If you’re getting out of a big investment bank into a start up on the buyside, you might feel excited. You might feel like you’re leaving behind the stodge of corporate culture for something a little more fast-flowing and zingy. You might be disappointed. In my experience, a lot of small buyside businesses are no more than extensions of their founder’s ego.
Witness a cold call I recently made to a young hedge fund manager who had spun out of a big fund last year. Could I briefly introduce myself, I asked? He grunted with approval, but I barely got halfway through my 30 second elevator pitch before he had hung up on me.
Plenty of these smaller firms are private fiefdoms. Some are successful fiefdoms which might even be worth joining. Most are just lifestyle businesses, which allow their founders plenty of time to have long lunches or hang about on the golf course.
There are plus points to working at this sort of place. Dress codes, working hours and levels of political correctness are often relaxed. On the other hand, everyone knows everyone else’s business, professionalism is minimal and political correctness has a purpose. A friend of mine at one boutique firm found herself dating her boss, a man as charming to institutional investors as to the ladies.
Another friend of mine at a different start-up firm had an inflated salary & perks and a grand job title, until his fund was raided by the FSA. In his mid-twenties he was driving two sports cars and making money, but he hadn’t asked some basic questions about his workplace (Eg. Where were all the revenues coming from to support his boss’s lavish lifestyle and the outlandish company off-sites?).
Based on personal experience, here’s how I suggest identifying disastrous small financial services employers before you climb into their uncomfortable bed:
1. Common sense:
If a fund has a small amount of assets under-management and charges a small percentage fee, how is it paying its costs? Are management paying out of their own pockets? Are they going to pull the plug when they get fed up with this?
2. Rumour and reputation
Entrepreneurs tend, by virtue of their experience and tenure, to have come into contact with a lot of people. It’s unlikely that someone has worked ten or fifteen years in the City, often at a number of different firms, without people forming an impression of them. Ask around.
3. Aggressive interview questions of your own
Don’t be afraid to ask difficult questions in interviews. The temptation might be to avoid tough questions and focus on pitching oneself.
You. Will. Regret. This.
Try to identify the Achilles heel of the business model. Ask the senior guys “what would be the consequences to your company if X happened”. Think regulatory changes. Think of shifts in the market. Could this firm really cope?
The author has worked in a number of big City banks and is currently at a start-up hedge fund.