Hedge funds and asset managers may be snapping up buy-side analysts of all shapes and sizes, but don't be fooled: there's a caste system in place, and salaries and bonuses are distributed accordingly.
Product offerings and investing styles distinguish the macro division between hedge funds and asset managers. 'They're a completely different animal,' says Deborah Rivera, founder of New York-based alternative-investment recruiter The Succession Group.
'Hedge funds are very entrepreneurial, they don't have the infrastructure of a big firm, and they have a lot on the line every single day,' she explains. 'At the asset management firms, they're dealing in a lot more products and they're going to take a variety of approaches that are usually more long term, lower risk, lower reward plays.'
Hedge funds tend to attract young analysts who work hard and aim to earn enough money to fund an early retirement-as early as 35, say, by which time burnout may set in. Analysts at traditional money managers tend to take a longer view, remaining in their jobs well in to their fifties and beyond.
Skewed Pay Scale Favors Hedge Fund Analysts
Analysts from junior to senior levels are in healthy demand on both sides of the risk-reward divide, but compensation is hardly egalitarian.
'At the very top end, hedge funds are hiring very aggressively,' says Michael Flood, managing partner of Westwood Partners, a senior-level financial search firm in New York. Asset managers, he says, 'are continuing to beef up their staffs as they become less and less reliant on Wall Street research. And they are becoming more and more active in the alternative space either by outright acquisition or organic growth.'
Who's in the highest demand? Healthcare, technology, financial institutions, consumer, energy, biotech, emerging markets, leveraged finance and distressed debt analysts top the list. As a general rule, hedge funds compensate their analysts more.
'A good senior analyst at a hedge fund performing north of 10% can make a couple of million bucks,' says Flood. 'The very best senior analyst at [an asset manager] like Putnam or Wellington can be making into seven figures, but that's unusual.' Rather, says Flood, senior, big-sector analysts at an asset-manager earn $500,000-$800,000 per year.
Recruiter Rivera says that's high: she's rarely seen analyst compensation at an asset manager exceed $500,000. 'At a regular asset manager, people making a million are real top people, whereas many analysts at hedge funds make $1 million.' Although there are more analyst jobs with asset managers-who deal in a wider array of products than hedge funds-they're slower placed, too, because they are investing for the long term. 'Therefore, the returns will be conservative and compensation will reflect that,' says Rivera. 'It's a huge difference.'
What it Takes to be a Top Analyst
Hedge funds like to recruit Institutional Investor-ranked analysts with a track record of making very good calls. Also, says recruiter Kyle J. Ramkissoon of IJC Partners, 'Analysts who are at the top of their class at an investment bank can pretty much write their own ticket.'
That can't be said for every buy-side wannabe. Ramkissoon, who over the past two months has received 14 mandates from hedge funds seeking analysts, cautions that among investment bank analysts, 'not a lot of them have been involved in the full process of analysis, because they work on a specific sector.'
Sometimes, the perfect buy-side analyst is a recycled commodity. In this group are 'former traders who didn't quite have the emotional makeup to be on the trading desk but had very good ideas,' says Rivera. Hedge funds also recruit academics with PhDs in economics or quantitative math who know a particular niche-such as Latin American finance-extremely well.
Anyone aspiring to an analyst's chair must know how to read a balance sheet, write and market. But business-school training alone isn't enough.
'Analysts are for the most part professional bull---- detectors,' says recruiter Flood. 'That's their job. At the end of the day, what separates good and bad analysts is the courage of their convictions. But, if you don't know whether the stock is going up and down and why, then you probably aren't going to make it as an analyst.'