The Proverbial "What's Next?" Post

Happy to talk! Feel free to send me a PM!

Going into Long Only AM is very rare out of college. To give you an idea of how few people there are, my firm with 550 investment professionals only took 13 new grad hires for its program. This places me in a very unique position to start my career, one that will set me up very well for any future career in markets and asset management of all kinds, albeit one with less optionality than an investment banking career.

I think choosing this as a career path required me figuring out a little bit of what I wanted in my career earlier, rather than delaying it and then lateraling, as so many do with investment banking. I would encourage everyone to do this, that is allowing themselves to figure out what they want a bit earlier, but not siphoning themselves too much. I did some of this myself and figured that I would have great opportunities from a career perspective while being able to enter an industry I want to enter more quickly.

So then, why Long Only AM? Long Only AM still remains an excellent place to learn about markets and investing in a way that investment banking is removed from. Having great compensation and a work-life balance does not hurt either (great for starting a family too!). For me at 22, I think outside of the most common career paths people take in professional services (investment banking, consulting, law, etc.), this is one of the best places to learn investing skills and build a solid understanding of business.

Additionally, I am able to utilize many of the quantitative skills I learned during my undergraduate years as an engineering triple-major in my career. The specific position I work in is geared especially toward those with a combined finance and engineering background, and having this combined focus will give me the chance to succeed in something I am not only passionate about, but that will make me happy in my day-to-day work. Having this combined focus, novel work on a regular basis, and the specific benefits that Long Only gives makes this job tough to beat in my opinion. The connections I get from the job are stellar as well: I got my job offer from the CEO of my company, regularly chat with F500 CEOs, and almost every professional at the company is willing to sit and have coffee (and actually listen to a junior associate!)

As for a longer career, I still am unsure of what I will do. I absolutely plan to try and make it to the top of whatever industry I decide is best for me to pursue long term, be it in investment management (Long Only, Hedge Funds, Quant, etc.), or another industry. Pushing toward PM is very appealing, has potentially very large upside, and still will allow for excellent work-life balance.

It may appear that moving to Long/Short or to a Quantitative fund may allow for faster career progression, considerably more upside, and work that focuses even more on my quantitative skills, my personal strong suit. Additionally, Long Only, as nice as it is, just a bit…well…dated. Many of the companies that dominate the space are, as my company describes it, very conservatively minded (i.e., they are cool with doing what they’ve been doing forever). This lack of innovation will contribute to current fee pressures and may hinder the industry going forward. As mentioned previously, starting in Long Only is very rare, so I still have a lot to learn in terms of what industries outside of Long Only I may want/be able to pursue!

TLDR: I thought about what I wanted in my career, looked at opportunities that matched my background and potential future goals, and went with something I feel good about today that will give me some optionality for other similar careers going forward.  

Happy also to give some personal insights on the industry as well! See next post. 

As for the AM industry overall, the beginning of your last sentence sums up most people's opinions perfectly. Active and LO AM is certainly not a dead industry, but it is an industry with a shrinking number of seats. Even from my perspective, ETFs and quant seem to be the "Ford LTD going forward into the future," (i.e. a pretty mundane product in the eyes of fundamental managers that nonetheless seems to be dominating). 

If you want a great post on the industry and ideas concerning the future of active asset management, long only, and other strategies check out @Theeloneous recent post on the topic and especially @Secyh62 's response. The post and response take a solid dive into topics ranging from the efficient market hypothesis, the paradox of passive investing, and even some career path perspectives. https://www.wallstreetoasis.com/forums/is-anyone-bullish-on-the-future-… . The views made in that post and my own views are fairly in line. I highly encourage everyone reading this post to also read that post and give an SB or two to the people who made it.

It definitely appears that fees will continue to compress with large institutions lowering to 15bps over an extended period. Additionally, the current paradigm of firms’ focuses and growth lying in the hands of investment analysts and portfolio managers will give way to an increasing in importance of sales relationships with institutional clients and internal positions associated. Operating leverage in AM due to the structure of the industry is the primary reason for this. Companies are more incentivized to just get clients to invest more money in their funds to grow AUM rather than organically grow their portfolios. This is discussed fairly in depth in the above post, and I will not be rehashing every point made in @Secyh62 ’s line of reasoning.

This ultimately has a result of lower compensation for investment staff, possibly more difficult internal promotion pathways for tenured staff, an even lower number of tenured staff at large institutional managers, and possibly a shift in focus away from investment research by corporate leaders industrywide. The last two points are unquestionably bad for smaller asset managers that have been consistently focused on internal and organic growth rather than price competition and growth by acquisition of assets.

However, I am not necessarily sold that the corporate leaders of those companies will maintain the discretion necessary to avoid losing focus on internal growth. Other industries, like the environmental services and specific areas of defense contracting, have faced similar issues, leading to corporate leaders large and small compromising on their previous internal focus to keep up with price competition. I won’t discuss those industries here but will happily talk about them if you would like via PM or separate post.  

Passive will dominate going forward. Active investment managers primary job is to find mispriced assets in the market and invest in those assets to create as beneficial an outcome as possible for their investment portfolios. According to @Secyh62 ’s line of reasoning in the above post, passive investing cannot exist without proper active investment management, and eventually, we there exists a point where passive and active are at equilibrium. This is something I do agree with, and that this split is fairly unclear. That said, I think passive will greatly continue to be a difficult force for active to reckon with going forward.