Mod Note (Andy): #TBT Throwback Thursday - this was originally posted on 3/24/13.
So I've seen a few posts lately asking about mutual funds,gigs, and alternatives to the sell-side out of college, and hopefully my experience taking the route to hedge fund rather than banking can help people get a better idea of what the expectations will be like.
I'll be clear early on though, I worked at the type of asset management firm that's tough to classify. I like to consider this class of AM firm as a "top asset manager" or a "boutique asset management firm" or something along those lines. In a thread about Third Avenue (one such asset manager), West Coast Rainmaker does an excellent job breaking down these types of firms and the major ones in one of his comments. Link to that is right here: //www.wallstreetoasis.com/forums/third-avenue-manage...
These funds tend to go unnoticed/unappreciated/unrecognized by the majority of WSO (and the majority of the younger crowd on Wall Street in general), and are markedly different from the likes of the traditional asset managers such as, T. Rowe, Capital Group, Wellington, , etc. that I sometimes lump into the "too big to succeed" category. Not that they aren't amazing firms (I'd happily have worked at most of them... not though) but they, as West Coast Analyst phrased it, don't provide truly differentiated products in most circumstances. I'll try my best to identify the differences between these and top asset managers that I know of as I go along.
My background as it relates to AM, briefly: I spent 2006-2008 working for a top asset manager in an investment analyst role working strictly with concentrated long-term equity investments. I got this job through On Campus Recruiting, fortunately enough, and think the reason I was able to get their attention was that I had been investing for a very long time and managing money for friends and family for a while, mostly in the same style as they did. Despite their notoriety in the investment community I had no clue who they were when I interviewed there, and for some reason I also think that helped during the interview process.
Anyway, let's begin.
Right off the bat, the biggest drawback/advantage to working at a boutique AM firm is that research teams tend to be very small, tight-knit in terms of philosophy, and turnover is extremely low. The advantages to this are pretty clear: the culture does not quickly change and the groups are very friendly/ extremely willing to develop talent from within. That makes them very ideal places to start out. The drawback is also obvious then, as it's very difficult to get your foot in the door and actually find an opportunity to interview since most places are not frequently open to hiring.
Some top AMs will hire through OCR and other direct-from-undergrad means, but most have ad-hoc recruiting practices that make it hard for someone coming right out of school to get an easy opportunity at a job. Sending out your resume can sometimes be all it takes if you catch them at a lucky time when they're open to hiring, but often they are only looking at certain target schools for their hiring when they need it, or will take experienced hires from elsewhere. The key trait these firms look for is a previous appetite for investing (particularly in whatever their style may be) and a virtual certainty that investing is what you plan on making your long-term career.
Interview processes for these firms are generally casual and very investment-oriented. The behavior questions I remember getting were pretty standard, but a lot of it was geared towards getting a feel for your personality as it relates to being a deep thinker and an investor. One of the biggest differences I noticed between the recruiting processes of the top AMs and the traditional AMs was that the people at top AMs seem to be MUCH more like genuine intellectuals and learners than people at a place likewhere there might be more of an established process and way of thinking that keeps everyone pretty much doing the same thing. I had situations during my interviews where the PM interviewing me would literally pull out a pad of paper and start taking notes based on something he didn't know that I did about a company he wasn't familiar with or something. They genuinely want to know everything, and it's all very intellectual. Technicals aren't really a big deal per se, but having a pitch and being able to explain your thought process when evaluating a business is extremely important. Most top AMs are long-term investors, so knowing how to look at a business through that lens is a big deal, much more so than being able to predict a 3 month catalyst that will get you 10%. They don't want 10% once, they want 20% annually for 40 years.
I think I've covered a decent amount of the culture within my recruiting rant - my apologies - but I'll quickly stress the things that I noticed compared to my experience at hedge funds or with people at traditional AMs. There's the intellectual component, then there's the stress on talent development (biggest plus to working at one of these places), and the last part that I haven't mentioned yet is another big one... most analysts at these types of funds aren't a very social bunch.
Autonomy is a huge part of the job, as the smaller the research team the more responsibility each analyst has to take on (and the less people to micromanage you). I can say that even two weeks into the job out of college I was meeting with clients who had separately managed accounts with us, grilling top sell-side analysts, and meeting CEOs for lunches. These guys really gave me no time to grow up and put me right in the fire from day one. While I love this, some people might not be able to handle it but most of the time their recruiting practices select people who can. The downside to this level of responsibility/autonomy is that people aren't really spending any time during the day just chatting or being social. Now, we spent a lot of time talking with one another about businesses and what we were working on, but we didn't spend much time hanging out outside of work (some of us did, but really not nearly as frequently as I do with my coworkers now) and there's not much room for personal life conversation either. Outside of the social aspect, it also sucks that you can start working on an idea and run with it for 3-4 weeks without a single person walking into your office to tell you it's a good or bad idea. Then all the sudden your PM might suggest moving on to another project and you've wasted a month on a single idea. So if you're not proactive in checking out your progress, you can potentially get fucked.
The Actual Work
The autonomy, like most else involving top asset managers, was good and bad. Now depending on who you are, the way it affects your actual daily work will vary. Right from the start (and even as an intern) we were all given the same job title as Analysts, and had more or less the same general responsibilities. With such a small team and an enormous amount of ground to cover in the equity space, analysts are expected to source their own ideas and to do it well. From day one you come up with your own ideas, do your own research, and figure it all out on your own. If you don't know how, tough shit, you're probably gonna get fired then. Asking for help isn't looked down upon, but it certainly will slow down your process and make you look a lot less desirable than someone who can put out solid research on a potentially-attractive business. We had an analyst start pitching a gaming company and I don't think anyone took him seriously for at least 3 months after that.
The talent at the level of most of the top AMs, particularly the PMs, is truly tops on Wall Street in a lot of areas. Being surrounded by the kinds of investors who run these funds can be a huge bonus to your career in terms of developing into a smarter investor and piecing together the investment processes of multiple successful managers to form your own unique philosophy is worth working for them for free, honestly. I never really though of my work as "actual work" because of how enjoyable it was working with these type of people, so it's hard to dive into specifics.
I could obviously write about all the stuff I did and it would take 90 pages, but that would be a waste... so I'll save questions for the comments and try to answer them as best I can if anyone has any.
This is the one area that I think really separates top AMs from their peers. Just about everyone in the firm, including the PMs, is in between 8:30 and 9:00am, and out around 5:00pm... with 6:00pm considered "staying late" and 7:00pm being an all-nighter. I never worked a weekend my entire time at the firm, and analysts routinely shot 4:00pm emails to the research team to let them know they'd be working from home the next day. As long as you get your shit done and you get it done well, nobody really cares where you do it, honestly. I've heard this sentiment echoed at other top AMs, but never at traditional asset managers. Another big difference is that the top AMs (probably just a function of smaller analyst headcount) usually have very flat structures where everyone is pretty much on the same level except the PMs, though even they tend to prefer their analyst duties to their PM duties.
So hours are great, you're typically treated very well by your coworkers, face time is nonexistent, and the only real way that I've ever seen analysts come in feeling like they hate their job or their coworkers is when there wasn't a cultural fit in the first place and someone fucked up in the hiring process. It's really a hard gig not to like, hence the super low turnover.
My personal experience with compensation was that my firm actually paid a bit above what my investment banking buddies at top shops were getting all-in, but other data points and experience has me putting the typically compensation numbers at or very slightly above street level. Salaries tend to be higher than banking, but like most AM firms the bonuses are significantly lower. At the end of the day, you're working basically a 9 to 5, so the slightly lower comp isn't gonna kill you and the exit opportunities are the same or better than banking if your ultimate goal is moving to a hedge fund or other asset manager that matches the investing style of your AM firm. In this environment, I would expect something like 80-90k base salary and a bonus in the 20-30% range for top AM firms, though it could be slightly lower if things have changed significantly. My salary was higher than that and my bonus was slightly above the 30% mark my first year, but that was 2006. After a few years those numbers go up pretty significantly, and I know for fact our highest-paid non-PM analyst (though he handled some separately managed accounts like most senior analysts) was getting all-in comp north of $3.5M, which you can't really complain about.
All in all, top AMs are an amazing place to start an investing career. An intellectual culture that wants their young talent to develop and succeed, an attractive compensation structure, very easy hours, and great excellent opportunities all make them highly desirable but extremely difficult to get hired.
I'll try my best to answer anything I didn't cover in the comments.