If you're desperate to get a job with a hedge fund, you'll probably accept anything you're given. And why not? - None of these places are easy to get into. But my own experience suggests you might want to think carefully before climbing into bed with any hedge fund job that pulls back the covers.
When I graduated from business school, my goal was always to get to the buy-side. It was hard to make the jump directly, so I used the sell-side as a stepping stone. I’ve said this before, but the hardest part of getting to the buy side is landing that first role. Most firms want somebody with buy side experience, but I’m not aware of a way to get buy- side experience without having a buy-side job. However, once you’re in the club, suddenly you’re in high demand and everybody wants to talk to you!
Personally, I was so desperate to get to the buy-side, I was willing to take any job. Janitor at a hedge fund? I can work my way up! I always preferred equities, but I started applying to credit roles as well. I figured that all I needed to do was to get to the buy-side and that once I was there I'd be able to transition to an equities role. How wrong I was.
I'm not saying jobs in credit markets are all bad - you get more days off than if you work in equity markets for example. But investment grade investors are bores who just clip coupons, and below investment grade it starts to get complicated.
When you're a credit investor, you need to think about the capital structure you're buying into and whether you can get subordinated. You need to look at recoveries in case a company goes bankrupt. You need to estimate how long a company can continue making interest payments on its debt. There’s a lot of strategy involved, like playing chess.
Equities is much simpler, which is why it’s a lot like checkers. Either the company does well and the stock goes up, or it does poorly and it goes down. There’s no need to worry about the capital structure because - hey - you’re already at the bottom. If a company is going bankrupt, there’s no math involved because you’re getting nothing. Zip. Zilch.
The real problem, though, is that credit and equity are two totally different animals. To say they're the same would be like saying mechanical engineers are similar to software engineers, since they’re both engineers.
So if you’re on the sell-side right now, desperately trying to get out to the buy-side, think carefully about your choices. Because once you’re pegged as an equity person, you’ll be stuck as an equity person. The same goes for credit. I’m sure it’s happened before, but I don’t know a single person that has moved from credit to equity, or vice versa.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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