Scary Lunch and I need help
So, I just came from a lunch with some of my firms whole-sellers and the conversation was so worrisome it made me run back to my desk and log into my old account here.
I work in the middle office of a large AM firm and I love my job. I do want to work in the FO and everybody knows that. I am consistently in meetings with the investment team and they applaud my goals of trying to obtain my CFA and MBA. My goal has always been to be on a value based team and I am very close to that.
Anyways, during the lunch the Whole-sellers were stressing that they are having trouble selling the funds. That all the money is pouring into Passive. I read article after article on the growth of Passive but this is the 1st time the troops on the front line have said anything this negative in my ear shot. I talked to my boss on the drive back and he believes changes will have to happen eventually (I do not know what that means). I would think even more so with the bigger AM's (like my employer)
I read a few articles here and will read a few more but is someone saying I want to be a PM in 10 years the same as somebody saying I want to be a truck driver in 10 years? Is technology about to critically shrink this industry too? It makes sense that compensation and head counts would need to fall if the loads go down. That would make "breaking in" even more hard and not worth it in some cases.
This is kind of a wake up call
Should I focus on an MFE rather then an MBA as it does seem Quant Analyst might be the future of the AM industry? Especially, if Actives have to keep a low Equity Analyst per team head count.
Thanks in advance
Yes - active equity is dying. Machines are better. Especially in generic Asset Management platform, human active management is nonsense.
Look at the data (not your sales deck). It doesnt work.
While it's true that your traditional big AM shops will likely see continued outflows because of passive, there are still plenty of smaller boutique shops that are experiencing inflows. The massive AM firms are actually incentivized to track their indexes very closely over short time periods. This has historically kept them from getting fired, but has come at the expense of any real outperformance. Smaller boutiques with more concentrated portfolios and low turnover still have a chance at outperforming. Tough to find a shop that's hiring, but that's probably the play for you.
Disclaimer: this is the opinion of a 30 year veteran analyst who I work with. He also said that he has seen the so-called pendulum swing between active and passive before and that it should turn the other way again as investors become hungry for outperformance again after years and years of staying with passive. It's a slow cycle but apparently this has happened a few times before.
Just my two cents...lots of opinions out there.
Thank you. Yeah I was freaked because I had a plan. Get CFA then GET MBA then GET ON A TEAM. I have networked hard and every Analyst and PM in my building knows me. I knew this was an issue but to actually "feel" it is something else.
Read on here that if you are young and smart don't go into AM as the compensation and job pool is/will be shrinking. I have something to do.
You'll be fine, bud. If AM is what you want to do, then just keep grinding. The forums on here are heavily biased towards the sell-side, so of course everyone will say to avoid AM. True that there are fewer jobs in AM and yeah the comp is nominally less, but on the flip side you actually get to have a life outside of work. Asset managers rarely if ever hire out of the sell side so if you choose to go into IB, you can all but kiss that dream goodbye.
Asset Managers hire sell-side ER analysts & associates all the time... there is less IB hiring but I think much of that is because IB analysts target PE not AM.
I work with the PM's and can say they do have a life outside of work and it seems like a good work to life ratio. There are some weeks were I prolly work more hours then them. They travel a lot which seems fun.
The crazy thing about my firm is they are not known for hiring internally for the investment teams. A PM I know (a Morning Star award winner) told me if I ever want to work here I will need to quit working here. Essentially go to a small shop and generate some returns then show them what I can do with real money in a real market before I can join a team managing 100's of millions or even billions. Makes sense to me even though in the past 4 years the international growth team has had 1 opening for an analyst.
I was/am curious/worried if in 10 years I am going to look back at this time and say, "why did I run into the burning house when I could see the smoke". I love fundamental analysis and believe in value investing but if the jobs become even more competitive then they are now breaking in should become way harder.
I do have 3 friends pulling me away from AM. 1 is an Associate at a small IB and is doing great making very good money. The other is an Associate at a BB and is making more then great money but both seem to agree the work is not THAT interesting and the hours suck but they get to have great houses and BMW's in an expensive city. Finally, my last friend who worked on the team I am on right now. He left 2 years ago for a big passive firm. I talked to him about a day after I wrote this post. He told me this is EXACTLY why he left he saw the data and ran.
Seriously, thank you for the feedback
Jules, yes, the writing is on the wall to a limited extent. However, it is not an all or nothing scenario as not every one goes passive. There will be a limited swing back to managers who can capitalize on their research and management. The performing SMA's and alternatives will always have an audience and one that is generally more sophisticated. Boutiques such as ours have expanded to include planning, strategies, tax mitigation and asset protection. We have a number of young MBA CFA's and they are learning the techniques and enjoying the diversity of approach as are the clients. Continue with your education, keep an open mind and look for opportunities which are entrepeneurial.
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