Why are mutual funds seldom talked about as IBD exit opportunities?
The way I see it, PE is very long-term-focused investing, whereas a lot of hedge funds are not that long-term focused, with many not abiding strictly by value-investing and the like. Mutual funds, on the other hand, are relatively low trading-turnover focused, with often long-term holding periods. The pay is also similar to IBD and PE/HF (excluding outstanding performance at HFs). So why is PE/HF always the main exit opportunities for bankers?
By the way, I note that at top MBA programs, mutual funds are a very popular post-graduation career option, on par with HFs.
Here's my 2 cents-
Mutual funds are vastly underrated as a career. People see them as the less prestigious, lower paying version of HFs, but that is not the case at all. However, the prestige whores in banking think that HF are better.
Mutual funds pay less immediately, especially pre-MBA. Going to work at a big HF/PE post IB is going to get a take home pay of 250+ due to a big bonus, whereas a mutual fund won't pay anywhere close to that. Mutual funds don't pay well until you get up to portfolio manager rank, so going in after IB as a 23 year old isn't a great move pay wise.
That being said, it will definitely help you get into a top 7 bschool and if you go back post MBA, you can make a ton of money.
The economics of mutual funds make them a structurally different business model than hedge funds. Mutual funds do not receive performance fees, only management, so you are incentivized to grow assets under management in order to get paid.
The more AUM you have the more funds you need since most strategies do not scale very well - i.e., you can't have a $10 billion fund buying only small caps. So to solve this problem you diversify with various funds that hit different style boxes - large cap value, mid cap dividend growth, sector specific, different asset classes, etc. So, having many different styles requires a deep bench of analysts, usually sector specific, to feed ideas to the various fund PMs which can further reduce pay per head.
As I mentioned, since there are no performance fees mutual fund houses live and die by their net flow so you need another deep bench of marketing professionals to sell your products and they need to be paid well also.
If you think price deflation on hedge fund fees (2/20 -> 1/15 or 1/10) is bad, it is worse for mutual funds since their competition is ETF and index funds that hardly charge anything. It is quite literally a race to the bottom for mutual funds because there are soooo many doing the same thing the only way you can differentiate yourself, even if performance is good, is lowering your fees. The Fidelity Magellan Fund, for example, charges 67 basis points as a management fee.
So, the name of the game here is asset gathering. There's nothing wrong with that, but asset stability is how you win with this business model. This means you won't really see mutual funds getting into alternative strategies that you'll find with hedge funds which can be more volatile. Another reason you won't see mutual funds getting into these strategies is because mutual funds offer investors daily liquidity whereas hedge funds have lock up periods and limited redemptions per year. This means that mutual funds stay away from more illiquid securities that many hedge funds traffic.
Tl;dr - mutual vs. hedge funds is a different business model that necessitates differences in investment strategies that lean towards stability and consistency. If I were to join a mutual fund as an analyst I would place business stability as a high priority, meaning I'd target Fidelity, Wellington, etc. because I know they'll be around as opposed to a $2B AUM shop that may be forced out of the industry even if performance is good.
The short answer is there are just not very many opportunities to join the long-only side vs. HFs and PE. Voluntary turnover tends to be very low at most mutual fund shops so you may see something like 1-2 new analysts hired every year, which are almost always sourced through the MBA programs. Very rarely, maybe once every 3-4 years, will we get a lateral hire from the sellside (typically ER) or HF. Compare that to the multi-manager platforms that are basically always in hiring mode because the half life of their pods is so short. They are constantly rebuilding teams, promoting new PMs who need to staff up and blowing out underperforming teams. I don't have hard numbers for you but it would not surprise me at all if the larger platforms are hiring 30-50+ new analysts PER YEAR. That's like the size of the entire equity team at T.Rowe or Wellington and by the way most of those guys have been around for 10-25 years.
But yeah, it's not a bad gig so if you feel like that slower moving more deliberate investing pace is right for you, I'd encourage you to give it a look.
That's pretty much the crux.. people just don't move around or leave or get fired in the AM world... much lower need for new talent than the behemoth that is banking or the constant rotating doors of PE firms and hedge funds.
Agreed. There are maybe 20ish (idk how many really tbh) new post MBA analyst spots at large asset managers ($100B+ AUM) each year, at Fido, Wellington, MFS, T. Rowe, PIMCO etc. Maybe there are 100-ish total at all asset managers with $7B+ AUM. Any less AUM and your economics /pay are notably impaired unless your team is pretty lean.
Anyone know what typical comp is like at such Mutual Funds and AM's?
Bump
Having spent time at a large asset manager, here are my thoughts. As mentioned by others, the universe of mutual funds, especially passive fund families, is vastly different than that of hedge funds. At mutual funds (passive) you are not having to go through security selection measures to a large extent because the index you are tracking does that for you for the most part. From a purest's point of view, the role of a passive equity index manager is not even to maximize returns per se, but rather to track the index as closely as possible.
Mutual funds shouldn't be discounted in terms of career opportunities and exit ops, just take the time to understand the fund company you are thinking about getting into bed with.
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