Exit-Ops: Equity Research vs. Investment Banking - (A Definitive Guide, Part 2)

See part 1 here: Work/Life Balance: ER vs. IB - (A Definitive Guide, Part 1)

As someone who has worked in both areas, I wanted to touch on ER vs. IB exit-ops similar to my Work/Life balance post. Specifically, I'm focusing on details and clearing up some common misunderstandings. To give you some background, I exited from ER after initially doing IB. I wasn't set on any one exit-op and sent applications to just about everywhere and as a result got a pretty good feel on what's possible. Furthermore, the below post is based not only on my experience but the career outcomes of many friends, colleagues, and acquaintances in the business.

Asset Management

It's pretty well-accepted on the WSO forums that both IB and ER have a good shot at asset management, but which is better? Having worked with many buy side clients, I gotta say that it's a slam dunk for equity research. Don't get me wrong. There are a ton of people from IB working for hedge funds etc, but I ran into so many more with ER backgrounds. In my opinion, there are two reasons for this: more market knowledge and more contacts.

As far as market knowledge goes, you get way more experience in equity research. By my third year of ER, I understood more about my industry than your typical VP in IB. If you're working 80 hours a week in IB but 50 of those hours are spent on shading boxes in PowerPoint you're really not learning that much about the sector. An ER associate is working less at 60 - 70 hours per week but is following the market every second. Just do the math on those sample hours and you can see how an ER associate could overtake a VP in knowledge pretty quickly.

Another huge advantage is simply the contacts. In ER, you're working with the buy side every single day. In IB, you never work with hedge funds, mutual funds etc. This part should be pretty self-explanatory. With either ER and IB, you've got a good shot, but if you're really aiming for asset management, I'd recommend the ER route.

Private Equity

On private equity, I gotta say that IB is a slam dunk here. I really don't know of any Equity Research Analysts currently in private equity. However, that said, I did get two private equity interviews when searching for exit-ops....unfortunately, they didn't go that well. They liked my in-depth knowledge of the market but at the end of the day, they were looking for someone with more deal flow and modeling experience. They basically wanted an IB workhorse, not someone who knows the market.

Note that ER occasionally interacts with private equity but it's pretty rare. If this is your route, I'd go with IB. However, if you're an ER associate looking for an exit-op, it wouldn't hurt to send a few resumes to private equity shops. As my experience showed, it's not likely that you'll get an interview but it's also not impossible.

Corporate Development

I used to think that Corp Dev. was reserved for the IB route. I mean it makes sense right? You're doing M&A inside a company so it would make sense that you would have experience doing the same thing in IB. And yes, IB is probably the best route to go here, but at the same time, I'm surprised to know quite a lot of former ER associates working in corporate development. From my own experience, I managed to get an interview at a mid-cap. In my opinion, this is one of those misunderstood exit-ops. IB has an advantage but ER backgrounds seem to be able to consistently land these roles as well.

Investor Relations

ER is clearly the winner here, but I've seen a decent bit of bankers in the role as well, both from M&A as well as ECM bankers. The deal with investor relations is that lots of companies just pick some random person to take care of their IR efforts. In one case, I knew of a multi-billion dollar company which had promoted an executive assistant to director of investor relations....I'm not kidding. So yes, a banker has a shot at IR. However, if it's ever a choice between a banker or a research analyst, the ER analyst will win every time.

Switching Sides

Not truly an exit-op, but I've seen a good bit of switches from IB to ER including myself. While this is very possible, at a certain point, it doesn't make much sense. If you've made it to IB associate level, you're going to take a major pay cut switching to an ER associate position. Also, it's sort of like throwing away several painful years of IB. If you're going to switch to ER, I would do it as soon as possible. If you can write well, most ER analysts would be happy to hire someone with a single year of IB experience.

The other way around is possible as well. I've seen several ER associates switch to being IB associates. I tried this route myself and did receive an IB associate interview. This is kind of an awesome route if you think about it. To go from ER associate to IB associate saves you a lot of pain. Instead of three years of 80 hours a week, you did two or three years of 60 - 70 hours per week and then got to the same place. That almost feels like cheating or something!

Unfortunately, this benefit goes away further up the ranks. I know several full-time ER analysts who have had to step down to IB associate in the switch - that's worse pay for worse hours. In a very rare case, I've seen a rock star ER analyst move into an ED position. I've also once seen a full-time ER analyst move to a VP position at a LMM bank. The lesson here is pretty much the same. You can make the switch, but you want to do it the sooner the better. In ER, it can be worth waiting a few years to jump to IB associate but no longer than that.

Final Notes

The main takeaway from my experiences above is that there really aren't any closed doors from either approach. If you can hustle, you can get open any door. On this forum, people seem to focus on very rigid formulaic routes. Is IB a way better route for PE or Corp Dev? Yes definitely. Is it impossible to get these roles through ER? Definitely not. The same goes vice versa for asset management or IR.

Networking

Also....just wanted to touch on two other topics regarding exit-ops. I would also note that a major advantage of ER is the networking. In IB, most junior analysts and associates never really get to meet anyone. The MD is trying to get face time with the client and so is the ED and the VP, plus the relationship banker and even the derivative sales guy. In most IB client interactions, I gave my card to the client and said nothing else in the meeting. In ER, I was on a first name basis with management teams and personally knew tons of people from the asset management world. If I met a management team, it was just me and the analyst. And then later on as an ER analyst, it would be just me and the management team in the meeting. Knowing so many people in the industry was a huge advantage in the exit-op search, and it ultimately got me my current role.

Examples of your work product

And one final thing which helped a lot during exit-op recruitment was the ability to show my ER work product. Yes, as an IB analyst, you can point to deal XYZ on your resume. However, you just worked on a small part of that deal. With my ER background, I would attach a 50 page industry report to an e-mail and could say that I wrote 90% of it. That's a pretty huge advantage.

Well jeez....that was a lot but as noted in the title, I'm trying to make this a definitive guide, but please do add your own experiences to make it even more definitive for others. I'll try to knock out another ER vs. IB comparison in a week or two but no promises. Thank you for all the silver bananas on the last post - I hope this one is helpful as well!

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Comments (22)

Nov 27, 2017

Nice... thanks for continuing the guide. I'm sure I'll have some questions later but one thing that caught my eye, can you really attach your bank's report to an application/email to a diff bank? When I was trying to get into ER, at least once do I remember an analyst tell me not to send any proprietary stuff (from my current job) and it just seemed they were very paranoid over compliance.

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Nov 28, 2017

Things like models are off limits for sure, but if you're sending a copy of a report which has already been published and publicly disseminated to thousands of inboxes on the Street, there shouldn't be a problem.

Also, keep in mind that various firms have different interpretations of SEC regulations. Some firms have such strict interpretations that it's almost stupid. That could be the case here. On a side note, kind of scary that there are very many different interpretations of SEC regs.

Nov 28, 2017

This is good stuff man, thanks for taking the time to write it up. What are your thoughts on trying to move from valuations to ER or directly to asset mgmt?

Best Response
Nov 28, 2017

Hey Bob,

I actually made the move from Big 4 valuations to sell-side ER. I found my position through the CFA Institute job board. My end goal is to work at a value asset manager.

I think going directly to an asset manager would be harder. There are 'portfolio management' type roles where it's more asset allocation as opposed to fundamental analysis which are definitely obtainable but maybe not ideal.

Besides that, a few larger asset managers have a 'research associate' program for recent graduates. A few examples are Brandes, Wellington, Eaton Vance, Fidelity. From my understanding, these are very selective. I had more success with sell-side ER recruiting, but your experience may be different.

Best

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Nov 28, 2017

Thank you for the response, I will be sitting for CFA level II this summer. Where is this job board you speak of?

Nov 29, 2017

No problem, happy to help

https://careers.cfainstitute.org/

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Nov 28, 2017

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Nov 28, 2017

I would say that is true most of the time when using headhunters, however it doesn't hold much weight when I interact with these guys on a daily basis and the banker does not. In my experience thus far, lateraling to an asset manager from research happens via the client poaching you and not from a headhunter recommending you.

Granted there are guys out there who just refuse to to take research guys and will always go banking, but not as much as you would think. Maybe that is just a specific facet of my coverage, but that's been my experience.

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Nov 29, 2017

You're a student - what would you possibly know about the buyside?

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Nov 28, 2017

good stuff thanks for posting

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Nov 28, 2017

Any thoughts on moving from an IR to another area? Coming from IR I would imagine Corp Dev at the same or similar company or ER would be the post probable transitions, with IB more distant, right?

Nov 28, 2017

If you make good connections with the covering analysts in ER you could always try to make a move when a spot opens up. They will appreciate you knowledge of the sector and general finance acumen, but question if you have the modeling skills or market knowledge.

Within IR, it really depends on how management views your function. I have seen IR teams with former IB / ER guys that have a high impact on the organization and are in the ear of the management teams seamlessly roll out into other areas of the company (Mainly FP&A or Strategy / Corp Dev). On the other hand, I have also seen IR teams that consist of former HR / Soccer Mom-types that do nothing but ignore most analyst phone calls and give boilerplate responses.

I will caveat the above by saying I do not have any direct IR experience, but have worked in companies alongside IR teams.

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Nov 28, 2017

Thanks for the posts - great materials! I myself am currently in IBK seriously considering moving to ER. Could you give us a bit more color on your background, i.e. how long did you do IBK, what made you change, did you ever regret the move?

Any insider thoughts on the future of the industry given the new regulation in force starting next year?

In terms of comp, what sort of cut are we talking about at say Associate level? Correct me if I'm wrong but I suspect this compensation gap disappears when exiting to the buy-side.

Nov 28, 2017

Don't want to go into too much detail, but I did one year of banking and then made the jump to equity research. I was an associate for three years and was then promoted to analyst. I had six companies under my own coverage but was still doing associate work for the lead analyst. At that point, I jumped to my exit-op for better hours and better comp.

It would have been nice to get some more modeling experience from banking for exit-ops, but I really disliked the culture of banking so have no regrets overall.

As far as MiFID goes, it's really not that big of a deal for someone just starting in the industry but I have a different take on this than most. It is very very tough in ER to make it to full-time analyst. For that reason, I don't think that you need to sweat the long-term prospects for an industry where you have very little chance of being a long-term player anyway. Do 2 to 3 years of equity research, enjoy it, and then exit-op for something else. MiFID is really a bigger problem for analysts who are 6 years deep or more in the business and are now watching their business model collapse around them. I plan on writing on this topic in more detail in a few weeks so I'll discuss further then.

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Nov 29, 2017

I totally resonate with your thoughs on banking culture. In fact it is one of the main reasons I am planning to move. Was it different on the other side? Did you find people who actually enjoyed their work / who had at least some passion for what they do?

Can you touch a bit on the compensation topic? Also, what are you doing now?

Again, thank you for sharing your experience - super useful!

Nov 28, 2017

Not sure why ex i-bankers would want to join a hedge fund at all. I understand the allure of PE. But hedge fund for i-bankers?? I dunno... unless u get to join a mega fund for good upside, or u have a burning passion for markets.. I'd rather do corp dev or corp strategy at a cool tech company after banking, not hedge fund.

I work at a large hedge fund in nyc and i find the work here not so great. Granted I dont work in investment division, but I interact with research guys all the time and I can't imagine working with those guys in such high pressure, isolated working environment. There is absolutely no job security in this space. I see research guys and pm's getting fired all the time, esp in equity funds. There is not much human interaction working at a fund and ur looking at computer screens all day doing stock valuations, working with huge nerds and dicks, many of whom I find intolerably arrogant and lacking in social skills. Some dudes working in investment divisions at my fund haven't literally shaved in months, grossly overweight, dress like crap and probably haven't gotten laid in years.

Many bankers and consultants i know are very polished and social. These guys won't liley fit in with the working environment of hedge funds, at least at my fund.

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Nov 28, 2017

I dont know why this is surprising or new to you. HF is and always has been one of the most common IB exits.

As to why they would want to work there, oh I dont know probably because its a fuckton of money? Who else is going to pay you $250k+ at 24? PE funds, and the decision between them comes down to personal preference.

As far as tech companies go, theres a few problems here:

-Much lower Comp
-Finance function not central to the business
-Limited number of spots (only one FB, etc.)
-Generally filled with a distinctly different breed of humans

Once again comes down to preference as well.

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Nov 29, 2017

Thanks for your guide! It is really helpful.
I am an equity analyst with 4.5 years experience, and want to move to PE. Would you please give more advice about this?

As you said, it is very difficult. I have contacted with some funds through agents, and some of them even didn't want to interview me only because I am not from IB....

Nov 29, 2017

Great post, thanks for this.

Could you elaborate on the Asset Management section? More specifically, would you say that ER is better in terms of exit ops for all types of hedge funds, including L/S, macro and event-driven?

Dec 1, 2017

Hiya. Sorry to ask about this. I'm knew on this forum and I don't know how things really work but I would appreciate it if somebody could help me out with my question. If you go on my profile you should be able to find it. Thanks

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Dec 1, 2017
Dec 2, 2017