How should a new guy in the industry best position himself to survive the impact of Mifid II on the sellside?
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Hi charlie the unicorn, any of these discussions helpful:
More suggestions...
If those topics were completely useless, don't blame me, blame my programmers...
is going to be very tough
I think this topic needs a lot more discussion on this forum. Too many smart driven kids already positioning themselves for a position in ER when half the research departments on the street could get wiped out in 2 years.
Agree, this is not going to be as lucrative an opportunity as it was. And the ability to get promoted as a junior analyst to a senior role is going to be even tougher.
It's quite an easy answer. You stay with a top 3 ranked II analyst. Outside of that you either stop looking for an ER position or you start interviewing for buyside gigs if you're already in ER.
I think this is mostly true though I would say it doesn't have to be an II-ranked analyst. I would say as long as your team is top 3 for a given buy-side shop's broker vote (meaning you are on a top team at your bank for those unfamiliar) then you will still be employed.
Now will you make as much as you have been making if your bank as a whole gets beaten out in your respective peer group (Boutique, MM, BB etc.) and you lose market share? No.
At the junior level though, you shouldn't be missing out on a ton of comp upside by entering ER now vs. 1-2 years ago. You will have your base and your bonus will be in a fairly tight range year after year (this gets to be more of a concern if you've been in the jr. seat for awhile). Maybe risk your comp to the downside by a little to manage expectations. I would say it is at the senior level where guys will see comp really get whacked.
If you are entering ER for the long haul though, you are making a mistake. You should treat it like banking now: 2-3 years of training then get out.
So where do you think one should one aim to go after the 2-3 years of training in ER?
Mifid or no Mifid, it is almost impossible to go from associate to full analyst in Equity Research. It involves a lot of luck such as your senior retiring or moving to another firm.
Even if Mifid wasn't happening, you should still look at equity research as 2 or 3 years of experience which you use to exit-op.
For juniors almost nothing has changed. Who is really going to get squeezed is the lucky few who made it to full analyst and have 5 - 10 years in the business or more.
Just to add a contrarian opinion, I think that mifid may be good for US-banks.
Investment firms in the US have no restrictions on research arrangements and we have a deregulatory regime in office for at least another three years. For a firm like, say Columbia Threadneedle, why wouldn't they focus on investing in their US-based operations, hiring people, even relocating them from London to the NYC? This way, they still can access the sell-side without the mifid-related hit to P&L otherwise occurring in UK-domiciled offices.
This scenario would lead to more seats at US-based asset managers. Also, with the US-tax reform, corp. effective tax rates here will be comparable to the UK.
I appreciate the contrarian view, and I hope you're right. But, the reality is that the large US mutual fund houses with European operations (Fidelity, Capital, T. Rowe, Principal, Wellington) all paying for their research now through their own income statement as opposed to using client funds for it. As a result, they will paying the street considerably less, and that does not consider the continuing switch from active to passive, which has driven cash equity commissions down 8-12% for most firms in 2017. Would expect minimum 20-30% decline in 2018, and significant disruption. There is a chance buy side firms will invest more in their own staffs, but this is going to be very tough on the sell side.
Yes, I would think US buy side firms will step up their hiring a bit as well...but there won't be enough seats to offset the bloodletting that occurs on sell side.
I currently work for a large global fund manager in the Asia Pacific region. However since our HQ is in Europe, we are subject to MIFID and we have already seen substantial changes in the way we do business. Over the last 5 years, our external research spending has been reduced by 50%+, with our external research spending expected to be reduced by another ~30% come 1Q18 once MIFID II kicks in.
As a result of the way we (and other large institutions in similar positions) pay for research, we have seen significant changes in the sell side, with many experienced senior analysts leaving for corporate/buy side roles. Banks have been somewhat reluctant to hire equally experienced/expensive senior analyst, hence we have seen a significant juniorization in the sell side, with some associates/analysts with 3-4 years experience taking lead coverage of large cap stocks. Therefore I would say it actually becomes easier to become a lead for junior sell side analysts, albeit the value proposition is vastly different to their predecessors, with higher coverage expectations with less resources and lower pay.
With research quality decreasing as a result of juniorization, one could argue this increases the demand for in house research by the buy side community. However to date I have not seen any signs of wage inflation due to the significant increase in experienced sell side labour supply coupled with lower demand for traditional buy side analysts due to structural shifts towards passive and quant. If anything, I would argue that there is wage deflation across the average buy side shop in my region.
Overall, the MIFID changes I've seen so far appears to benefit a very minority of top junior sell/buy side analysts as it provides a clearer pathway towards promotions due to higher churn within the industry, albeit the changes appears to be significantly negative for the majority of your average sell/buy side analyst.
Damn, it seems like sell side research and S&T are fucked... what are your guys' opinion on the career stability / upside / prospect for buyside equity research?? (at mutual funds, some hedge funds, etc.) As you all know, the obvious trend overall is gradual shift of AUM to passive funds, along with the rise of quant funds / quant trading. Are these all in the making of gradual decline of active buyside asset management??
Re buy side, its perhaps a little better, but not significantly so...active managment continues to lose share, fortunately they’ve been able to do ok because asset prices have risen....a tougher market will result in buy side job losses as well.
Clearly, there are exceptions to this. Top ranked II analysts will survive, and perhaps thrive...they represent 4-5% of all analysts on the sell side...name brand buy side firms will survive as well, perhaps their employees will make less money over time.
I have higher conviction now. Be a top 3 II ranked analyst or you're done.
Buyside is not as bad but echoing above, you need to be at a decent shop with good returns or you'll see continued fee compression at the same time you get no-carried. Many big shops recently fired entire groups. Again, won't be as bad as sellside though.
Yeah I wouldnt say “done”. But pay could go from 750-1m at regional firm to 250-500 for high quality seniors. While some of them aren’t top 3 II, there are many that get sizable commission votes from large clients. The question is there enough revenue to cover the fixed cost of these regional and boutique firms.
Sanity check how long do you think this plays out? 1 year? 2 at most? Seems like we will know the fate fairly quickly in 2018.
Asset management is no longer an "easy" business. You used to be able to get people to pay for access to the market. Performance was largely an afterthought for a significant portion of clients. Now that access is available through low cost passive indexing we will see the active industry compress until those remaining are able to sell performance (or otherwise market a non-performing strategy effectively).
Know stocks, know your companies and be able to create value. That is the only true backstop in this environment. Sell-side, buy-side it's all the same. It is compressing. We are being cautious with our sell-side relationships.
One thing I would say though. I think that corporate IR departments will be expanding as the sell-side looks for other opportunities. It will be interesting to see how this dynamic progresses. The corporations have the cash to do it. Historically they have leveraged sell-side relationships. There is a need for corporate access and close corporate insights.
I agree; think corporate IR is the main beneficiary as the SS contracts. More direct connections between buy-side firms and corporate. The differentiation for the buyside becomes how connected you are to the corporations + returns.
Any idea for a junior IR person (2 yrs exp.) looking to pivot closer towards the industry? Or is it best to remain in Corp Fin?
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