If you’re an equity research analyst in an investment bank (the sell-side), you probably want a job with a hedge fund, private equity fund, or mutual fund or pension fund (the buy-side) instead. How can you effect this most sought-after of transitions? A new study* by academics at the Rotman School of Management at the University of Toronto suggests some analysts find it easier than others.
The Toronto academics looked at employment data from Linkedin and the Thomson Reuters IBES database. Of 1,100 analysts who swapped jobs out of IBES-listed sell-side firms between January 2007 and December 2013, they found that 41% went to the buy-side, 21% went to sell-side firms not listed in the IBES, 21% got corporate jobs and 17% found jobs doing something completely different.
In other words, moving to the buy-side isn’t that hard – a lot of people do it, but it’s not for everyone.
The study found that the analysts who made the move from the sell-side to the buy-side shared distinct features. Overall, they were more accurate in their forecasts, more likely to have an undergraduate degree in a subject related to the business sector they were following (eg. a pharmaceutical degree when they were following pharma stocks), more likely to have worked on the buy-side before, and less likely to have postgraduate education. In other words, forget the MBA.
The study also found that there was a negative correlation between analysts’ seniority and “all-star” stature and their chances of moving to the buy-side. The academics surmised that this was because there are fewer openings for super-senior, super-expensive star analysts in buy-side firms.
The analysts who successfully moved to the buy-side were also more likely to cover a broad range of industries rather than a broad range of companies. “The sell-side prefers analysts who follow more companies so that they can service more clients,” said the academics, before suggesting that buy-side firms are more interested in analysts with an understanding of entire industries than those who specialize in particular firms in a sector.
This wasn’t all though. The academics also broke out the sorts of sell-side analysts who moved to private equity funds and hedge funds from the analysts who move to stodgier mutual and pension funds. They found that being better at forecasting only really matters if you moved to hedge funds and private equity – mutual fund analysts are nothing special. Equally, not having a postgraduate qualification only really helps if you want to move into the PE and HF too – possibly because these funds are focused entirely upon performance, whereas mutual funds and pension funds are still dazzled by education. Similarly, it was only the mutual funds and pension funds who liked to hire people with previous buy-side experience, and who were less likely to hire senior all-star analysts.
Fundamentally, therefore, if you want to move to a pension fund or mutual fund you have to tick several boxes. If you want to move to a hedge fund or private equity fund you have to tick one: you need to be very, very good at forecasting and that is all.
*Navigating Wall Street: Career Concerns and Analyst Transitions from Sell-Side to Buy-Side
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