Fund management has become the ultimate goal for many financial professionals. The future of the asset management industry seems more promising than the banking one. If you’re looking to establish your own fund, many experts would say the real asset is in research, not sales and trading. Historically, there have been only a few paths to portfolio management.
- Start as a trader within sales and trading. Move to a prop desk from market making. Develop a rep and take it to the buy side.
- Start as a trader. Move over to small hedge funding or asset management. Get promoted to managing a small portfolio. Build a reputation and (a) get promoted to a larger fund or (b) start you own.
- Get hired at a large asset management firm. Work with their portfolio management group. Move up the ladder, reaching P&L responsibility on a fund.
- Start in research on the buy or sell side. Begin publishing strong call. Run a shadow portfolio, keeping records of performances. Take that track record to a junior portfolio manager position on the buy side.
Entry level positions on the research and trader sides certainly outdistance portfolio management positions. If a newcomer did find themselves on the buy side, they’ll be doing more menial tasks than sell side peers. They won’t be running portfolios or making decisions. Most likely these individuals will be executing portfolio construction and attributions, and engaging in cash management.
Prop desks are considered dead. Dodd-Frank has essentially destroyed these roles. No one should look to sit at a Goldman Sachs prop desk right now. This doesn’t mean one can’t take a market maker’s proprietary risk. You will have to ask how to capture that? How do you prove IRR, BPS per trade or Sharpe Ratio? It would definitely be a difficult path to walk.
Here’s a reasonable course to take.
- Start in sales and trading.
- Rotate to several desks during those first two years.
- Transition to research, becoming a desk strategist.
- Get your research know among traders and your ideas to salesmen.
- Get your ideas promoted to clients.
- Get introduced to clients and find yourself on the buy side sooner than later.
For equity long-short PM, trading comes after research. If trading is a desire, sit on both long and short desks. Learn how to navigate in the market through long and short strategies. There is a focus on sales and trading thanks to all those Goldman traders making fortunes. Of course, one might argue this led to a financial crisis that’s still affecting the market. Currently, the buy side is where the real money waits, but only for risk takers. If you’re a people person, stay on the sales side. That’s basically what managing directors, IBDs, and law firm and consultancy partners are. One can make good money as a salesman.
If one truly wants a rewarding career in the financial market, don’t convince yourself there’s only one true field to be in. On top of that, considering market volatility, developing five and 10 year plans is counterproductive. Work on your game for the coming three years. If that works, come with a new plan for the next few years. Too many 20 year old newcomers come in with big, distinct plans and – regardless of what we see in the movies – end up disappointed. Keep an open mind, positioning one’s self for success where it comes or walk with him.