First Step To ER - CFA® Level I

I'm sitting for the CFA® Level I in December. Assuming I pass, do you think that would be enough to land an entry-level Equity Research position? I graduated with a Finance degree from Rutgers in May with a 3.5. Decent, but not great.

I currently work in the middle office of a BB doing ops work on stock trade settlements. It's well documented on this forum that ops = junk, but it's not such a bad job right out of college.

It's okay for now, but what do you think my next move should be? What steps would you take to get the ER job if you were me?

Thanks in advance.

-Steve

 
Best Response

The majority of ER recruitment is done at the post-MBA level, or people from industry (I suppose you could claim "Financial Services") with at least Level II completed. Not to dash your hopes, but it will be a tough fight with an undergrad and Level I only.

The main reason for this is that Level II is arguably the level that teaches "Valuation" (especially equity valuation). It's also the more difficult of the bunch, and is seen as the "hurdle" that someone serious about completing the designation must first pass. The three levels are as follows:

  • Level I - Finance foundations - accounting, time-value-of-money, bond valuation, ratios, stats, economics, formulas, WACC, etc.
  • Level II - Valuation - mostly focused on equity and derivative valuation, together with advanced accounting concepts
  • Level III - portfolio management - bringing it all together to advise a client on a suitable portfolio.

As you can see, Level II would be most applicable from an ER standpoint.

 
Sovjet:
it will be a tough fight with an undergrad and Level I only.

The main reason for this is that Level II is arguably the level that teaches "Valuation" (especially equity valuation). It's also the more difficult of the bunch, and is seen as the "hurdle" that someone serious about completing the designation must first pass. The three levels are as follows: As you can see, Level II would be most applicable from an ER standpoint.

I totally agree with this, I work in ER and took the L3 exam this June.

ER is mad hard to break into, especially now. I would argue it's harder than Asset Management or investment banking for multiple reasons. ER as a business is contracting faster than AM, the skill set required is also harder than AM. A lot of people within the industry try to get into ER and have a lot to bring to the table. So you are competing with them in addition to finance folks. Investment banking at the junior level is FAR easier than ER at the junior level (in general). ER associates are usually given much more responsibility because the teams are so small.

Honestly OP, your chances are not so good, even if you can clear L1 and L2. Passing L2 will be a very good step for you, but in today's environment, a lot of ER shops are closing and it floods the market with experienced people. Keep in mind, not only is there a really steep learning curve, ER requires you to get 4 FINRA security licenses. So, having those licenses is a big plus for any new person to hit the ground running on day 1.

 
grapefury][quote=Sovjet:
it will be a tough fight with an undergrad and Level I only.

I totally agree with this, I work in ER and took the L3 exam this June.

ER is mad hard to break into, especially now. I would argue it's harder than Asset Management or investment banking for multiple reasons. ER as a business is contracting faster than AM, the skill set required is also harder than AM.

.

Is this a US statement or a global statement? i.e. are there places where ER shops are expanding?

 
grapefury:
ER as a business is contracting faster than AM.

Well I guess that can't be too much of a bad thing then, given that AM is one of the few financial industries which isn't hurting right now.

"Well, you know, I was a human being before I became a businessman." -- George Soros
 

Any advice on what type of job I should be in prior to applying for ER then? Should I just stay where I'm at for now until I pass Level II. I could potentially have Levels I and II done within one year from now.

http://DollarDrip.com Username: Knowledge Kick
 

"ER requires you to get 4 FINRA security licenses. So, having those licenses is a big plus for any new person to hit the ground running on day 1."

He's talking about the Series 7, 63, uhhh 87 and 86 i think. The 7 is semi-beast. Alot of memorizing, takes about 8hrs. You gotta hit that before moving to the others. I have my 7 and 63, and like you also taking Lev 1 in Dec.

 
83carb350:
"ER requires you to get 4 FINRA security licenses. So, having those licenses is a big plus for any new person to hit the ground running on day 1."

He's talking about the Series 7, 63, uhhh 87 and 86 i think. The 7 is semi-beast. Alot of memorizing, takes about 8hrs. You gotta hit that before moving to the others. I have my 7 and 63, and like you also taking Lev 1 in Dec.

Correct. those are the 4 licenses required for a research analyst

 

I work @ a BB and considered ER for quite some time.. After networking I was able to speak w some guys that basically told me the following

-Everyone is expected to be pursuing the CFA (Might as well get an early start) -Know how to navigate a model.. You don't have to be able to build it from the ground up -Consider your writing skills- not every writes well enough to write research -They will not hire externally. They might bring people in, but they don't get offers. That being said, it's all internal transfers, or kids in programs.. Too much risk for a shotty recruit

I'm on the pursuit of happiness and I know everything that shine ain't always gonna be gold. I'll be fine once I get it
 

Pretty much every new associate I've seen on the floor that wasn't a returning intern had either prior ER/FO experience or came from industry (which was 1 guy). This industry is not growing.

Also BS on not knowing how to build a model, my third month on the job I had to build an integrated 3 statement model with EBITDA bridges. All associates are expected to know financial analysis and modl building cold. It's the industry expertise you are trying to build up.

 

Hey guys, great post. Really appreciated the perspective from people currently in ER. Quick question: Where are the threads explaining why Ops isn't a good route in?

I'm going into an interview with a AM shop that is very research heavy for an port. analytics analyst position, and I was hoping to use that foot in the door to become an ERA. Any links?

Coram Deo
 

The Back Office at a Hedge Fund: Time to Jump Off a Cliff?

If you’re working in the back office at a hedge fund right now, congratulations!

You should rip open your Oxford shirt and be proud of your monogrammed B.O.B. club t-shirt (the acronym stands for “Back Office Beefcake” – Brian and I are still ironing out intellectual property details, so for now, just write your name and B.O.B. on an old gym shirt and wear it to work).

Feeling good? Excited about your career trajectory and exit opportunities? Fantastic!

Now settle down before someone sees you.

If you actually stood up and loudly professed your adoration for working in hedge fund operations, go to the nearest kitchen, find a glass, fill it up with reality, and take a long sip.

Your life may not be over, exactly, but you need to play your cards right or you’ll be stuck in the back office forever – almost like what happened to me, before I escaped the insanity.

What In The Hedge Do You Actually Do?

I’m sure you already know all about the front office vs. the back office, so let’s not repeat all that here.

In short: if you earn revenue, research how to make it, trade it, or directly manage it, you’re front office.

Pretty much anything with a two-letter acronym falls into this category: IB, WM, PE, S&T, HF, ER

By contrast, “middle office” applies to any role that supports those people.

At hedge funds specifically, “middle office” refers mostly to accounting roles.

And the “back office” at a hedge fund is every role that supports the trading and accounting groups, such as Pricing, Cash & Collateral Management, OTC & Settlements, and so on.

Before you leave a comment with an elaborate explanation of why this is wrong, yes, at some funds the back office duties vary from what I’ve described here… this is just a general rule.

If your job description falls under the support areas I just described, find an old gym shirt and make some room to stamp “B.O.B” on the front.

When You Have Cable and Can’t Find Something Good To Watch…

You get depressed. When you get depressed, you start looking for jobs in hedge fund operations – especially if nothing in the front office worked out for you this time around.

While my description above might seem dire, don’t get too depressed: working in hedge fund operations may actually lead to an opportunity to work in the front office at a hedge fund.

In fact, that is exactly what happened to me.

Six years ago I was working in Tartarus, otherwise known as Buffalo, New York.

I had just completed the first year of an analyst program at a middle-market bank and I was absolutely desperate to get out of Buffalo.

As part of that desperate attempt to leave town, I ended up landing a support staff role with a new business that had just been acquired by JP Morgan.

At the time I actually thought this was a good idea for getting into a front office role at a bulge bracket bank… especially since the hedge fund that sold JPM this business continued to operate in the same physical space.

Time for a Promotion?

If you’ve ever worked at a fast food restaurant in your youth, you know that getting promoted from fries/burgers/tacos/mop duty to cash register is a HUGE deal.

Getting promoted from analyst to senior analyst in the back office is similar: yes, you just got promoted, but you still work in fast food.

If that’s your life’s aspiration, there is nothing wrong with it. But if you want more out of a career, you can’t stay behind the cash register waiting for preparation to meet opportunity.

So once I took this support role at JPM and realized that no matter how much I “got promoted,” I’d still be working in fast food, I decided to fix it by networking like there was no tomorrow.

I used everything at my disposal, including:

■Internal analyst gatherings ■General networking events in Greenwich, CT (HF capital of the world) ■Hedge fund placement recruiters And plenty more that I’m forgetting about right now.

All that networking led to a relationship with a recruiter who provided me with an unbelievable opportunity: an offer at a US-focused, long/short equity hedge fund.

It took a little over 2 years, but I found myself sitting in a front office analyst role rather than wilting in the back/middle office – or losing my youth among other tortured souls in the underworld.

Past Performance is Not an Indicator of Future Results

Before you get your hopes up here based on my transition, realize that it only happened to me, and it doesn’t happen often.

All the stars were in alignment: it was the right firm and the right geography, I had received the right training, and had the right instinct, preparation, and contacts.

And then my preparation unlocked the right opportunity, and “right opportunity” had a distant cousin named “dumb luck.”

But there are some distinct advantages to taking on a support role at a hedge fund – and ways to turn it to your advantage and use it to break into the front office:

1) The Word “Hedge-Fund” Appears On Your Resume

Studies show that it takes less than 20 seconds for a recruiter to review one resume.

If you’re able to hand your resume directly to a recruiter, perhaps that buys you an extra 30 seconds.

No matter the job environment, there are so many applicants to be reviewed for any one entry-level analyst job that anything even remotely related is pretty much required for you to have.

Simply having the word “hedge fund” on your resume (or identifying the business you work for if you don’t work for a prominent fund) or industry-specific jargon can help you get past this initial screening.

Always dress for the job that you want, not the job that you have.

In this case, “dressing” your resume up to highlight how your back office skills are relevant for the front office role you’re applying for is crucial.

And remember that unlike with investment banking, where the back and middle office have little to do with front office skills, it’s quite different on the trading / hedge fund side, which takes me to point #2…

2) Being Around Traders, You Pick Up A Few Things

If you’re fortunate enough to sit in close proximity to the trading desk, always look for every opportunity to engage traders about the market, the asset classes that they trade, the economic environment, and even general financial news.

There’s a fine line between “stalking” and “inquiring” so focus on trader(s) who don’t mind talking with you from time to time.

Over time you’ll get better and better at thinking critically about the markets, financial instruments, and pertinent economic news.

Traders generally make good coin because they’re intelligent, resourceful, and execute well under pressure.

If you don’t possess those character qualities, you probably won’t succeed in any front office role, at least not on the public markets side.

Not to mention that if you are given an interview for a front office position, you will be less than ill-prepared.

3) Don’t Take Your Support Staff Background For Granted

Remember that back and middle office roles are more relevant to traders than they are to bankers because trade settlement, risk management, and other roles are important to the actual business of making money.

Accounting is a building block of any business. Pricing is a critical component of any trade book. And Purchase & Sales serves as an important link between traders and support staff. In a hedge fund environment, all of those areas have to work cooperatively and each area can offer tremendous insight into understanding trade value, trade positions, and general trade strategy.

The more proficient you are in the support area that you work in, the easier it will be to create strong relationships with members of the portfolio management team, trading team, and other “front office” staff.

So it’s not nearly as much of a stretch to wander over and chat with people in the front office as it might be elsewhere – most hedge funds are small, anyway, and traders and investment analysts are more likely to at least partially understand the importance of your role.

4) Somebody’s Been In Your Shoes Before – Find That Person

No need to reinvent the wheel – just find the blueprint.

There’s a strong chance that someone in a front office role at your fund did what you are trying to do right now.

While no two journeys are the same, you need to take similar steps to ensure similar results.

Go and find someone in the front office who worked elsewhere before, and find out how they advanced:

■Did they rotate support roles? ■Did they have a mentor? ■Did they go back to business school? ■Did they take the CFA exams? All these questions will give you insight into the nature and culture of your fund, and whether or not you can move up the ranks at that particular fund.

Sometimes it’s easier to get promoted if you simply move to another fund, and you want to figure this out early on so you don’t spend years in support roles.

5) Slow and Hedgey Wins the Race

You can’t execute a plan without preparation, and if you plan to move from back to front office, you’re going to need a lot of preparation.

Oddly enough, sometimes taking on support roles actually gives you more time for preparation because you may not be working as much as the front office staff.

So you have more of a chance to:

■Expand your professional network ■Get a professional analyst designation ■Explore other roles that move you closer to the front office Sure, if you’re ambitious you don’t want to stay in “normal job” land forever… but if you’re already there, take full advantage of the benefits before writing it off entirely.

Your move to the front office won’t happen overnight, but with a calculated approach it can happen.

Just make sure you have an extra suit at the office for when that day finally comes – and you can cast off the shackles of your B.O.B. club t-shirt without remaining naked afterward.

Exeter Jones is a philosopher trapped inside the body of a writer, trapped inside the body of an alternative investment analyst. He’s worked in investment banking and alternative investments and his favorite breakfast food is ESPN.

 

I've seen full-fledged CFA's in human resources and investor relations. Just a fair warning, CFA is not your silver bullet in. On top of the CFA, I suggest following a company of interest and read their sec filings, conference calls, and analyst reports.

Baby you're the perfect shape, baby you're the perfect weight. Treat me like my birthday, I want it this way and I want it that way. It makes a man feel good baby.
 
R0bin:
I've seen full-fledged CFA's in human resources and investor relations. Just a fair warning, CFA is not your silver bullet in. On top of the CFA, I suggest following a company of interest and read their sec filings, conference calls, and analyst reports.

i doubt this. how would you get your 4 years of work experience in HR? IR may, MAY, qualify....

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

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