Career Analysts
My firm has analysts with like 15+ years experience and really low turnover. What's the deal with that? Don't they want to become PMs? What incentive structure is likely being used?
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out of curiosity, within which groups are you referring to? Do you mean like Equity Research Analysts or IB analysts?
Referring to buy side (see definition of PM); hence, ER (SS) and IB are not what he's referring to.
I worked for a couple of career analysts in my last internship. They didn't seem to have too much interest in becoming PMs. They were still paid well and preferred to spend their time on company-level credit analysis rather than worrying about how to position the fund in terms of rate and spread duration, sector allocation, etc. (this was a credit fund). At this fund, analysts were paid based on how their picks for a sector performed relative to the benchmark (on a risk-adjusted basis). Without getting into the details of the calculation, they basically had an internal risk number that acted like beta. So, for example, if the PM had positioned the portfolio so that its E&P exposure was riskier than the benchmark (longer duration bonds, higher average spreads), maybe that would have a beta of 1.2. Then, if the E&P bonds in the benchmark returned 2%, the analyst would be compensated based on how the E&P bonds in the portfolio did compared to 2.4%. So the analysts for the most part were compensated on individual issue selection, while the PM took the risk on relative spread, duration, over/underweighting sectors, etc. That's just one example, though. Might be different other places or in equity funds.
The two take a subtly different skill set. It does happen sometimes that great analysts move into a PM role, and end up underperforming: http://blogs.reuters.com/felix-salmon/2013/03/07/why-analysts-should-no…
There's overlap, obviously, but it is by no means a given that one implies the other. And if you as the research analyst are happy with what you do, and with what you get paid to do it, and don't think that managing money and making those decisions (and dealing with the "admin" of implementation) is not for you, then that's a perfectly valid choice in my book.
I'm in the same boat. Lots of analysts with 20 years experience covering a sector, which they obviously know extremely well. I thinks its a combination of things... comp can still be very good for these guys. They can do just as well as a PM running a smallish fund ($1-3bn). Obviously the guys running our $10-100bn funds should be doing significantly better, but not everyone can be that guy. You also spend a lot less time doing bs marketing stuff, etc. You'd know your companies much better than a PM, given they just don't have the time to go as deep on a particular name. There's probably also some skillset or personality quirks that might prevent some of these senior analysts from getting the PM nod at some point. In other cases, they spent a couple years as a PM and underperformed, so they go back to doing what they're good at (research).
Putting it very bluntly, some just find the actual portfolio management insanely boring. Assuming you don't run a very long-term low position # fund, you're spending an insane amount of time thinking about asset allocation, sector weights, the 'bigger picture' etc., and there are many people out there who prefer to do company deep dives. Plus, as others have mentioned, the skill set is different and a great PM might not be good at hardcore bottom-up fundamental analysis whilst a great analyst may not be a good PM.
Well, conventionally speaking, those that are great PMs now were likely pretty decent analysts at some point.
Yeah, hence the wording - good vs. great as you still have to pay your dues as an analyst initially so you must be at least OK to proceed. Thanks for pointing out though.
Where I work (AM arm of an insurance company) the PM work does seem pretty boring. They are on calls with brokers throughout the day, going through new issuance's and how they would fit in our portfolio from duration and yield need, etc. But they make bank, at least compared to the analysts. Granted, we only have one analyst who has +15 years of experience and is the head of research. I am looking to move to an Asst PM/analyst role eventually. I find the TAA and ALM aspect interesting, and can only cover my sectors for so long before I go crazy.
I think there is an assumption that PMs are getting paid more than analysts...this may not be true.
Being a PM is boring? That's like saying being a captain or pilot is boring and you would rather be the flight dispatcher who helps with planning out the plane's journey by looking at a whole bunch of factors and variables. I guess sitting in some corner combing through thousands of numbers and making phone call after phone call and relinquishing control over your conclusions to someone else is way more interesting!
Seriously though I think it's a combination of things most of which people have mentioned...skill set, personality, getting comfortable, risk appetite, leadership, interests, etc. If you understand a sector or several really well, have a couple rugrats and a wife who's a piece of work, and working on your golf game, may not want rock the boat too much by dumping a bunch of added stress onto your plate.
Well that's your side of the story (the analogy is not great to be honest), but the fact of the matter is some genuinely like the purely analytic side of delving deeper into individual names/investments. There doesn't have to be a universal truth to this - it's called a preference.
I have seen both angles so it's not just "my side"...also I'm not sure what you mean by "purely analytic" as there is a lot of subjectivity involved. Analysts do have much less interaction with clients so I suppose that is true. And PMs are not completely disengaged from the research process.
I basically view a PM as a senior senior analyst with button pushing power and responsibility for the performance of a whole book. No good PM is just taking an analyst at their word.
There's nothing wrong with being an analyst 20+ yrs out. Most people who truly love it like being PM/Analysts since they like learning about companies and doing the research.
Think people are bashing the PM role here a little too much. Obviously you have to follow the macro, but you still do mostly fundamental research/thinking through ideas like you do as an analyst, you just don't have to do the tedious work like building the model, following earnings, etc. You also get to look at many industries which honestly doing only one for years and years can get boring after a while.
Yes you have to market and that doesn't suit some people's skill set, but you clearly also don't have to answer to a PM all day bitching at you. This is one of the biggest if not the biggest perks (money aside).
You also have way more flexible hours - if you're comfortable with your holdings and positioning, you're basically good. This is in comparison to being an analyst where you are always responsible for reacting real time to news and generally also traveling much more.
In my experience the career analyst role lends itself well to certain industries, energy for example, and doesn't for others. Most guys I know in this track are either in one of these industries or had a shot running a fund and didn't put up the numbers.
Sorry to bump this old thread- what other sectors aside from energy are "interesting" or active enough to stay in for the length of one's career? Retail/consumer perhaps? Tech? (thinking from HY perspective specifically)
All of them
Good job is a good job
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