Equity Research: Wall Street's Best Kept Secret
Monkeys, I am convinced that Equity Research may be the best gig to start your finance career. Let me explain:
Post Goldman Sachs 13 survey, literally every single investment bank raised base salaries to $100k in effort to keep juniors from leaving before their 2-yr program ends. Know so many IB analysts who jumped ship < 1 year into the job because the work life balance is non-existent and it still shows no signs of stopping.
But at the same time, the majority of banks have raised base pay to $100k for the equity research divisions as well. Given that ER bonuses tend to be 25-40% of base pay (where IB stretches 50-70%), a first year ER associate easily is clearing at least $130k after signing bonus and performance bonus.
Keep in mind, $130k for a first year ER associate is literally the same amount of pay that a middle-bucket first year IB analyst would expect to make two years ago. But you can expect to work only 55 - 70 hours per week on average in ER whereas a typical week in IB is 80-90 hours. That said, its clear you get better pay for work-life balance in ER.
But you might be thinking well, IB isn't just attractive for the pay, it's also attractive for the exit opps. Guess what? ER gives you high quality exits into HF/AM and fair opportunity for Corp Dev. Only exit you'd be giving up with the ER job is PE (a.ka. IB 2.0). That said, unless you're set on PE, ER looks like the clear winner in my opinion. Worst-case scenario, you can lateral from ER to IB coverage for a year if you really wanted to do PE that badly.
Love to hear your take on this.
for public markets work i genuinely think ER might be better for exits. it seems like every other fund i met with were run by firm alumni from ER.
Definitely think your logic on this checks out. Only caveat is that you need to have a passion for the public markets to land a gig in ER (which not all people gunning for IB have). Also, when you adjust for the amount of applicants per spot available, ER is arguably more competitive to get into than IB especially at the junior level. For every 100 IB analysts, a bank may hire 5 ER associates -- and some banks don't even hire ER associates straight out of undergrad.
That said, the reason why ER might be the best kept secret in finance is because there's far fewer seats, there's less talk about it on forums like this which helps it remain a secret -- and I'd like to keep it like that.
Thank you for this post, found it very insightful.
This is awesome
What if someone wants to get a seat at a debt fund in AM or a HF, it’ll be shut out for them coming out of ER
Then just go into credit research. Same job as ER but just for debt lol
How does it compare to Corp Banking in terms of hours and pay?
Interested as well
Pay between ER and Corp Banking is nothing materially different at the junior level (ER could be 5-10% higher depending on firm).
However, when you get more senior, there is a larger discrepancy between pay where MDs in ER could make 20-50% more than their peers in corporate Banking. That said, senior level comp is hard to pinpoint and it is highly contingent upon firm and performance.
One of the most overlooked career paths is in credit research. A larger emphasis on balance sheet and financials as apposed to management team, future FCF, and story (not to underplay the technical side of ER by any means though). Fido has a great credit research program with great WLB. Highly recommend it.
Fido aren't necessarily known for FI as they are for Equities, would rather be at a debt-focused firm doing CR than an equity focused firm doing CR.
What firms would you recommend following? I'm currently working in consulting but I'd be very interested in a more research-oriented field.
Incoming Fido intern, would love to know more about the credit research program if you'd be willing to expand on it. Thanks!
I agree with this.
I just secured a mm M&A offer and was really hoping for something in research. Sent messages on LinkedIn, tailored my resume for it, made some cold calls, applied for roles, etc. Could not land a single interview. Not even an HR screen.
M&A IB was way easier to break into and I had a solid amount of interview opportunities.
Are you an analyst or lateral? I assume lateraling to research after a year or so wouldn’t be hard.
Lateraling from valuations to IB.
Spent 3+ years in ER. Just to add my 2 cents.
-Recruiting: Joined off-cycle so can't speak for on-cycle FT recruiting but from what I have seen it is far less structured than IB, as there are fewer seats, less turnover. I didn't recruit for IB so can't speak to competitiveness, but imagine its on par.
-Comp: varies much more widely than IB, while most BBs have raised base for all front office, some MM/EB/Boutiques have not. Bonuses are lower, and are more based around your industry/team's "contribution" to P&L which is more difficult to quantify in ER. In general hot sectors for IB activity and trading activity will also be hot for research. Biotech in particular is where you will see the highest comp in general, given the specialty backgrounds that can actually provide meaningful insight to buyside.
-Lifestyle: Your analyst will 100% drive your lifestyle and for the most part exit opps, the bank does not matter (more or less) unless you are exiting outside of your coverage/buyside and rely on the brand name (think switching career paths like ER to say consulting). Have seen some groups with very relaxed culture, working ~40 hours/week outside of earnings, and have also seen the opposite with constant ~70-80 hour weeks outside of earnings.
-Skills: Like lifestyle, will be 100% driven by analyst. Analysts typically fall in 3 buckets: Stock Picker, Modeler, Relationships. The stock picker analyst will likely write a lot, do back of napkin math for valuation, and be constantly changing ratings, PTs. Think active trader, quick price swings, less depth, more inclined to say L/S pod shops. The Modeler analyst will be the deep dive guy, wants to know every inch of the 10-K, build everything out in model, and is more or less slow moving, more inclined to longer-term horizon like AM. The relationship analyst is buddy buddy with all the corporates, up and down the supply chain of industry. People come to this analyst to read between the lines of whats going on. Will be hosting lots of 1 on 1s, roadshows etc... Most inclined to exit to IR/BD/general corporate for coverage (and the analyst typically encourages this as it continues to build his network of information). The big difference in skills is in IB you build "transaction" skills, where as ER build public market skills. To me ER has a leg up in HF/AM because of experience making decisions/analysis with only pieces of the story (information asymmetry between IB transactions and ER), and being in-tune with news flow and how it effects short term movements/perceptions.
-Exit Opps: Discussed above but will talk about my specific recruiting. Had plentiful options to move sectors to different banks of all sizes (EB/BB/MM/Boutique), so more or less at junior level you are not pigeonholed sector wise outside of some more specialized sectors (REITs/Banks, Biotech, etc...). Next most common exit is to HF/AM. For HFs got the most looks from the typical pod shops, although did have interview opportunities with single managers as well. Did not particularly pursue as L/S wasn't as appealing to me. Recruited more heavily towards AM. Seats are hard to come by, as there is far less turnover at the top shops here. I got looks both through recruiters and applying through company portals. Recruiting process here is long with many layers/steps. Last most common opportunity is exiting to corporates. I did not consider this route so can't speak to it directly other than I'd say ~1/3 of exits are to corp roles of coverage and have seen everything from IR to Biz Dev, FP&A, CFO (smaller cap).
-All in all, ER provides great training (and relatively interesting day to day work), with a great lifestyle for most at the expense of good (not great) pay, and plentiful interesting exit opps.
Just want to echo that lifestyle/culture can vary significantly from team to team at the same firm. When conducting DD on a potential seat it’s important to speak to team members.
Can you send me a PM?
Can you share how you went about getting those interviews? You said through recruiters but did they reach out to you or did you find them? And what was that process like
Thank you for your detailed response. Quick question, can graduates also apply for this off-cycle position? What are the alternatives to an equity research internship if I am not qualified for the school year?
Been in ER for 5 years. This is a very well written and accurate synopsis
One key question you need to ask yourself is, do I have passion for public markets or do I like deals more?
I started in equity research and quickly realized I was not a public markets guy. For me, that meant covering stocks just for the sake of covering them, writing another flash, populating another quarter for some random crappy company, got old very fast. My lifestyle when I moved to banking dramatically worsened but I found the deal-focused work much more interesting. I also got much broader and technical exposure to a variety of transactions. If you love the markets and want to do AM or HF down the road, would definitely do ER, but if you want to keep options open, banking is probably better.
Agree though, if you like it, it is quite a good spot, especially as you get senior and build your franchise. I imagine at that level (I was a jr when I left), it would be pretty sweet to have full autonomy over your work. Def don't have that level as a VP in banking.
Would echo that lifestyle is highly dependent on your analyst and the sector you cover. I know plenty of teams in TMT and Biotech that are running 80 hour weeks outside of earnings. If your bank is on 5 IPOs that fall within your teams coverage, you now have 5 initiations to do at once, on top of keeping up with your coverage, speaking with clients, attending investor events/conferences, and earnings. At that point, you are basically working the low- to- middle range of banking hours. But 100% agree with the other points of your argument
I’d add that some of these teams were caught flat-footed by the uptick in banking volumes. Workloads spiked and attrition quickly followed. There are blue chip teams/sectors that are seriously understaffed right now and having trouble backfilling attrition and adding incremental bodies.
I like this, but the caveat I’d make is that the ER industry is contracting. Look at Europe and their removal of soft dollar arrangements. That is coming west, and it’s before taking into consideration the push towards Private Investments. Not saying ER is dead, but it faces similar headwinds to a career in trading imo
ER comp is atrocious at senior level, S&T/ER/AM MDs (or equivalent) make a third of what IBD MDs make
This statement above is completely inaccurate.
Agreed. My analyst makes low 7 figures (not TMT/Healthcare)
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