Is it wise to enter into AM in 2018?

Bankerstreet's picture
Rank: Orangutan | 298

Currently, it's no secret that active management is shrinking and places like Fidelity are laying off a lot of their staff which is why I'm wondering:

Would it be a wise decision for a college student to pursue working at an IM firm like Fidelity, Blackrock, PIMCO, Wellington or any of the other top funds? Or are the layoffs going to continue leaving only the top performers? To anyone currently working at a top firm like the ones noted above, would you recommend pursuing AM with the climate it's in today or move on to other things?

Also, is PWM shrinking as well on top of large AM funds? Are PWM places like GS, JPM, MS shrinking and/or laying off people like AM firms?

Comments (36)

Jun 23, 2018

bump

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Jul 3, 2018

Bump

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Most Helpful
Jul 3, 2018

Ask yourself :is there anything else BETTER than AM?

I Banking:
Pros: great money
Cons: brutal long hours, work is drudgery, no life, cuts due to automation, very cyclical (you'll prob get fired when the next recession hits)

PE:
Pros: CARRIED INTEREST, prestige, less bad hours than I banking, less risk of automation
Cons: You won't get in unless you're top of your analyst class at Goldmans, JPM, Morgan
Stanley, still brutal work life balance

Consulting:
Pros: Brutal hours (slightly better than I banking) , good pay, intellectual work, smart colleagues, less risk of automation
Cons: difficult to break into MBB, travel is horrific

AM/HF:
Pros: unrivalled money potential if you're a high performer, interesting work, great work life balance, if you have elite phd in STEM can make bank as quant analyst
Cons: Passive/ETF taking market share, arguably higher risk of automation than PE/consulting

Tech:
Pros: good pay, quirky start up culture, change the world vibe, prestige
Cons: Unless you genuinely love coding I wouldn't bother (you won't be as good as an aspergers google software engineer) , pay less good than the above options obviously

Law:
Pros: money
Cons: you're literally the i bankers spit upon servant, awful tedious work, less prestige than high finance roles, brutal hours

I don't know about PWM tbh to answer your question

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Jul 3, 2018

Just weigh up pros and cons of different industries then decide which matches your preferences

Jul 3, 2018

Agree for the most part with this list except for a couple things:

-Working in ECM/DCM offers alright work-life balance once you're no longer an analyst.

-Some Biglaw firms, especially on the West Coast, have most of their associates leaving at 6-7 during normal times but coming in slightly earlier. Partners make a shit ton along with the added job security which is something that many MDs don't have. Also, as dumb as this may sound, lawyers are usually seen as a more "prestigious" job than a banker since it requires a special degree and extra schooling. Everyone knows what a lawyer is but not everyone knows what an investment banker is. Nonetheless, prestige is a dumb way to measure how good a career is so none of this matters.

-If you do manage to secure a position with Google you practically expect to be promoted from L3 to L5 unless you're a complete fuck up. An L5 position nets 400k a year with 9-5, no weekends as well as a great workplace and culture which seems to be the perfect balance. If you get even higher to L6 expect 500-600k. Working at Google is the best job for work-life balance with simultaneous high pay.

Also, to follow up on the question about AM, isn't seeing places like Fidelity laying off their staff in favor of robo-advisors and many firms like Vanguard and Blackrock cutting fees a bad sign that AM is no longer a solid career path? Someone on another post said he landed an internship at a top 20 mutual fund and that he isn't considering it as a long-term career path as it will most likely no longer be lucrative as well as have poor job security in the next decade..

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Jul 3, 2018

https://www.wallstreetoasis.com/forums/machine-lea...
Regarding automation see the above thread especially Markov's post: the consensus was that machine learning/ automation will have more impact on short term trading than genuine long term active management. The ai tools aren't sophisticated enough to replace analysts entirely, as insufficient data exists from which it can learn, and a generalised 'super ai' that could replace analysts altogether would almost certainly be capable of doing any other job better than a human anyway so we.cpuld still

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Jul 14, 2018

I'm going to show this to some of the other veterans I know that are considering entering into finance but don't know what they specifically want to do. It's easy to find definitions of the roles but for service members, it's impossible for us to find the pros and cons listed out in simple, plain, and honest English. Well done good Sir. Well done.

Jul 3, 2018

Make hay while the sun is shining. Everything will probably be outsourced or replaced by new tech at some point. Keep learning and evolving

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Jul 3, 2018

Also what about the pressure on fees and the fact that people are going passive? I think I really want to start my career is an asset management firm as a research analyst or equivalent for equities but I get discouraged because it seems like AM is shrinking in equities. Thoughts?

Jul 3, 2018

Dude, active investors are always going to be around. Just today at my internship a shop called in interested about our (passive) strategies.. They weren't convinced enough to get onboard, and stuck with active strategies instead.

Long story short, there's always going to be an appetite for active management and as the passive space gets crowded that's only a good sign for active managers to take over.

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Jul 31, 2018

That was a pretty short story...

Jul 6, 2018

I had the very same question recently. I asked a couple Portfolio Managers in my network what their opinion was on the future outlook of this industry. The consensus I got from each of them is that, Robots have always been around and the debate is simply getting more attention these days. Although AI can perform tremendously better in the short run at evaluating price expectations, human emotions play a significant role in trading that unfortunately AI may not fully grasp. Therefore, the industry will be in need of Asset Managers. The skills needed are surely evolving rapidly and good asset managers should be aware of those especially the importance of being able to understand how those AI systems work, how to employ them in order to identify gaps that we humans can fill in order to gain alpha. Also, wouldn't you like to be part of an industry that forces to continuously develop new skills and increase your knowledge? I sure do.

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Jul 6, 2018

short answer: yes

caveat: I'd look for a job in non-US equity, credit, money market/short term fixed, or global macro, with my preference being credit

Funniest
Jul 10, 2018

Personally, I think PASSIVE AGRESSIVE INVESTING is the future.

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Jul 10, 2018

And AVOCADO SEX DUNGEONS. Buy buy buy

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Jul 10, 2018

Depends if and when someone can come up with an algo that can consistently beat the market and can can confidently gain better returns than any PM. Obviously emotions will come into play during the bears and whether a PM can keep his cool and think rationally, or whether the algo will perform better or worse than him depending on this.

Jul 10, 2018

To speak to the PWM space, we're definitely feeling the burn from passive in the sense that fees are being suppressed as more clients start to wonder where the real value add for active management comes from. In my opinion, the industry will never die, but we'll continue to see high churn rates as the advisors not worth their salt will fail out and the top performers will get bigger and bigger. To answer your question directly though, yes, PWM headcount is shrinking at the wirehouse firms.

Edit: To qualify my response, I want to make clear that I believe that good advisors can and will always continue to provide a value prop that goes above and beyond passive.

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Jul 10, 2018

Depends what role you have in investment management. Exit opps are different for portfolio and non-portfolio roles.

Generally IM jobs tend to be less meritocratic than IB or PE/HF.

It ain't what you know, it's who you know

Jul 10, 2018

For what it's worth, I spoke to a very senior MD at BlackRock and he told me not to go into asset management, and if I was interested in investing, to go to PE or a specialized HF instead. Said he's worried about his own job a few years down the line and wouldn't encourage anyone capable of going elsewhere to go into AM. Just another data point to consider.

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Aug 9, 2019

Same experience

Jul 13, 2018

I feel as though an AI would likely be completely technical in its "research" and investing practices. In that sense it would look at a stock / price / trend and extrapolate based on data. That's fine and all but if the markets did have a clear cut pattern / rules that governed it we would see a lot of people taking advantage of that.

I'd like to akin it to the premise of learning Econ / Finance in college. You know those passages that say "assume away XYZ" or "All else equal" or "Investors act rationally"? Yeah that's all complete horse shit. (Most) Investors act immensely irrationally and don't even realize it... Only an equally aware and irrational investor can see that and capitalize on those inefficiencies. Just my .02 though.

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Jul 13, 2018

People here seem to be missing the point that there doesn't need to be a market-beating robot to displace humans - just need people to continue converting to passive investing. And yeah sure at some point too much passive means no price discovery but I don't want to bet my career on guessing when that is

Anyways fixed income AM seems to be a lot safer (active fees are lower and the greater number of securities / imperfect forms of trading make it easier to beat an index) so look into fixed if you want to go AM. High yield is a decent substitute if you were really set on equities.

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Jul 14, 2018

If the criteria is the ideal combination of prestige, money, job security and life balance I would say that you should try to align your passions with your work. If your passion is that ideal combination, go for the job that fits it best.

I love AM. I am never bored. Every morning is a new swath of information and opinions thereon. Every morning can offer a new level of psychology. I doubt that one can say that about many other jobs. Coding, law, even PE, seems kind of repetitive?

As to the passive issue, there is no doubt that many mid-age to old dogs fear it. They will dissuade you from AM.

They won't tell you why passive is taking share from my experience. The answer devalues them. Their careers have been built on the perception that they offer stock picking skill. In reality they were much more market conduits than financial experts to many of their clients.

So now these clients have Vanguard as their conduit and are perfectly happy. This trend will continue for several years.

The new wave of successful asset managers, I believe, will learn to counteract the ETF trend by arbitraging time horizons. It will require a more nimble trading philosophy. But basically, when the algorithms get out of a good group, like semiconductors, you buy near the bottom.

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Aug 1, 2018

I, for one, welcome the popularity of indexing, which I simply call "natural selection." Too long has active management escaped the scrutiny of opportunity cost analysis. Too long have shitty closet indexers charged exorbitant fees for less than mediocre returns. Just as I welcome MiFID II to cull the weak sell-side shops, I look forward to index funds to draw assets away from the poor-performing active funds in the buy-side.

I cringe when I see people calling behemoth funds like Fidelity or Blackrock "top funds." This is not banking; there is an optimal AUM range for asset managers to deliver outperformance. These giant, lumbering "asset accumulators" do not offer differentiated products. For an asset manager to increase its revenues, it has to increase its asset base. How do you increase your asset base? By either sales or by performance. For "asset accumulators," it is far easier to raise assets by sales rather than by outperforming the market (and thereby risking underperforming). Let's suppose you have a $100B fund. You expect to get 10% return in the market this year, so assuming you do nothing, your revenue should increase by 10%. It is MUCH easier to sell $5B of this product than to outperform the market by 500 basis points when your fund is this huge, so if you want to raise revenues by 15% instead of 10%, it would be better (and cheaper) to hire more sales reps than to hire better analysts/PMs!

On the other hand, if you are working at a shop with a long history of consistent, high quality outperformance, you have nothing to fear from index funds. Top-tier value shops generally stay within a targeted range of assets as to not dilute the returns of their existing investors. Also, great investors have enough integrity to return capital to investors when there isn't enough compelling opportunities in the market rather than "reaching for yield" (for fixed income) or "buying on relative valuation" (for equities).

So long story short: if you think you can outperform, do not fear index funds.

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Aug 1, 2018

slow clap

ditto my dude, never understood why fido is worshiped and why blackrock is for anything outside of fixed income.

I welcome the thinning of the herd, I think the other side will mean more money for the survivors

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Aug 11, 2018

Let me add my perspective as an analyst at a fairly large long only firm (post MBA with let's say ~10 years experience total).

I think the traditional long-only, actively managed equities industry is in huge trouble. Across the board institutional clients are switching to passive strategies or, at the very least, negotiating significant fee reductions. I mean fees are going from 80bps down to 20-30bps, or even lower. We have a significant number of institutional clients -- think pensions, unions, endowments -- and they are switching to passive funds en masse, often at the advice of their consultants.

The retail (i.e. mutual fund) side is more resilient, if nothing else because many individuals don't pay too much attention to their investments or rely on an advisor to do it for them. For whatever reason, advisors tend to love the concept of active investing, perhaps because it helps them justify the fees they charge clients. So that client base is sticky, but even there the trend is towards net outflows to passive investments.

The reality is that 15+ years ago if you wanted to invest in a diversified portfolio you had to use a long-only manager and would pay 100bps+ for their services. Today the choice is between active and passive, and frankly there is little evidence that most actively-managed funds can outperform over time, much less justify huge fees.

My advice would be to look at a career in an asset class that cannot be easily replicated by passive. That would be fixed income, private equity, real estate, etc. There are also certain equity niches such as activist investing that will still be around. Unfortunately the traditional LO industry is going to keep declining. I'm not saying it will go away entirely, but the glory days are definitely over and many firms and funds are simply going to going out of business or get merged away.

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Aug 12, 2018

Given your generally pessimistic view of the industry longer term and your length of tenure, are you planning on sticking it out until your at the point where your out of a job? Or are you fairly confident in your individual prospects? If not, what other industries/careers would you think would value your skill set and be a somewhat of an easy transition?

Aug 12, 2018

I'm riding it out for now but certainly not with the intent of doing so until I'm unemployed or something like that. I think there is an age break point in the industry above which people could simply retire if worst comes to worst. Unfortunately I'm probably 5-10 years from that point, so that's not a realistic option. I should also add that it's not fun working in an industry that is going downhill, and personal satisfaction definitely enters the picture at some level.

In terms of skill set, I think most investment analysts could transition to doing something else in financial services (i.e. corporate dev or finance, investor relations, consulting). I have known several that launched their own non-finance startups and been surprisingly successful. I don't think there is a clear playbook per se, but there are plenty of transferable skills. It helps that anybody who has been in this industry for a while and didn't blow it all should have quite a bit of money set aside.

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Aug 12, 2018
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