Is asset management underrated?

I've noticed AM is kinda shoved aside as a post-MBA job on this forum when in reality it's an extremely steady cash flow for the firm. I really don't see why someone would pick banking over AM at the post-mba level either since the pay at a BB vs top mutual fund isn't too drastic.

Comments (70)

 
12/14/16

Investment management is a highly desirable industry for MBA's recruiting at the top finance heavy schools (Harvard, Wharton, Chicago Booth). For example, Wharton's IM club is nearly 200 students in size.

This forum caters highly to investment banking, which is much easier to break into at both the undergrad and MBA level. Investment banking provides a breadth of exit opps whereas those working in IM generally staying in IM. Investment banking offers a clear, straight path in terms of promotions (analyst for 2-3 years, associate for 3-4 years, vp for 3-4 years, director, managing director) whereas IM depends much more heavily on your performance. For these reasons and others, you will see a lot more people interested in investment banking. FYI post-MBA compensation at top long-only mutual funds (e.g. Fidelity, MFS, T. Rowe Price) generally starts at $25k to $50k signing bonus, $125k to $150k base salary, and $125k to $150k end of year bonus for all in first year compensation of $275k to $350k.

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12/14/16

Agreed but Post MBA PE isn't exactly a shoo-in like a lot of young guys on here believe.

 
12/18/16

I don't buy that anyone is paying 275-350k for MBA grads.

 
12/19/16
ArcherVice:

I don't buy that anyone is paying 275-350k for MBA grads.

It's hilarious to hear this disbelief from people who have chosen other careers. Want me to put you in contact with Wharton's career management office? $275k is the low end of first year post-MBA equity research analyst compensation at Fidelity, Eaton Vance, MFS, Wellington, etc.

 
12/19/16

Please do, because their salary reports paint a very different picture, nor can I find a single data point on glassdoor or any salary report, anywhere, validating that. It's bullshit.

 
12/19/16

Masterg is right, in my experience. I'm at a large long only mutual fund company in Fixed Income and a close friend of mine here, who just graduated from Booth last year (7 years exp) and is a Credit Research Analyst, is at 160k + 80-100%. I'm in the same role, with no MBA (3 years exp) and I'm at 90+50-70%. Glassdoor doesn't show numbers anywhere near that, for either role. Talking with other friends in the industry, AM is WAY more lucrative than people realize and I think making over $250k by 30 years old with 50 hour work weeks is very, very doable.

 
12/19/16
ArcherVice:

Please do, because their salary reports paint a very different picture, nor can I find a single data point on glassdoor or any salary report, anywhere, validating that. It's bullshit.

Base salaries here - https://statistics.mbacareers.wharton.upenn.edu/wp...
Median base salary is $135k in IM (see page two). I know 25+ friends who received signing bonuses of $25k to $50k. I can tell you of many friends who received bonuses at 100% of base their first year in IM. However, I have emailed MBACM at Wharton and will PM you their official report/s on end-of-year bonus compensation once I hear back from them. Keep in mind it's basically winter break and this might be delayed.

 
12/20/16
masterg:

ArcherVice:Please do, because their salary reports paint a very different picture, nor can I find a single data point on glassdoor or any salary report, anywhere, validating that. It's bullshit.

Base salaries here - https://statistics.mbacareers.wharton.upenn.edu/wp...

Median base salary is $135k in IM (see page two). I know 25+ friends who received signing bonuses of $25k to $50k. I can tell you of many friends who received bonuses at 100% of base their first year in IM. However, I have emailed MBACM at Wharton and will PM you their official report/s on end-of-year bonus compensation once I hear back from them. Keep in mind it's basically winter break and this might be delayed.

Not disagreeing with you, but showing an average base salary of $135K does not prove the average recent MBA in investment management makes $275-350K. Everything else you're saying is anecdotal.

 
12/20/16
DickFuld:

masterg: ArcherVice:Please do, because their salary reports paint a very different picture, nor can I find a single data point on glassdoor or any salary report, anywhere, validating that. It's bullshit.Base salaries here - https://statistics.mbacareers.wharton.upenn.edu/wp...Medianbase salary is $135k in IM (see page two). I know 25+ friends who received signing bonuses of $25k to $50k. I can tell you of many friends who received bonuses at 100% of base their first year in IM. However, I have emailed MBACM at Wharton and will PM you their official report/s on end-of-year bonus compensation once I hear back from them. Keep in mind it's basically winter break and this might be delayed.

Not disagreeing with you, but showing an average base salary of $135K does not prove the average recent MBA in investment management makes $275-350K. Everything else you're saying is anecdotal.

He said top funds, not average. I am at Booth and can at least confirm that those figures represent the total comp expectations for people that have received offers from top funds. Of course, I don't have a glass ball into their bonus a year from now.

Top AM roles do pay more than top banking roles out of b-school. They're more competitive though - pretty much everyone who wants a banking internship here gets one at a top boutique or BB (95+%), while far fewer get top AM roles. Plus conversion rates to full time aren't as stable. Also relevant experience counts more - I don't see many people without prior banking, finance/investing or consulting experience on this track (I'm lumping all the CFA's and CPA's into this boat). There's a much higher expectation that you come in performing.

 
12/20/16

Once again, not disagreeing, but someone asked for evidence and all that's being said is 'that's what people I know are getting'. Nobody has provided that yet. It might not really exist as a linkable source, because I'm sure someone would have provided it by now if it did.

It's probably wise to have doubts about what you read on an anonymous website.....I should know, since many people on this site thought I was actually Dick Fuld.

 
12/20/16
DickFuld:

Once again, not disagreeing, but someone asked for evidence and all that's being said is 'that's what people I know are getting'. Nobody has provided that yet. It might not really exist as a linkable source, because I'm sure someone would have provided it by now if it did.

It's probably wise to have doubts about what you read on an anonymous website.....I should know, since many people on this site thought I was actually Dick Fuld.

Check out transparentmba.com. Search T. Rowe Price and look at Average MBA compensation. This is the new "Glassdoor" for MBA students, founded last year out of Booth. You can do the same for Fidelity but you have to look direct at the research role comp, because they have other groups post-MBA that skew the average (the management consulting team for example).

This figures correlate with what I have heard directly from classmates going into those roles. You can correlate to figures from other firms and industries to get a sense of the accuracy of the website. The IB and consulting numbers are dead on, I can confirm that as well, and those corporate roles that I'm aware of comp levels for are correct.

 
12/21/16

I've always wondered.... What does Fake dickfuld do? I'm sure it's something finance-related and likely FO.

 
12/25/16
masterg:

ArcherVice:I don't buy that anyone is paying 275-350k for MBA grads.

It's hilarious to hear this disbelief from people who have chosen other careers. Want me to put you in contact with Wharton's career management office? $275k is the low end of first year post-MBA equity research analyst compensation at Fidelity, Eaton Vance, MFS, Wellington, etc.

Those appear closer to megafund numbers nowadays in PE for assoc, shit has gone way down regardless across the board. Even if someone is 350k/yr in AM that is not going up anytime soon. I also know many folks at AM top shops , the ones who are honest are quoting below or at the lowest end of the band mentioned. I don't think sign bonus is really applicable as a one time comp.

 
12/17/16

I think it is underrated to students still in undergrad, but not to the people who've had work experience. Might it have to do with the fact that the largest Buy Side firms barley recruit out of undergrad? (So students don't know about them and therefore are ignorant)

 
12/15/16

Yeah AM is a good gig if you ask me and they're not just in big cities. Tons of small AM shops. I would laugh if someone genuinely believed AM at a BB is second tier.

 
12/16/16

What would you guys say Sophomore programs at BB's look for in candidates? I plan on applying to the Asset Management arms at pretty much every BB (within the diversity programs) for summer '18. Im currently a (URM) freshman with an incoming gig in a Big 4 advisory group for the summer time so hopefully ill be a competitive applicant? (semi/non target in NYC).

Also wanted to know if its more difficult to break into say GSAM/JPIM then say BlackRock out of undergrad?

Would a buyside AM rather hire some one from IB or do guys who come from BB AM's have just as good of a chance?

Finally, How realistic is it for an undergrad to break into an investment role. Im not sure exactly what a new analyst would do at an AM firm but i know there are groups like PMG at BlackRock and GSAM BDC (Liberty Harbor) that take under graduates.

Thanks fellas.

 
12/16/16

PM me about soph programs. Been to quite a few.

GSAM vs BlackRock level of difficulty is negligible. Both are very difficult to get. JPM would probably be hardest for a non-target since I know tons of people with referrals+good resume and didn't even get a first round.

A HF would rather have a ER or AM guy than IB since there is a direct skill being transferred. IB is good if you want PE and still a good shot at HF/AM/corp dev/ etc. People in AM or ER don't go to PE.

"Realistically" or the odds shouldn't be something to worry about since it's going to be hard no matter what route you pick in FO. Make a game plan and network your ass off.

 
12/16/16

Aren't you currently a sophomore? Stop throwing around advice like you've worked in the industry for 10 years..and focus on not striking with BB recruiting next year.

 
12/16/16

Please enlighten me on what I'm saying that is so coherently wrong. I forgot you were the law and order of WSO.

Everyone can agree with these points.

 
12/17/16

@hockey34 @BillBelichick37 I think you both need to shut the fuck up. Bill, you don't need to comment on every thread on WSO. I don't think he necessarily is wrong but is more misguided. Could see how it could come off as know-it-all. Bill is pretty annoying but at least has good intentions. He should just stop posting 40 times a day.

Hockey, how are you going to throw a barb like that at the kid? He's a sophomore and you haven't even had one BB interview. My office had 2 sophomores total and we normally are against hiring them since the point of a internship at a BB is to get the FT offer. How would you like it if I told you to focus on getting a fucking interview, you non-target chaff?

-An Ops MD who wouldn't hire either of you.

 
12/17/16
FreedStones:

I think it is underrated to students still in undergrad, but not to the people who've had work experience. Might it have to do with the fact that the largest Buy Side firms barley recruit out of undergrad? (So students don't know about them and therefore are ignorant)

Not where the trend is headed. The future looks to be that hiring in the investment management space will be dominated by people with math masters, who know how to code.

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12/16/16

Most of the (college) kids here are unaware and/or have tunnel vision about IB or bust, when in reality 99% would give their left nut to work in AM. That said, there's a difference between the two: AM follows markets, whereas IB does deals. Differences in skill set, interests, culture, etc.

 
12/16/16

also it's a shrinking industry (look at active to passive fund flows as well as shrinking expense ratios) and I'd argue more difficult to get into than IB, plus it's not as sexy as working at a hedge fund. if I wasn't in PWM, I'd love to work at a place like janus, capital group, dodge & cox, wellington, etc.

I'm probably biased because I interact with this side much more than the banking side, but if I was advising someone which way to go, it'd be AM over IB.

 
12/16/16

@thebrofessor I will never understand why people care about how "sexy" a job is. I'd rather be a PM of a 500 million dollar fund than an analyst at Bridgewater.

BTW Wellington is AWESOME. Did you ever consider the MBA to AM route?

 
12/16/16
BillBelichick37:

@thebrofessor I will never understand why people care about how "sexy" a job is. I'd rather be a PM of a 500 million dollar fund than an analyst at Bridgewater.

BTW Wellington is AWESOME. Did you ever consider the MBA to AM route?

Agreed who gives a shit about perceived sexiness

 
12/16/16

The same WSO people here who would rather take GS ops over RBC IBD.

 
12/17/16
BillBelichick37:

The same WSO people here who would rather take GS ops over RBC IBD.

This shit had me laughing, good stuff +1

 
12/16/16

Yes, but only until my practice started going in the right direction. A MBA for me would make absolutely no sense now.

As a wise man once said, fuck prestige, get money

 
12/17/16
 
12/19/16

Rarely see Capital Group referenced on here, but they deserve props for the prestige of their investment analyst roles

 
12/16/16

Am currently working at one of the asset managers you listed, brofessor, and am curious to get your thoughts on transitioning from there to a hedge fund.

If you were at one of those firms, what hedge funds would you try and target? Would be interested in hearing about either strategies or specific funds.

 
12/17/16

first let me ask, why do you want to leave? I'm assuming you're a research analyst and not compliance/marketing/wholesaler. I'd argue that while comp is higher in hedge funds, it's not a holy grail. if you're on a fund that's outperforming, esoteric, has a solid capital base, is established, etc etc etc., I would hesitate to move.

hard to say on actual funds, because my universe is smaller than the entirety of the hedge fund universe. let's say you're an analyst on the perkins value team within janus, probably covering global large or mid cap names. it's going to be difficult for you to get very far outside of that space, so I'd target long/short, fundamental equity, low net equity shops.

if I were you I'd make sure I was in the CFA society locally, network with hedge funds as you get the opportunity, and make sure you have a good relationship with headhunters.

 
12/17/16

That's something that I still have to mull over myself but factors include geographic preference for NYC, where few major AMs seem to be located (can only think of Third Avenue but if there are any I'm missing, please let me know) and also potentially more interesting work though that distinction is also one I'll have to explore more.

How can I meet headhunters btw if my dream is NYC and I'm not working there? Is that something I can do in the future during business school or would you recommend I also try and interact with them now?

 
12/17/16
man-1500:

NYC, where few major AMs seem to be located (can only think of Third Avenue but if there are any I'm missing, please let me know)

BlackRock
Neuberger Berman
Credit Suisse AM
GSAM
JPM AM
JW Seligman
Alliance Bernstein
Dreyfus

Just from a two second Google search.

 
12/17/16

Ok that was a dumb question on my part as I should have specified that I am primarily interested in smaller, value-investing and long-only focused shops, not the larger institutional firms with value investing found under a broader umbrella of strategies.

 
12/19/16

example?

I can think of royce, baron, alger, ariel, harding loevner (or I'm sure many others under AMGs umbrella), invesco, columbia.

I have no idea about contacting headhunters. my knowledge in the space is limited to my interaction with them as well as when I was thinking about making the jump. but if it were me, I'd network and just make it a point to go to NY on business more often. if it were me, here's what I'd do, assuming I had all the other credentials (education, experience, certifications, etc.)

  1. hit up my friends in the industry, get their story
  2. get headhunter recommendations & advice
  3. if alright, contact headhunters, pick their brains, find a good fit, and then tell them what I'm looking for
  4. continue networking, staying active in CFA society, perhaps getting coffee with people at bigger AM firms when you come to the city. I bet you won't have a hard time finding people at AM shops you want to work at that are alums of the firms I mentioned (janus, cap group, wellington, dodge/cox, fido), unless it's janus in which case denver is a challenge, I'd probably focus my networking westward.

last thing I'll say, if you're at one of those firms, don't sleep on PIMCO, you can see newport beach from the window. I'd happily wake up at 4am everyday to get that.

 
12/17/16

Having worked at one of the big Boston-based asset managers, I can testify that investment management is a solid gig. Great pay, more control over your hours, and fantastic learning. I would argue that 1st year Equity research associates talk way more to company management than any 1st year IB or consulting analyst.

The issue, however, is that the active management industry is fundamentally shrinking. Especially with new regulations, active mutual funds are going to be harder to sell without performance. And I can tell you right now, no firm's performance is good these days - very, very few mutual funds are beating the market. As such, the industry is shrinking from both a headcount and comp perspective. Both Fidelity and Putnam had significant layoffs this year and comp is shrinking. Masterg is right in that comp is very solid right now - there are tenured analysts at my firm that are making close to half a million dollars a year working 8-6. However, I can tell you for a fact that comp is shrinking (bonus, not base) - I wouldn't be surprised if the guy making ~$500K will be making more like ~$300K in the future. Still great money, just not the same as it once before. Also, I believe more people will continue to get cut without showing a track record performance - so either you perform or or you are out.

Knowing this, a lot of the junior people at my firm want to make the switch into PE. However, it is very challenging, even if you are coming from a top-tier asset manager. Most PE firms are not interested in candidates unless they have 2-3 years of IB or consulting experience. I disagree with this logic, as Equity research associates are the only ones with true investing experience -- but the defined track (IB / consulting -> PE) is so entrenched, I question if it will ever change...

 
12/17/16

I think that fund lineups will simply shrink. take a look at the lineup from tweedy browne and first eagle. this is what I envision the fund universe to look like in a few years, either by fund closes, acquisitions, etc., because there are simply too many funds out there.

I think comp will come down as well. think about this logically, if your capital base shrinks and you cut your expense ratio from say 100bps to 60bps, the cuts have to come from somewhere.

everything you're saying is correct, but I don't think this makes the industry in absolute terms any less attractive, just in relative terms (relative to the past).

here's the thing, finance has always been slow to reduce comp/fees in a changing landscape, and any time you have to reduce fees, you have to either accept lower comp or work harder. perfect example is PWM.

15 years ago when managed money came to the forefront, we used to be able to charge 3% per year plus the asset manager would get 1-1.5%. I could sell mutual funds/bonds with an 8% markup, and people would pay it. now, you'd be out of business if that was your cost structure.

one of the problems of finance people is they live in the past. the days of a 22yo making 500k in finance are long gone. you can still have a better life than your parents/grandparents and many of your peers, but you won't be a millionaire at 30 unless you're an outlier.

if you love investing, you should go into AM. if you're good at investing, opportunities will come to you and you will be fine financially.

 
12/17/16

Putnam cut 8% of their workforce (~110 people some including ops) yikeees.

26 Broadway
where's your sense of humor?

 
12/19/16

It is important to have an investor's mindset in PE if you actually have a say in whether to pursue investments, but at the more junior level, the modeling and marketing (deck-making) experience from IB translates better to PE than ER/AM-type roles.

 
12/17/16

yes stay far away from Asset Management, who wants to work in a field where you work half the hours of IBD for a marginal piece less compensation...

 
12/17/16

I recommend those interested in the industry read therock's advice above. My observations are similar to his:

  • the active management industry is shrinking, particularly for firms whose AuM is mostly mutual funds (i.e. Templeton, Putnam, Fidelty). The recent DoL rule will really accelerate this. Most mutual fund products will be going the way of the dinosaur in the next 5-10 years. Virtually all new retail flows are going into passive products. Money currently invested in active products is more sticky but flowing out to passive over time.
  • the pace of the above change really accelerated in the past 2-3 years. I was shocked by how much the landscape has changed pre and post my MBA for example.
  • most firms are in complete denial and have no real strategy to counteract this other than to claim "just wait until our performance turns."
  • fixed income active management is still doing ok. There is evidence that passive products underperform active in fixed income for various reasons.
  • I totally disagree with the below:

take a look at the lineup from tweedy browne and first eagle. this is what I envision the fund universe to look like in a few years

In my view, these types of generic product (global value, U.S. value) are prime to be disrupted by passive products which offer broad exposure to those same asset classes at a fraction of the price. Instead, the future of the active industry is 1) niche asset classes which are difficult to replicate with passive products 2) bespoke solutions, particularly for HNW or institutional clients 3) hybrid quant/fundamental funds which add alpha but with a much lower fee base and low headcount.

Anyways, it's all very interesting to think about and watch. A lot of firms are having their "Microsoft moment" where they have to decide whether to stick with a dying business model or shift to where the industry is going, even if the transition is painful. Given that most of these firms are led by 60+ year old guys that already have it made, most will not adapt very well.

 
12/17/16

Do you have any examples of AM firms that are doing the hybrid quant/fundamental approach?

 
12/17/16

A lot of firms are already doing this by implementing more rigorous quantitative screening (for example) into their process, which cuts down the investable universe to a much smaller level and thus only requires a few analysts. We do this for example.

The CFA institute published an article about quantamental recently, recommend you search for it.

 
12/18/16

MFS has a couple of blended research strategies that are a quant/fundamental approach. They've performed quite well, too.

 
12/19/16

Agree with all the above - fantastic points. Just want to elaborate on two points that models_and_bottles already mentioned:

  • The retail-focused mutual funds (e.g., Fidelity and Putnam) are the ones that are really in trouble. As discussed, retail active outflows have been really disturbing due to preferences for low cost, passive products. The institutional-focused mutual funds (e.g., Wellington) are a bit more protected; active management will always play a role in these portfolios due to diversification of investment strategies - no one is going to put tens of billions all in passive products. It's increasingly harder to make the argument that the Average-Joe, however, needs to buy an actively managed product that is ~100bps when they could buy an S&P 500 index fund / ETF for ~10bps, given how abysmal most mutual fund performance is currently
  • To the point that most firms are in complete denial and have no real strategy - this is so true it hurts. A lot of these investment folk are very stuck in their old way of thinking and, I believe, will have a very hard time adapting to new investment strategies. It's been awhile since performance at the big mutual funds has been great, but the prevailing strategy is "we're working hard to beat the benchmark". A lot of firms are going to get wrecked when the new DoL rule comes into play (some already have). I think future success (in terms of attracting new flows) will likely be dependent on packaging / product development (e.g., hybrid wrap products that incorporate both active and passive strategies, smart-beta products), rather than "true" alpha generation, as the golden days of human stock picking are over
 
12/19/16

allow me to elaborate. I'm talking more to their short fund lineups. as in a few funds, instead of a few dozen funds. I see what I wrote came off differently than my intent.

 
12/19/16

I'm not sure that having a small fund lineup solves anything. A crappy product is a crappy product. Granted some of these fund companies went crazy in the mid 2000s rolling out every type of fund imaginable, but it's not the core problem in my opinion.

The real issue is people used to pay "alpha like" fees for beta, whereas now they're only willing to pay for beta unless 1) a manger has a very strong track record to prove consistent alpha 2) the manager is willing to accept a large performance fee component tied to alpha.

 
12/18/16

I don't think that AM is underrated , it's very competitive to break into . I know loads of people in risk, tech , auditing who are CFA charter holders and wish to make the switch but can't find the spot. After all it's a matter of individual taste/preference.

In general the industry is moving toward a cost-effective approach in investment, which is why we observe more passive management in AM and more quant strategies in hedge funds.

Quantmental approach, I read an article about that a while ago but not sure how it works actually since they have different scopes and methods !

 
12/19/16

quantamental is marketing speak for "we run screens and then apply our secret sauce"

no one is 100% fundamental (there's always some math/screening process), and unless you're a program trader, you're not 100% quant.

 
12/19/16

quantamental is marketing speak for "we run screens and then apply our secret sauce"

Not necessarily. There is a team at my firm which runs a quant portfolio which basically mirrors their fundamental portfolio. The quant fund measures 60+ factors in their fundamental portfolio and builds a quant portfolio based upon these factors for a slight different part of the market than their pure fundamental portfolio. I consider this a great example of how to implement a quantamental portfolio.

 
12/19/16

perhaps I'm a bit cynical. I don't think there's anything inherently wrong with "quantamental" strategies, I've heard of and seen the ones you're referencing, just a different secret sauce distilled down into an easily marketed word that sounds sexy.

a lot of the factor based stuff is just david dreman, fama french, et al reborn, yet it's often sold as if it's some new holy grail of investing.

 
12/20/16

Just shut up and get on the train bruh

Absolute truths don't exist... celebrated opinions do.

 
12/19/16

Asset Management is an overrated industry, and this is coming from someone who works at an AM firm in an institutional sales role. I track industry trends and patterns on a daily basis and I can tell you firsthand that the move from active to passive is very real and will mark a permanent shift. Where the equilibrium point will be, no one really knows, but a lot of folks are saying that assets will continue the move to passive in the more efficient asset classes - i.e., large cap equities, investment grade fixed income, etc. Why is this important? Not only because active managers are losing assets but now the biggest buyers aka pension funds are squeezing us on fees. Want to buy our Core Plus Fixed Income product at 20 bps? No problem.

What this means is that you will see guys who are running a U.S. large cap growth/value strategy and barely beating their benchmark gross of fees out of jobs in the next 5 years. The case for active can certainly be made for small cap equities, unconstrained fixed income, and other relatively inefficient asset classes. But there are too many people working in AM that do the same thing as each other. Everyone is reading 10-Ks, everyone is on the same earnings call, everyone has access to the same Bloomberg/HOLT/Factset proprietary data systems.

I can go on and on about why AM is overrated. Yes, the pay is good but there is nothing sexy about working in AM. Whereas I used to view the PMs at my firm as "masters of the universe', 90% of these fuckers aren't beating their benchmark net of fees. In the next downturn, a lot of these folks are going to be out of jobs.

 
12/20/16
krazyk:

Asset Management is an overrated industry, and this is coming from someone who works at an AM firm in an institutional sales role. I track industry trends and patterns on a daily basis and I can tell you firsthand that the move from active to passive is very real and will mark a permanent shift. Where the equilibrium point will be, no one really knows, but a lot of folks are saying that assets will continue the move to passive in the more efficient asset classes - i.e., large cap equities, investment grade fixed income, etc. Why is this important? Not only because active managers are losing assets but now the biggest buyers aka pension funds are squeezing us on fees. Want to buy our Core Plus Fixed Income product at 20 bps? No problem.

What this means is that you will see guys who are running a U.S. large cap growth/value strategy and barely beating their benchmark gross of fees out of jobs in the next 5 years. The case for active can certainly be made for small cap equities, unconstrained fixed income, and other relatively inefficient asset classes. But there are too many people working in AM that do the same thing as each other. Everyone is reading 10-Ks, everyone is on the same earnings call, everyone has access to the same Bloomberg/HOLT/Factset proprietary data systems.

I can go on and on about why AM is overrated. Yes, the pay is good but there is nothing sexy about working in AM. Whereas I used to view the PMs at my firm as "masters of the universe', 90% of these fuckers aren't beating their benchmark net of fees. In the next downturn, a lot of these folks are going to be out of jobs.

Curious how you came up with 5 years or is that an arbitrary number? Not being a smartass. Interested to know why that is your time horizon

 
12/20/16

I think a lot of managers in the more efficient asset classes, such as large cap stocks, are either chasing dividends on the value side or growth (e.g. FANGs) on the growth side. In the next downtown, which I see happening in the 5 years, they're going to get blown up and have a larger drawdown than their benchmarks.

That 5 years is really my timeline for when we'll experience a recession. Somewhat arbitrary.

 
12/19/16

I work in AM at a primarily passive investing shop and the flows into there have been unbelievable. People are already fleeing traditional long/short stock picking funds and it is going to be extremely challenging for those guys to retain assets. The active asset class pickers are the ones I would keep an eye on as a growth industry. I'm talking about the guys who are bullish or bearish on specific asset classes. I'm seeing a huge amount of growth in that, but to echo everything that's been said above, nobody is looking for traditional stock pickers anymore. They're either not investing in those or looking to sell what they currently have in active management.

Long/Short equities active management is on the way down, but someone mentioned Fixed Income above. There's still too many inefficiencies in Fixed Income to be overcome by passive management. At least for now that area will see active management interest. I also see the same inefficiencies in Alternatives.

Net of fees, it's incredibly hard to beat a benchmark these days. There's a lot of institutional money that has exited active products, which has partly contributed to the lack of normalization in stock prices so active managers and hedge funds have less sway than they used to.

 
12/26/16
blackjack21:

I work in AM at a primarily passive investing shop and the flows into there have been unbelievable. People are already fleeing traditional long/short stock picking funds and it is going to be extremely challenging for those guys to retain assets. The active asset class pickers are the ones I would keep an eye on as a growth industry. I'm talking about the guys who are bullish or bearish on specific asset classes. I'm seeing a huge amount of growth in that, but to echo everything that's been said above, nobody is looking for traditional stock pickers anymore. They're either not investing in those or looking to sell what they currently have in active management.

Long/Short equities active management is on the way down, but someone mentioned Fixed Income above. There's still too many inefficiencies in Fixed Income to be overcome by passive management. At least for now that area will see active management interest. I also see the same inefficiencies in Alternatives.

Net of fees, it's incredibly hard to beat a benchmark these days. There's a lot of institutional money that has exited active products, which has partly contributed to the lack of normalization in stock prices so active managers and hedge funds have less sway than they used to.

In large cap US sure but not for smaller caps or anything international

 
12/20/16

Can someone shed some light on JPM and how their AM arm is doing, and also the difficulty of breaking in as an experienced hire. Thanks in advance.

 
12/20/16

I would say for the average undergrad student AM is undervalued - the "IB or bust" mentality is real. After my first year out of undergrad working 50-60hrs a week and for ~$100k all in isn't bad. That said, fee compression is real and a lot of firms will shrink over the next few years. Can't really speak about IG fixed income ETFs, but HY ETFs underperform their benchmark by 100-200bps net of fees, so not all products will be affected equally by the shift to passive

 
12/20/16

How much of this continued, massive inflow into passive investments coincides with a 7 year bull market of increasing all-time highs built on share buybacks and multiples expansion? While there is no doubt that passive investing has gained a big percentage of market share and will likely continue to do so, part of me wonders if we see a slowdown/reversion back into more actively managed products (albeit at much lower costs) once the next recession hits and respective benchmarks are returning 3-5% a year? I haven't been in the industry long enough to know investor sentiment in the 8-9th innings of previous extended bull markets but I imagine they too have seen inflows into passive products. Food for thought...

 
12/20/16

The industry definitely needs to consolidate. I am not a active--> passive denier, but I do think there is a real place for good fundamental long-only managers. I think we are likely to see a few more mergers among the big AUM firms (Capital, Fido, T.Rowe, Franklin Templeton, Putnam, Wellington, MFS, Invesco, Legg etc). Those will probably all merge up into 3-4 big active shops which will give them the requisite scale to keep meaningful research teams in place. It's frankly a bit scary if you work for one of those... if my firm merged with a similar sized shop you can expect about half of the analysts to get blown out, and it's not at all clear whether that would take place based on performance or tenure or ???

There will also probably always be a place for the smaller shops that run $10-$50B with either some rockstar PM or some other analytical angle or market specialty that others aren't thinking about.

I do think that for those who survive this transition, Asset Management will continue to be a great place to be. There is an argument out there that as more assets go passive it should become easier to identify opportunities and beat the market, since the indexes aren't reacting to news or emerging trends in anything resembling real time. I think for those analysts and PMs who can justify a seat, comp will continue to be very good and the landscape should be interesting. I will say it is extremely difficult for new MBA's to get a seat today, at least relative to five years ago when I was recruiting. The big funds have really aggressively tightened up on hiring. We didn't even take a single MBA intern this past summer and it would not surprise me if we sit out again this next year. That is despite 3-4 analysts leaving (or being terminated) in the last year. I am guessing we are not alone... it's just a really bad 'sentiment' environment for making a hiring decisions right now given nobody know what the impact of DoL rule etc are going to be.

But yeah, if people are questioning whether this job is better than banking... it's better than banking.

 
12/27/16

Good discussion going here. I would echo that low interest rates in recent years have exacerbated this shift that's occurring, and that while a lot of active managers (particularly equity and IG) are not justifying their pay, a lot of this is simply a function of the current market (i.e. combination of rising tide lifting all boats and low rates making mgmt fees look particularly egregious today vs history).

 
12/27/16

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