What are the thoughts about those who choose a passive investing career? Is experience in passive investing pigeon-holing a person to only do that in their career? Or is there enough cross-over work where one can successfully make the jump to active investing down the road? Trying to determine potential exit opps I may have a few years down the road…
“passive investing”? Do you mean indexed investing or tax-managed investing? If you call it passive investing your chances are poor.
Lol. Passive investing is terrible marketing term no doubt. He is definetly talking about indexing or something quite similar. I can’t speak to your question though.
I thought active investing is where you try to get on the bod and fire management.
I assume by passive investing you mean work for index funds. If you are trying to manage an index fund, the bulk of the opportunities will come from finding ways to replicate an index as inexpensively as possible by reducing transaction costs, using derivatives in innovative ways, or using improved sampling techniques. If you can do that, you get to keep more of your management fees for profits, or you can afford lower management fees to become more competitive. Those skills are definitely useful in active management, but the really good salaries are probably paid people who can pick stocks to outperform an index. If you’re an indexer, you might be able to switch to a career in some kind of asset allocation, but to demonstrate those skills, you’d probably have to be examining how your index can be used in a variety of allocation mixes. Doing a fixed income index probably has more opportunity than an equity index because the fixed income index will usually have a proscribed duration but the underlying bonds have durations that change as they mature. That means that there is more thinking and strategizing to be done about how to buy and sell them. On the equity side, if you can start to get to enhanced indexing, which is considered by some to be quasi-passive, you’d probably be in better shape than a pure indexing career.
“I thought active investing is where you try to get on the bod and fire management.” You’re thinking of activist investing…or am I reading too deep into your sarcasm?
I’m not a sarcastic person. It appears I made a genuine mistake. I apologize to you. I apologize to the forum. I intend to do better in the future. I’m bowing in front of my computer now.
Appreciate the responses… let me clarify: I’m working at a company now with about $30B AUM. We are a structured portfolio management firm. I am a PM in the Overlay group which manages UMAs (unified managed accounts). Although a majority of what we do is try to replicate an inidividual’s benchmark (whether it’s made up of several active managers, different indices or various mutual funds), and I apply customization/tax strategies on the portfolios (i.e. sub-advisor that has full discretion over accounts). In essence we are managing tracking error while attempting to generate after-tax alpha. This involves optimizations, performance attribution, and risk analysis. My question is this: is this too narrow? Since I am not betting on the direction of the market or on any securities, are the skills I’m learning transferrable should I jump to ‘active’ investing down the road? To put more in perspective, I am 26 and have my CFA designation. Thanks!
bump (I guess that’s what I get for posting on a weekend)
last bump attempt - anyone (esp of those who posted above) have something to add? thanks
bjorgens Wrote: ------------------------------------------------------- … > To put more in perspective, I am 26 and have my > CFA designation. … Don’t worry about it being too narrow or too broad. If you’re “only” 26 you have plenty of time to move on and something else should you wish to do so. Try to pick up general management skills while you’re there and you could aim at becoming the CEO of some finance company further on. “Several UK pension funds are turning to index tracking as a way of gaining steady returns. … This philosophy is not exclusive to the UK. Similar strategies have been adopted by the £70bn Dutch pension scheme PGGM and by Denmark’s £47bn Labour Market Supplementary Pension Scheme.” writes Owen Walker in FT.com on 4/5/08.
Good point. Still I’m sensitive of going too narrow and not learning a decent transferrable skillset. Thinking about possibly supplementing my lack of fundamental analysis experience on the day-to-day job with taking the CAIA.
Why? Why CAIA? (If you develop your thoughts you might get some useful feedback from us readers.)
I’m interested in possibly getting into alternative assets down the road. Having my CFA plus experience in enhanced indexing probably won’t suffice, so I’m hoping another designation such as the CAIA will help. Also, from a learning standpoint, I’d want to keep up with things on the “active” investing side.
bjorgens Wrote: ------------------------------------------------------- > I’m interested in possibly getting into > alternative assets down the road. Having my CFA > plus experience in enhanced indexing probably > won’t suffice, so I’m hoping another designation > such as the CAIA will help. I don’t think it will. You don’t see any employers ask for this in job descriptions. > Also, from a learning standpoint, I’d want to keep > up with things on the “active” investing side. I think your beta-oriented experience will help a lot if you want to be a PM of an active portfolio (it should help you understand risk and tax issues better, if nothing else), but it won’t be enough on its own. You would make a great PM if you were willing to get into an ER role or something along those lines, though it might be at a junior level to start with – I think it’s highly unlikelt that you would lateral. With 3-5 years of active experience though, you would be a solid active PM candidate. I’ve actually been looking at doing the opposite – going from an active role to a passive role to see what that side of the business is all about. I personally think you need both to be highly effective as a PM.