vs Investment Banking - What are They?
Before examining whether you'd like to work at an asset manager or investment bank, it's important to first understand what exactly they do. To help understand the differences, understand that an investment bank is on the sell-side while an asset manager is on the buy-side.
- Sell-side: Create, promote, and sell various types of securities
- Buy-side: Buy various types of securities
On investment banks, here's @Marcus_Halberstram" with a concise summary.
It's a financial institution that essentially creates markets by connecting buyers and sellers, and risk and capital. At a very high level, there is a sales andbusiness and an investment banking business. And from what I understand, the investment banking division is structured into products (e.g. M&A, Leveraged Finance, , ) and industries (e.g natural resources, consumer products, financial institutions).
Right, so what's an asset manager? Asset manager's status as a buy-side firm means that they are concerned with the purchasing of securities. Here are three things that separate asset managers from other buy-side firms.
- Invest in a plethora of financial instruments and are typically long-only.
- Three different types of investors are attracted to three different categorizations of asset managers: retail clients via mutual funds, high-net worth individuals via separately-managed accounts, and institutional investors via large dedicated products.
- Significantly less aggressive investing strategy compared to hedge funds. This is because while hedge funds promise absolute returns (and are deeply incentivized by performance fees), asset managers benchmark themselves against a market-related standard.
Asset Management vs Investment Banking - Compensation
Compensation in investment banking is, on average, higher than compensation in. Out of undergrad, research analysts/associates in AM make slightly less than their banking peers, with investment banking analysts making around $130k. Post-MBA associates in investment banking make $200-300k, and the same goes for post-MBA analysts in AM.
After 5-15 years, an analyst can get promoted to portfolio manager in AM. This is in direct contrast to IB where the post-MBA title is associate, who gets promoted to VP, then managing director/partner. On average, investment bankers make more than their peers in asset management at every level. There is one large exception to the rule: top performers in AM make far, far more than any banker. A portfolio manager atwill make something like $25m, more than any Wall Street CEO.
AM vs IB - Lifestyle and Culture
Lifestyle is the most significant difference between investment banking and asset management. In investment banking, there's mostly a lack of lifestyle as you put in an average of 80 hours a week. The work week in asset management is more along the lines of 40-60 weeks, and the weekends are completely your own.
The intense work week in investment banking is conducive to burnout, which is why turnover is so high in investment banking. There's a reason everyone talks about the exit opps in investment banking, few people stay in the industry. Jobs in asset management pay nearly as well as banking (more in cases of top performers), and you work fewer hours. Because of two reasons, asset management is incredibly appealing, which means turnover is far lower than in IB.
Private Wealth Management
Private wealth management is perhaps the most notable form of asset management. It is, as the name suggests, the management of wealth of high-net worth individuals. When we mentioned working with a view of the beach, private wealth management was the most likely candidate; where there's money, there's private wealth management.
First, what exactly separates private wealth management from the other two functions of asset management? Broadly,deals with individuals and individual money, the other forms deal with institutions and institutional money.
As a, is a good option, particularly for those from non-targets or for those without anything on their resume that indicates a propensity for finance. Having a private wealth management internship the summer following freshman or sophomore year is standard procedure, a lot of people do it. It's nothing that will set you apart, but it will certainly demonstrate an interest in finance, which is all you can ask for in an internship as a lowerclassmen.
As a career,is all about bringing in that sweet flow, or assets under management. This involves a lot of cold calling (a lot of rejection) and a lot of schmoozing clients to maintain relationships. It's very much so a relationship-oriented business, but don't let that fool you into thinking it's an easy gig. It's far from it, in fact. Here's @Vancouver Canucks 2011" on why is a difficult career to succeed in.
Honestly,is an extremely tough business, a changing business, a ruthless business - but it is still an exceptional business. 95% of the people whom enter fail simple because they can't "make it" but the 5% who do make a very good living. The average guys at wirehouses (upper echelon firms such as , & ) have $80mm in client assets and make about $300,000 per year on a 40 hour work week, doing mostly what they love (interacting with good friends / long-term clients on the phone or at wining & dining events).
If you're an undergrad student, you may feel discouraged, and that feeling isn't misplaced. You reap what you sow in PWM, it's a reality that doesn't appeal to people facing tens of thousands in student loans who've never worked a full-time job for over three months. @thebrofessor" recommends against becoming a financial advisor until you're at least 25, and he shared some words of wisdom for those looking to pursue a career in PWM.
Confidence is key. if you think you'll be perceived as immature, you will come off that way. not going to lie, my first few months of calling I was petrified. over time that wanes, and you just get used to it. this gradual hardening gives you confidence and kinda reinforces itself. you act confident, you win business, leading to more confidence and selling better, which leads to more business, etc etc etc
AM vs IB - Which Should You Choose?
In reality, the two are completely different fields and you should choose which career to pursue based on that. Asset management is a career in investing, investment banking as a career is most notably a grind. The lifestyle are completely different, the compensation is comparable, and the career outlooks vary a good deal. In asset management, you choose investing as a career unless you choose to rebrand yourself, hedge funds and other asset managers are your most typical exit opportunities. In investment banking, leaving is the most typical exit opp, as people tend to feel symptoms of burnout within a few years. Private equity, hedge funds,, and business school are the your common exit opps out of investment banking.
Ultimately, they're two completely different careers that bring a lot to the table in their own respects. If any one factor makes the decision for you, let it be the work itself.
Stepping stones to Asset Management
First, an important distinction: breaking into asset management out of undergrad and breaking in beyond that point are two different beasts. They should be treated as such, and we will discuss how to break in from each level.
Out of undergrad
You need to clearly demonstrate your passion in investing to get consideration for asset management jobs out of undergrad. Despite investment banking positions receiving all the buzz, these jobs are still highly competitive and the firm needs to know that you're willing to pursue investing as a career. Here are four books to help cultivate your investing savvy. If you find it difficult to read through these books, that's perhaps a moment to question whether this is the career for you.
- by Ben Graham (recommended by @thebrofessor") - "Skip 's commentary - same as above, if I were a high school principal, I would make this required reading before graduation. It's that important."
- Margin of Safety by Seth Klarman (recommended by @thebrofessor") - "I know, I know, it costs several grand on . If you do some sleuthing, you might be able to find a PDF." This and Intelligent Investor will develop your understanding of value investing and form the basis of your investing knowledge. Now we move on to some ancillary pieces.
- The Most Important Thing by Howard Marks (recommended by @thebrofessor") - "Newer book, but an instant classic. Compiled memos from Oaktree's Howard Marks, one of the smartest men to manage money that I've read."
- Competition Demystified by Bruce Greenwald and Judd Kahn (recommended by @Extelleron") - "I think, if you've read Graham, then you know the basic concepts of value investing, as ^ suggested reading Margin of Safety by Klarman would be great to bring a more modern perspective and some specific examples. But I'd suggest branching out beyond basic value philosophy into understanding how to evaluate a business. You've probably heard of the concept of a moat/competitive advantage if you've been exposed to , but Competition Demystified by Greenwald is a great book which helps you understand how to identify a moat in reality."
If you haven't already, start investing with a personal account. If you don't want to use real money, paper trading is a perfectly acceptable alternative. You should keep track of your portfolio and back up all of your investing ideas with sound due diligence. Not only will this provide a great opportunity to show off/discuss your investing chops on your resume and in interviews, it'll better you as an investor, which is ultimately what asset management is all about. Here's @N164" on the "model portfolio" and why it's incredibly helpful to have one.
A "model portfolio" - kind of like fantasy football for analysts. Pick a few companies, pretend to "buy" them as of a certain date that you think the stocks look cheap and keep anspreadsheet. Update the prices every so often and see how you're doing. Are your names doing well? Why? Are they not? What did you miss? Then, when you interview, if you've never owned stocks before, you can say you've been running your own model portfolio, here are the names I have, here's why I bought them, here's how they've done. It also means you can answer the dreaded "what was your biggest mistake" question with: "I bought X at $10 and it fell, or I didn't buy Y at $20 and it went up, and here's what I missed"
In addition to investing, following the markets is critical to the job and your knowledge base in asset management. Get a subscription to Wall Street Journal, and read Bloomberg to develop a framework for the markets.
There are two different tiers of asset managers that will become apparent to you as you pursue the industry: notable asset managers and boutiques. The notable ones (could also be considered the top asset managers, but that doesn't necessarily correlate to performance) recruit almost entirely out of top target schools. If you are from one of those schools, you're in luck. Utilize on-campus recruiting and resume drops whenever possible. If you have a solid GPA, some finance internships beforehand, and a decent looking resume, then you should be able to get your foot in the door with a couple firms.
Boutiques are a far more ambiguous matter. The culture at the typical boutique is very tight-knit, develop talent from within, etc. Thus, turnover is extremely low, and positions are rarely open. You'll be hard-pressed to find any boutique asset managers recruiting on campus, your best bet is to send your resume in every direction and hope to get some hits.
Breaking into asset management once you already have a few years under your belt is a trickier affair. First, consider an MBA (if you don't already have one) to rebrand yourself. Networking and headhunters are your friends, they're how you get your foot in the door. But before you network at all, you have to have a hook, something that makes you appealing to asset managers. At this stage, the CFA is your best bet to do just that. Be prepared, however, to consider asset management your career at this point, because the CFA takes 200-300 hours for most people to comfortably pass.
Here's my situation:
I got little or no connections to I-Banking except for a few people I met at and information sessions. I connected pretty well with them but that is the only time I've had contact and an occasional e-mail.
For Asset Management, my mom has some connections with Portfolio Managers who handle accounts/portfolios of $750,000 minimum and upwards both atand . They are both coming over for dinner to meet me and to build a further connection directly with me.
I'm a 4th year BBA Honours (Accounting & Finance) student who has Financial Analyst internship experience.
Do you think I should stick to my original plan and keep trying to "break into" I-Banking or capitalize on my mom's connections and get a job within Asset Management with either HSBC or? I plan to keep applying for I-Banking jobs but hedge myself with the Asset Management connections.
Also, is there any chance (or how often) that one can move from Asset Management to I-Banking after a couple years?