From my experience on the sell side, it’s because we don’t get paid for research. Spend a month to do a good research report and it gets some transaction. But spend a month getting in good with a management team through marketing and that pays residuals for years. We get paid for management access. If you look at polls of the buyside, that’s the number one thing they say they use SS for. I think over time this has cultivated a lot of successful analysts who aren’t actually good at analysis, but rather the political game of it all. This certainly isn’t true of all the analysts I worked for and met, but it certainly was way more common than I would have guessed.
Also, mfid is impacting large multinational funds in how they think about the fees. Since lots of the bills get paid by those guys, and not the small hedge funds, any impact from mfid is dollar weighted. God help them if Citadel starts compensating the sell side differently
^ Everything you mentioned above is true. I might just add that the biggest funds might not actually need to pay sell-side to provide corporate access. It’s true that corporate access is something that buy-siders say they value because it *is* valuable, but it’s just one of those things that needs to be said to justify trading with a particular bank. That all changes after MiFID II because corporate access isn’t actually something that a sell-side bank can explicitly charge a buy-side client for (to the extent I understand it). And, more importantly, if a big fund (including higher velocity firms such as Citadel) wanted to get a hold of management - and assuming they are a top 100-150 shareholder or something like that - I believe they could easily drop investor relations a note and expect to have a call returned in a couple days, and probably from a C-level executive within a week. No need for the sell-side to facilitate that kind of meeting or call.
I agree. I think it’s the quick in and out hedge funds that the companies, at least in my sector, didn’t seem to want to talk to. Everyone would answer Wellington or Fidelity when they called
“Contrast that with Silicon Valley,” he continued. “It’s not even the money; it’s the optimism that I envy. Those guys are building a brighter future and this just feels like death.”
Anyone else think they should have gone to do something like engineering or software developing?
What a whiner. Anyone can switch jobs. Lending Club and other financial technology companies were founded by ex bankers. If he wants job fulfillment that comes in a different field, he should just go do it.
In addition, by age mid 30, or whenever, someone in finance should have already accumulated significantly more money than the average Facebook or Google engineer. The person in finance should have a bigger cushion and higher risk tolerance to be entrepreneurial, train, retire, or whatever.
Truth is, many people in finance have been handed one track jobs that require little creativity or talent, and expect that their easy income can perpetuate indefinitely. The technology industry keeps evolving, as people there keep questioning their current situation and move to new things.
Gotta disagree with this. In comparing an average employee in “finance” (admittedly a broad classification) as compared to an average Facebook or Google engineer – I would argue that the accumulated wealth should be a lot more for the Facebook or Google group.
Really? The article says “The change has put renewed pressure on senior analysts, who typically earn anywhere from $500,000 to $2 million a year, to prove their worth.” It’s true that most people won’t get to $1 million, but for experienced front office* staff, $400k+ has been about the average total compensation. That’s more than the average engineer makes.
Sure, some engineers make management grade and outearn the average. However, the comparison to these engineers is management bankers, who make the range above. The person in the article had 20 years of experience in equity research. If he is not worth mid seven figures or even eight figures, there is something wrong.
*What about operations or other people, you might ask? Well, if you’re in back office, you wouldn’t have become a software engineer at Google either.
No, you’d think so. In person meetings are preferred. Some funds don’t even allow the sell side analysts to sit in on the meeting that they have facilitated haha. The buyside also likes it when you get lots of people from an industry together so they can get a lot of management exposure quickly. For example, at an auto lending conference off site, arranging all the bank lenders to come and speak to investors about what they are seeing in the market and contrast that with Subprime guys.
The actual research process just doesn’t pan out for SS analysts. To properly research a piece of legislation or emerging trend that will drive CF of the companies they cover will require a lengthy research process that winds up reaching into areas they lack expertise. The end result is we punt. For instance, the house and senate tax bills are going to bear significant changes for our coverage names. We looked into re-valuing all of the names given different scenarios but quickly realized after talking to a few IR departments that nobody knows wtf is going on. Oh, sweet, an area we might be able to add clarity. So we start trying to figure out what the fuck is going on by conducting interviews with tax lawyers. Very quickly we realize that the process will take months and we don’t even know what these bills will look like by then. So, we squash it. Publish a one page report with vague commentary and a half-assed sensitivity analysis attached to the usual 6 pages of SS compliance disclosures.
But I guess what the fuck is the difference? The piece generated a ton of insight and we all spent hours on the phone that week.
Amazing post and something I can definitely relate to. We on the buy side spent countless hours trying to ring fence the impact of tax reform on our coverage too but there are still too many unknowns resulting in a largely futile exercise. Sell side is all over the map as far as their estimates and we know many of them are doing the wrong kind of analysis, but hard to know what ends up being the right kind. Anyway, at least you guys generated a bunch of trade commissions off of it! That’s the name of the game…
Yep, that sums it up. I have access to the reports of all the analyst at my bank and I don’t ever reference it when I’m making decisions for my personal portfolio.