IB vs Equity Research for Fundamental Hedge Fund Strategies - Advantages of IB

Given that ER has better lifestyle, hours, and maybe like 15% less pay, if your eventual goal is HF, what are the advantages of IB?

Any of the BB's have good ER too, while not all of them give you great modeling experience in IB...

Love to hear thoughts

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May 15, 2015 - 10:36pm

Really depends on the HF. Some HFs are obsessed with modeling (even though detailed modeling is kind of a waste of time in most cases since the only thing you can be sure of is that you are going to be wrong -- if you can't sketch the math out on a napkin, it's probably not a great idea). For those types of HF, IB is probably better. For everything else, it's probably a toss up based on the candidate with a small edge going to ER. The reason ER is not a large edge is that most of the stuff the sell side puts out is anywhere from pretty bad to really bad. If I were you, I would go with ER and use any extra time on the side to read books about stock picking which will help you out more than compiling pitch books. If you are not 100% sure you want HF, go with IB since you will have more and better exit opps ex-HF.

May 15, 2015 - 10:39pm
Ravenous:
Really depends on the HF. Some HFs are obsessed with modeling (even though detailed modeling is kind of a waste of time in most cases since the only thing you can be sure of is that you are going to be wrong -- if you can't sketch the math out on a napkin, it's probably not a great idea). For those types of HF, IB is probably better. For everything else, it's probably a toss up based on the candidate with a small edge going to ER. The reason ER is not a large edge is that most of the stuff the sell side puts out is anywhere from pretty bad to really bad. If I were you, I would go with ER and use any extra time on the side to read books about stock picking which will help you out more than compiling pitch books. If you are not 100% sure you want HF, go with IB since you will have more and better exit opps ex-HF.

I'm offended. I put out some quality shit.

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May 4, 2021 - 6:46pm

isn't ER all about modeling? How is IB more modeling intensive than ER?

May 15, 2015 - 10:37pm

I don't think either will give you a better edge in terms of being prepared for the work at a fundamental L/S hedge fund. Exit opps and recruiting are generally much better out of banking. The big funds recruit almost exclusively out of banking. That being said, if you really want to make money you need to look at stuff that isn't covered that well, which means huge AUM precludes great returns. The best guys built their track records on much smaller capital bases than they are running now. You can learn an incredible amount at a fund that doesn't run a ton of money.

Do banking. In your limited free time read the right books, follow the VIC and Sum Zero, and talk to alumni/friends that are already at the funds you want to be at.

May 15, 2015 - 10:38pm

I agree with that, virtually all the best track records occur at small(ER) funds. It depends on the strategy, but anything over about $500M and it gets much harder, and it's definitely harder over $1B unless maybe you are doing global macro. You can knock the cover off the ball with a couple of hundred million doing L/S if you have the skill.

May 15, 2015 - 10:45pm
Ravenous:
That's right. Flake, of course, is amazing. AMAZING.

My research brings all the PMs to the yard.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.
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May 15, 2015 - 10:41pm

Most ER analysts won't get decent modelling experience in their first few years and will just, at best, update templates, and at worst, fetch coffee, answer phones, and read/follow up on industry news.

I say this from knowing only one person who worked in ER, so maybe I'm wrong.

May 15, 2015 - 10:42pm
NewGuy:
Most ER analysts won't get decent modelling experience in their first few years and will just, at best, update templates, and at worst, fetch coffee, answer phones, and read/follow up on industry news.

I say this from knowing only one person who worked in ER, so maybe I'm wrong.

Isn't this true for IB as well? You potentially COULD get better modeling experience, but your still a first year. Starting position for ER is Assciate by the way.

May 15, 2015 - 10:43pm

I would go with ER, and devote any additional time you gain from that decision toward becoming a better investor. That's something that really only comes from experience, and it's experience that neither IB or ER is going give you. Open a paper trading account, and treat it like the real thing -- write up your rationale for your investment decisions, keep track of your investment performance, etc. Then, once it actually comes time to interview for hedge fund positions, you're going to be able to speak like somebody who knows his shit. You'd be amazed at the number of finance monkeys coming out of BB's who, despite being smart, capable, Excel jockeys, don't know anything about the actual practice of investment.

As someone else mentioned, you may not be the first choice for modeling-intensive hedge fund positions, but would you want those anyway?

Having said all that, I'll give my regular qualification. This is my bias. To me, the extra time I gained would be worth more than what I gained from IB (more varied, potentially better exit opportunities). Your experience is going to be what you make of it. Go to the place where you think you could thrive.

May 15, 2015 - 10:56pm
"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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