I have a friend who recently got a job in his home town in equity research. It’s a small regional investment bank that is one of the only real finance jobs in the city. I was curious how this kind of job is viewed by the BSDs on this forum? Are sell side equity analysts judged on the quality of their work, the firm they are from, or some mixture of both? What weight do you think it’d be?
I was curious how much mobility he’d have if he wanted to decide to move to the Northeast doing the same thing, assuming he is good at it. Appreciate any insights from people in the industry.
Everyone in finance is judged on the school they are from or the firm they worked at. This is because people are lazy and have a hard time evaluating actual skill, so they prefer proxies for skill. Also, interestingly enough, lots of people can’t evaluate skill because they have none themselves. True story.
That is a fine job to start at. If your friend wants to make moves, he will likely have to eventually move to a bigger city. My first job out of school was similar sounding to what you are describing, and I left after a couple of years for a buy side job in a major financial hub. If the hiring environment is decent when he wants to leave, he will have a chance to move but it’s not easy.
One consideration is the industry he covers. Better / easier industries to move out of involve anything in tech, consumer or healthcare (ex biotech which is very niche). Lots of funds have demand for analysts with those backgrounds.
depends how crappy we’re talking. At tier 3 shops like Sterne Agee or Sidoti, at least they are places that people have heard of, you get your legit licenses, and you can probably learn something about the industry. I hear Sidoti hires kids literally straight out of school, gives them a couple weeks of training, and gives them a senior research analyst title. God knows why anyone would read that research at all.
if I come across a resume that says “battle toad research” - yes i’ve seen something as dumb as this… and you don’t have any licenses, I’m going to write it off as crap.
in summary though, your friend has a shot into the bigger leagues. goign to a smaller shop, if he really learns everything he can, and gets his licenses, he can probably spin that into a legit interview. though keep in mind, an interviewer can figure out pretty quickly if you really know what you’re talking about.
It depends what he was doing previously but I tend to think that if he wants to get into equity research or management, then any firm that has some reasonable branding (including some mentioned above) is better off than something that isn’t equity analysis related.
I guess I’d have to know what the exact firm name is. There are a lot of bucket shops out there but I definitely wouldn’t consider Sterne Agee to be a bucket shop, and probably not Sidoti either…they have a slightly different model based on Value Line stuff, not something I use personally but does have a place in the industry.
Ultimately it really does come down to the quality of the research so I’d have to know the firm and see some research pieces to say whether it was worthwhile. That said I am generally sympathetic to the idea of getting your foot in the door in any way possible. Equity research is hard to get into and I have worked with multiple clients who have worked at borderline bucket shop firms eventually move up to Tier 1/2, and would say it’s orders of magnitude easier than getting in from back office for example. That said, in every instance these folks hustled harder and prepared much more furiously than the typical employee at these firms so that when they went to interview a Tier 1/2 bank, the bank would basically see them as an undiscovered gem.
There are worse firms than those named. I will revise my statement based on that. Sterne Agee and Sidoti are fine. If he works at Chardan, I consider that the equivalent of having AIDS. Rodman and Renshaw would have been another example except that’s tits up now. There are others thare are AIDS-like.
I’ve met smart investors working at all different kinds and sizes of funds, so wouldn’t necessarily say anything is hacksaw just based on AUM. However, if you are an asset manager and aren’t collecting 1.5/15 or 2/20 and are just earning some modicum of management fees with no incentive fees, $1bn seems pretty subscale unless you’re like a three-person shop with minimal rents.
Who doesn’t know about Sidoti? It’s the firm that issues 2 page “analysis of a press release” research and then expects you to pay for that. Thanks guys, I also read the press release, I’m so glad you were able to retype that into a research template and provide no value add. When I see that a stock has one analyst covering it and that analyst is at Sidoti, I mentally revise the analyst coverage to zero.
I met the COO of a very, very smart hedge fund. It was run by award winning AI professors at elite universities and they had lots of other name brand people there as well. I would have easily been one of the most stupid people in that firm. Despite this, they only had something in the eight digits of AUM after being in business for some years. This seems to show that many components make a successful business, not just having talented owners and employees.
The best hedge funds in the US measured by returns CAGRs are almost all under $1B. And by “almost” I mean if you exclude people who break the law like SA… what was the name of that fund again? There some impressive long-term 30%+ CAGRs under a billion. I can only think of one fund over a billion that has a legitimate 30%+ CAGR but I might be missing a few. If that’s hacksaw then I’m going to saw my nuts off right now.
This is definitely right. There are plenty of funds with excellent returns but can’t really scale assets for one reason or other. There are a ton of elements that matter other than performance when it comes to fundraising and longevity. The industry is consolidating and each year there are but a handful of hedge funds that can launch with $500mm+ in AUM.
Most funds that are subscale end up staying subscale. There are a plethora of reasons, which include but are not limited to (1) unable to attract the right investor base, (2) investment strategy doesn’t scale, (3) they can’t play in microcap names with multi-bagger potention as longs or zeroes as shorts if they get too big, (4) managing partners are not likeable individuals, (5) questionable pedigree, (6) non-repeatable investment process, (7) undifferentiated investment strategy, (8) weak risk management or controls, and a bunch of other things I can think of but don’t have the time to write about.
That said, the difference between long-only and long/short hedge fund is that as an absolute return fund you can keep the lights on with about $25mm AUM and good performance, because of the fee streams. When it was asked earlier whether you could be a $1bn asset manager, I took that to mean long only relative value fund and I would say that is definitely subscale.
agree and a reason why some funds will cap out at a certain $ amount investor money. at some point too much funds will constrain performance. when you get way too massive, then you may as well just bench an index and increase/decrease weights here and there.