IB vs. HF out of undergrad

EDIT: Added context that's been asked for, this is a well-established MM pod at a MM that isn't often discussed here but is still well-known. Has the ability to take longer-term theses due to strong capital base so it feels like a SM in some ways. Banking option is top EB/BB, school is target. Exit opps post-banking will be great, could probably get back to this exact seat, so I am unsure if the extra 2 (or 4) years of non-HF experience is worthwhile.


I may have the opportunity to go directly to a well-regarded fund out of undergrad but will be doing an IB internship this coming summer, so I'm wondering what are the major pros/cons of this direct path in your experiences versus spending a couple years in IB and maybe PE first. From what I understand:

IB First Pros:

-Formal training, camaraderie in the analyst class, larger network

-Broader business exposure relative to public equity filings

-"Risk-averse" path; allows me to switch to PE/VC/CF should I want to


HF First Pros:

-Pay probably better, work more interesting, hours more controllable

-Saves 2+ years in IB/PE to ultimately get to the same seat


The goal is to work in investing at the end, but I want to make sure I'm not rushing in unprepared.

 

That being said, working at a hedge fund can't be all fun and games. When shit hits the fan at the HF, he'll think the same thing about IB.

 

Maybe it is, maybe it isn't? The bigger point is that the person hiring you can use your training as a CYA move and make you a safer hire. Additionally, the person hiring you/ immediately above you in seniority has to worry much less about spending their time training you on things they know people in banking learned. 

What WSO users often fail to understand is even if you have the skills, a large portion of the hire is about the perceived skill. Nobody wants to hire a guy they *think* can do the work but would have to spend their time training up for 6 months. And it isn't about target vs non-target, its about "am I going to have to waste time for 6 months teaching this kid things that 9/10 kids from banking already know?". I would much rather hire a junior employee from a non-target school with a finance and excel background vs. an ivy league kid with an art history major.

For example, my credit shop is about to ramp hiring for a junior employee. I'm from a non-target background and try to give non-target kids/ non-traditional kids the benefit of the doubt, but the last thing I will ever do is take a home run wing on someone if I think there is even the smallest chance of them making my life harder. My workplace reputation and upward mobility isn't worth making a charity hire.

Life is more than dollars
 

Depends on how well-regarded the fund is. If you've been reading this forum over the last year, you can get a sense that several people don't feel too optimistic about HFs career as the industry's best years are behind it.

If you're landing a prestigious, large AUM, tech-focused fund, by all means go for it. Otherwise, might be wiser to stick to IB and risk aversion.

 

Yeah it's a very large and stable fund, not too worried about it disappearing, everyone on this forum should know the name. I guess I'm curious if there is anything crucial I would be missing by not going through IB/PE in terms of skills. Definitely a lot less training and more figuring it out myself if I go buy-side directly which might lead to some gaps in my knowledge.

 

IB = a lot of avenues after IB (Corp Dev, PE, MBA, HF etc). Basically everyone will know you can, at a minimum, work your way out of a problem. You'll have a good background in how things work "behind the wall" assuming you get real deal flow and client interaction.

HF= w/o any formal training = pigeon hole. I had an offer to to go citadel straight from UG and chose to go to a BB -> PE -> HF. I think the PE/banking background helps a lot when dealing with the (sometimes) stupidity of the public markets. 

 

If you ended up in a HF, what do you think you gained or are able to do now by doing IB and PE that you would not have been able to do if you joined a HF directly? Beyond helping you to deal with the irrationality or markets that you mention, how does being an IB or PE analyst make one a better HF analyst? Genuinely curious as I see this as a common path mentioned here. 

 

the main thing I gained doing IB/PE before hedge funds was thinking about things from the perspective of a long term investor behind the wall. I think interacting - behind the wall - with CEOs, CFOs, BOD and middle management gives you perspective that you otherwise don't really get as a public market investor. I think the level of diligence you do in PE sets you up well for the public markets. When I was in PE and looking at public to privates, the amount of nonsense the sellside and public market investors digest helps you separate signal from noise better as well. 

 

Target school OCR, the MF PE firms tend to have consistent processes that people know about but the big HFs also hire interns and analysts on an ad-hoc basis as well.

 

Something important that gets overlooked in these debates is professional and emotional maturity. HFs are extremely unstructured and being thrown into that kind of environment without having ever having worked before is challenging. I know that I wouldn't have been ready. I would have been just too green and wouldn't have been able to make the most out of the opportunity even I was good enough to get it. 

 

I'm surprised no one mentions the value of the network one develops in IB. Many of us that started off in IB still keep in touch with our analyst class many years later, having changed jobs/industry several times by now.

Belonging to a large IB analyst class provides you with friends and support when you start off. When you're a bit older, many of your former colleagues will have gotten far in their careers and can help you land a job, find business/investment opportunities, or just provide valuable advice.

You start off at a HF, there will be no "analyst class". You're mostly on your own with the insecurity of a young graduate, and you will miss out on the camaraderie of IB analysts. If the HF gig doesn't work out, you are largely on your own and with a very limited network.

It's totally normal to underestimate the value of building a network when you're early on in your career.. I never thought the guys I would have beers with in my early 20s would add anything to my career.. but over the years, having known some of those people has been invaluable to my career.

Something to think about.

 

OP here, that is something that's definitely been top of mind recently as I know an alum of my school who has been putting me in touch with his analyst class friends who are now doing amazing things in their 30s and 40s. Do you think an MBA might be able to compensate for this lack of banking network? I've heard mixed things about MBAs in the HF space, but one PM has recommended it to me for the network benefits as he didn't do banking out of undergrad either.

 
Most Helpful

A lot of people here are saying take the hedge fund offer and dont look back but as someone that turned down an offer at a 'well known' hedge fund out of undergrad to go to banking, I wanted to offer my perspective.

First of all there are pretty only four big, well known hedge funds that recruit kids out of undergrad year over year through dedicated recruiting pipelines: Point72, DE Shaw, Bridgewater, and now Citadel. Each of those funds has particular downsides to consider when evaluating an offer.  

At Point72 and Citadel you're dealing with the multimanager factor neutral model with tight risk controls and the pod structure. Turnover at these firms is incredibly high and if you join out of undergrad you take on the risk of being unemployed with only 6 months of work experience on your resume and no transferable skills outside of picking stocks. Your best bet is trying to find a role at another multimanager because most single managers have a significantly different investing style than a market neutral 'quarter to quarter' trading approach that the MMs do. Even if you don't get fired, another huge risk of joining a MM program out of undergrad is you might get stuck under a shit PM. Ask any investor out there if they would consider joining a multimanager fund without knowing who their PM would be -- every single one would say fuck no. Your experience, pay, work life balance, and job security will be determined entirely by your pod and you have to enter blind without knowing what that will be. 

DE Shaw is at its heart, a quant fund. Their fundamental groups are more recent add ons and aren't big names in the value or activism space where they're competing. Yes culture is good, and you might get paid pretty well out of undergrad, but there's been a lot of change up top recently for their fundamental side and there are a bunch of question marks around long term pay growth and opportunities for promotion. Don't confuse their weight in the quant world for prowess in fundamental investing.

Bridgewater gets some great, intelligent kids year over year, but the work experience varies super widely. A lot of people say that three quarters of the people working at the firm don't really do anything of value and all the decisions are made up top. Out of undergrad you'll be doing a lot of research on particular trends or stories, but never seeing the full picture or making investment decisions, or even being in the room when those decisions are made. 

If your offer isn't at one of those four, then go ahead and evaluate it fairly. But remember that if the fund doesn't take kids out of of undergrad consistently, there will be no training program, or special treatment for you. You will be expected to come in and perform the same way someone with two more years of work experience than you would. Or maybe they won't even know what to do with your or won't trust you with important work. Neither of those scenarios bodes well.

The biggest problem with all of these firms is that if you start your career out at a hedge fund you are effectively forced to stay in the public markets forever. There is none of the highly recognized transferable skills that you gain through banking or PE that allows those folks to have the flexibility to choose between advisory, investing, and corporate roles. Even if you know for sure that you want to be an investor and wind up at a hedge fund one day, the quantity and quality of opportunities you'll have in front of you after two years at a good banking group is massive. I ultimately took my banking offer because the group had a phenomenal record of placing kids at top hedge funds, and after I wrap up my second year, I'm heading to a top single manager value fund -- an opportunity I never would have received if I started off at a DE Shaw or Point72, no matter how good I was. There's a reason the tried and true paths are favored -- because you can't really go wrong with them. Your worst case scenario if you take banking is that you feel you wasted two years in a 40 year career while adding a good brand name to your resume and giving yourself optionality. Your worst case scenario if you take the hedge fund offer is you realize you don't want to be in the public markets, or you get blown out and have to go job hunting. It was an easy decision for me.    

 

Why so many downvotes? I agree with what this post says a lot. It’s all about optionality. Unfortunately this forum is going to be biased towards people who already know they want investing, and probably desire public markets single manager hedge funds as the golden apple. But realistically, for someone out of college, you don’t know what you want to do yet. 

Array
 

Very insightful SB'd. Would you be able to share whether your banking group was M&A/coverage or RX? I'm not aware of any banking groups that have a consistent track record of direct placements into top HFs (but I'm still in school so don't know much). 

 

Because picking quarters and being right >50pc of the time (if you’re good) isn’t valued outside of picking stocks. Yes you know how to analyze companies with public data but compare that to someone who analyzes them while having access to company data.

As I consider leaving the industry, I often look at industry jobs - they all want experience in banking, Corp dev or PE - no mention of HFs.

Yes I’ve done banking and think the experience is generally very little value-add - but it is valued very highly outside of finance.

 

Really really really REALLY depends on the fund and the seat. There is so much variance in seat quality even amongst well-regarded funds that are household names, so it's tough to give advice without further detail (at least fund size, strategy team size, development trajectory). Also depends on what bank / group is your alternative.

My advice - do some diligence, talk to former analysts at the fund to get a clear picture on all of the criteria I mentioned, then make a decision. We're not going to be able to give you better advice that isn't boilerplate without more detail.

 

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