.5 years in ER? I know the typical exit ops, just curious what other jobs you think would value that amount of ER experience?

If that is all you think ER is good for now (I don't necessarily disagree) why would anybody out of college choose to go in ER when a similar amount of IB experience has the potential to open doors to a great variety of opportunities?

Mar 22, 2018

IB generally provides more optionality than ER in terms of exit ops. However, IB is more competitive and also is a worse lifestyle. I think ER is a better option after IB for someone that may be want to brush up on market skills to go to the buyside or corporate skills to go to a company or IR

Mar 23, 2018

they would chose ER because they didn't get hired in IB for a variety of reasons. The greener pastures would include a transfer to IB or exiting to a HF.

Mar 22, 2018

who do you most respect on the buy-side and what is it that they do/ask that makes them stand out?

Mar 22, 2018

SG2015 is right and I talked mostly with people who are ranked #1 or #2 in II who will tell you the same thing.

ER ROIC was 3-5% and that's in the good old days. You still require an army of lawyers and SA's and compliance and back office that will be draining $50mm a year in a bank's wallet to keep the ER division going, and that's with $10k bonuses.

99% of buysiders don't use the sellside for stock ideas, only to find the consensus view. Bloomberg is already doing most of this job with research analyst coverage and Bloomberg Intelligence. There is really no need to keep more than 3 counterparts versus the hundreds available at the moment.

ER should be paid no better than journalists in the future. Go take a look at salaries at the New York Times and see how much reporting the news is worth.

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Mar 22, 2018

So the obvious solution is to be #1 or #2 in II :)

Look, in both of my AMAs, I've been pretty clear on the issues facing the industry. However, as someone who has been in other areas of finance, I legitimately enjoy my job and feel like I add value to my clients. I intend to stay in it for a long time, and if the industry still exists, I would recommend my particular job to others

Mar 30, 2018

This is right on. No matter your rank it's bad.

Yes. Some guys at the up and coming director make 400. And yes some guys make 1m. I have made that. For last 15 years. I expect thay to become 600. Then 400. Then I'm done. This could completely change the job to a journalist. And I'm not come lower level associate. I know every big buy side client and get paid by them. It's over as we know it unfortunately.

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Mar 22, 2018

Thank you for the AMA. Is it possible to switch from ER at a BB to lev fin at the same bank or competitor?

Mar 23, 2018

I have seen it done. Typically with a demotion (but it is well worth it)

Mar 23, 2018

Thank you so much for sharing your knowledge. I read your previous post and i found that someone asked if writing articles on seekingalpha will be beneficial to get a job in ER. Your response was that it can be a detriment. It would be nice if you explain why you think so, because i was thinking of doing it actually to improve skills of explaining investment ideas, etc and i cant think of any downsides.

Mar 24, 2018

My personal observation is that most of the analysis on SeekingAlpha is rather crappy vs. what you'd see in the professional investing sphere. So in that sense, I could imagine it being a detriment, in that it could cement bad habits and practices.

That being said, learning to better explain your ideas and polishing your stock pitches is always a good practice; it's just that SeekingAlpha probably isn't that best conduit for doing it.

Mar 25, 2018

just google it...you're welcome

Apr 3, 2018
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