An Investment Management Career Primer

by Derek Loosvelt | March 31, 2009

The investment industry is a vast one, encompassing thousands of firms and tens of thousands of investment groups within corporations, unions, foundations, universities and schools and government institutions. How can a student decipher what opportunities he or she wants to pursue? How can you determine whether a particular firm is the right one for you to join? First, you must understand the kinds of firms within the business.

The "Gold-Plated" MegaPlexes

Description: The "Gold-Plated" MegaPlexes are mutual fund families that offer a complete or nearly complete range of products. GP MegaPlexes serve significant numbers of retail, institutional and high-net worth (HNW) customers. A GP MegaPlex will have at least 100 billion under management. These firms are well-known throughout the industry.

Examples:

  • Fidelity
  • Putnam
  • T. Rowe Price
  • MFS
  • Capital Group of Companies
  • Scudder

~Hiring: GP MegaPlexes hire almost exclusively through recruiting at top MBA programs or raiding other Tier 1 or Tier 2 firms. Some will hire BA candidates, but generally only from a top school. Inexperienced hires will be brought on as research assistants/associates (if without a graduate degree) or as junior research analysts (with graduate degree).

Pros:

  • Exit opportunities, both at graduate schools and within the industry
  • High pay
  • Superior access to companies and sell-side analysts
  • Firm's diverse product lines insulates against downturn in your industry

Cons:

  • Bureaucracy
  • Internal politics
  • Extensive travel required

Tier 1 Boutiques

Description: Tier 1 Boutiques are firms that specialize in a particular flavor of instrument, industry sector or style. They are nationally or internationally recognized for their expertise in that specialty. A Tier 1 Boutique will have between $500 million to $50 billion under management.

Examples: Real Estate - Cohen & Steers, Aldrich Eastman Waltch

Fixed Income - PIMCO, BlackRock

Technology - Pequot, Weiss Peck & Greer, Firsthand

Hiring: Tier 1 Boutiques hire in a similar fashion to GP MegaPlexes. However, if their specialty is currently out of favor, an especially persistent but untypical candidate can sometimes obtain a position at a Tier 1 Boutique.

Pros:

  • Exit opportunities, both at graduate schools and within the industry
  • Superior access to companies and sell-side analysts
  • High pay

Cons:

  • Occasional lack of support staff
  • Extensive travel required

~Tier 2 MegaPlexes

Description: Tier 2 MegaPlexes are large fund complexes that have a complete or nearly complete product line. However, they are not regarded as highly as Tier 1 MegaPlexes or Tier 1 Boutiques. They will often be attached to a bank (whether commercial or investment), insurance company or other financial conglomerate. Tier 2 MegaPlexes will serve mainly retail and HNW clients.

Examples:

  • Franklin Templeton
  • AmEx Financial Advisors
  • Van Kampen

Hiring: Tier 2 MPs are often scattered in their hiring - hiring internally, recruiting at the undergraduate level at local universities and at the graduate level at both local and top-20 universities.

Pros:

  • Superior access to companies and sell-side analysts
  • Firm's diverse product lines insulates against downturn in your industry
  • Good pay

Cons:

  • Bureaucracy
  • Internal politics
  • Extensive travel required

The Old-Line Firms

Description: Old-line firms are firms that were often started in the 1930's (or even before). They are generally value/fixed-income shops and focus on capital preservation. They will have a mix of old-money very-HNW clients and local institutions.

Examples:

  • Dodge & Cox
  • Loomis Sayles Stein
  • Roe & Farnham

Hiring: OLFs hire at top-10/15 MBA programs. Occasionally, they may also hire laterals from other (value-oriented) firms that are also located in the same city.

Pros:

  • Exit opportunities, both at graduate schools and within the industry
  • Superior access to companies and sell-side analysts
  • Good pay
  • Stable firms, positive (though conservative) cultures

    Cons:

    • Bureaucracy
    • Firm's stodgy philosophy may not appeal to you
    • Firm expects you to stay with them for many years and structures pay and advancement accordingly

    Universities, Foundations, Pension Plans

    Description: These are (generally) tax-exempt pools of money. In most cases, the great majority of assets is outsourced to various outside Tier 1/Tier 2 firms. The investment staff at these institutions selects and monitors these outside managers. Small portions of the assets can be managed internally.

    Examples: Stanford Management Company, Ford Foundation, CALPERS

    Hiring: The top-tier institutions prefer to hire recent MBA graduates who have spent a number of years (post-MBA) at a premier buyside or sellside firm, but who would like to reduce their working hours.

    • Exit opportunities, both at graduate schools and within the industry
    • High job security
    • Great benefits
    • Less stressful environment and culture

    Cons:

    • Bureaucracy
    • Focus on asset allocation and monitoring, NOT in-house management
    • Relatively low pay
    • Difficult to get active management jobs due to lack of experience
    ~

    Insurance Companies

    Description: Insurance companies often manage extraordinarily large sums of money. This money is derived from policy payments and set aside against potential claims. Insurance companies have historically invested mainly in high-grade fixed-income instruments.

    Examples: State Farm, Allstate, Cigna

    Hiring: Insurance companies generally hire investment staff from local universities. Historically, insurance companies have been unable to attract many candidates of top-20 MBA programs. Insurance firms will hire at both the MBA and BA levels.

    Pros:

    • High job security
    • Great benefits
    • Less stressful environment and culture
    • Willing to hire non-Ivy candidates
    • Good learning environment

    Cons:

    • Bureaucracy
    • Focus on high-grade fixed-income
    • Low pay
    • Low prestige
    • Extremely conservative investment styles

    Financial-Planning Firms

    Description: Financial-planning firms focus on HNW/higher-end retail customers. These opportunities focus on extensive interaction with customers to solve tax/estate/personal financial planning questions. This function does not generally select individual securities but performs asset allocation into mutual funds.

    Examples: PCS Groups of banks and brokerage houses, independent financial-planning firms

    Hiring: FPF will hire almost anyone with a bachelor's degree.

    Pros: None

    Cons:

    • Bureaucracy
    • Low pay
    • Low prestige
    • Premium on sales ability, not analytical ability
    • Little (or low-quality) analytical work
    • ~

      Questions and answers:

      1. You haven't talked about hedge funds or venture capital. Why not?

      Venture capital is not investment management as conservatively understood. Venture capital is actually closer to investment or commercial banking, in that a VC's main function is to sell her firm's money to high-quality potential entrepreneurs. An investment manager focuses on investing in public equities, not selling her firm's money.

      Hedge funds are very similar to mutual funds and investment advisory firms. The fee structure is different (and extremely rewarding to the partners of a hedge fund) but functionally, below the partner level, employees at hedge funds do similar functions and will be paid equivalently to employees at other mutual funds or investment advisory firms. Hedge fund jobs are not necessarily more prestigious than many other opportunities available. More importantly, the industry generally does not truly distinguish between a hedge fund specializing in, say, energy and a mutual fund that does so. Each fund will be judged according to their performance, size, reputation, quality of personnel - and not on the ownership structure. Since hedge funds are relatively small (the largest hedge fund families manage roughly 10 billion), they are simply classified as whatever rank of boutique that they are.

Filed Under: Finance


The Investment Research Associate How do I get an Interview in VC?

Vault welcomes your views. Please stay on topic and be respectful of other readers. Review our User Guidelines.

blog comments powered by Disqus

Featured Companies

Become a Vault Basic Member

Complete your Vault Profile and get seen by top employers