1. Firm web site -- The first thing I do when I visit a firm's website is to look at their staff bios. This is the premier consideration in evaluating a firm. If the staff is good, you will likely have, at minimum, a reasonable experience there. If the staff is weak or poor, you will likely have a sub-par experience there.
How to evaluate staff bios: The two things I look at are the staff's experience and education. At minimum, for me, all principals should have significant experience at top, recognizable buyside or sellside operations. Also, at least most of the principals should have degrees (both undergraduate and graduate) from top universities. If some of the principals have non-buyside experience, it should be at a recognized company or institution. Most of the firm's analysts should have similar backgrounds as well (though, obviously, less experience in terms of years and positions held). Big warning signs for me include: 1. None (or few) of the principals has significant experience at a top firm. 2. None (or few) of the principals has a graduate degree from a top university. 3. Analysts have weak academic and/or work backgrounds. No full analyst should have less than three years of experience. 4. Any signs of nepotism. 5. Lists of degrees from unrecognizable universities and/or work experience at unrecognizable firms. 6. Missing periods in bios.
2. Money under management -- If the firm's website does not tell you how much money the firm manages, this information should be obtainable in either the Nelson's Directory of Investment Managers or Pensions & Investments websites. If the firm is not in either resource, this is also a warning sign. For a hedge fund, I will not talk with firms with less than $200 million under management. I prefer hedge funds with over $300 million. For regular buyside firms, I will not talk with a firm with significantly less than $500 million. Allow me to explain: the IM business is one where you derive your profits from the size of the money you manage. Hedge funds also gain a portion of the profits they achieve. Any good manager with significant experience at a top firm can walk out the door with commitments of, at minimum, $100 million. Some have walked out with commitments of $500 million to $1 billion. Therefore, a firm that cannot break the 200 million figure just does not have the right staff needed to be able to compete.
3. Whose money do they manage? -- You want to join the smartest firm you can. How can you tell whether X firm is smart and will be able to grow? My biggest criterion is to evaluate the firm's clientele. The smartest clients in the business are the university endowments, large foundations, certain smart corporate pension plans, the sharper state pension plans (especially CalPERS, Ohio State Board of Investments, Wisconsin, and Virginia), and some fund of funds (a mutual fund that invests in other mutual funds). Not only do these institutions have fine internal staffs with large budgets to investigate potential managers, but they are advised by numerous consulting firms that also research money managers. Not only will these institutions generally select top-rate managers but, if these managers perform, these institutions have much larger amounts to give them. It is a serious negative if the firm has not been able to attract any of these investors. It means either a) the staff does not have the level of experience and education to gain these institutions' trust or b) their product and/or investment strategies are unappealing, ill-formed or incomprehensible.
The remaining potential client-bases are: retail and high-net-worth (HNW) investors. I generally prefer a firm with a retail investment clientele (i.e., they run mutual funds) over one that caters to HNW individuals (i.e., individual accounts).
How do you find out about the firm's clientele? Ask them, then check their answers against both Nelson's and Pensions & Investments and search the Internet for manager announcements (when a public pension plan puts money with a new manager, this information is published).
Once you're sure investment management is right for you, how do you pick your firms? This is a frequent question that comes up in managing a career on the buyside. Unlike most other industries, the investment management industry encompasses literally thousands of firms, most of whom either do not advertise themselves or are even legally enjoined from doing so (hedge funds, for example). Much of the time, you are dealing with a job search in which your potential future employers are unknown entities to you. So what sources and criteria should you use when evaluating a potential employer?