The career track leading to portfolio manager of a mutual fund has been hot.
The explosion in the number of mutual funds in recent years has fund companies scrambling to find and retain talented research analysts and managers. That has driven up compensation and boosted benefits and perks in a world where some top-performing managers are treated like celebrities.
Even as the number of funds begin to stabilize, recruiters and managers predict there will be continued job opportunities as companies jettison poor performers and managers burn out or switch jobs. It will remain a tight market for recruiters trying to meet the high demands of fund companies, said David Barrett, partner in charge of asset management recruitment at Heidrick & Struggles, New York.
Those thinking of this career need to evaluate their skills critically- and then plan carefully-to win a coveted position.
The hurdles are high. At T. Rowe Price Associates, only four or five research analysts are hired annually from a talented pool of more than 1,000 applicants, said James A.C. Kennedy, director of equity research at the Baltimore-based fund company.
Mr. Kennedy said applicants typically come from a top-flight school, worked in business before getting an MBA, earned exceptional grades and test scores, and have racked up interesting life experiences.
He has strong views about the traits he values in a candidate. "Insatiable intellectual curiosity," Mr. Kennedy thunders. "The biggest thing to do is just be curious about life."
Wide reading of history and current events is excellent preparation, he said.
Bob Smith, 37, who was named portfolio manager of T. Rowe Price's Growth Stock Fund last year, says portfolio managers need a medium knowledge of a wide variety of subjects. It's important not to be mired in day-to-day analysis at the expense of big-picture knowledge, he said.
Mr. Smith, who played lacrosse in college, said he gleaned some lessons on the field that still come in handy. For one thing, he said, when you make a bad pass or a bad decision, you need to learn from it and go on. "In a sea of uncertainty I can still be decisive," he said.
Mr. Kennedy wants to know how a candidate has failed and how they overcame the failure. Some of these top candidates with sterling backgrounds haven't faced failure often-something they will do regularly picking stocks.
"Can this person deal with failure? The other thing is that the game never ends," Mr. Smith said.
Mr. Smith recently told his daughter that in his job, "I get paid to worry." He said he focuses on the picks that are down a few percent instead of seeing the ones that have done well. That's a common trait, he said. "I just worry because my job is to win the game."
Jimmy Kourkoulakos, a research analyst with OppenheimerFunds, said one should have the personality that welcomes the pressure of investing millions for clients.
"In a sense, it makes things more exciting because of the sheer responsibility of it."
Mr. Smith, however, said he doesn't really feel the pressure of the millions he invests for fund holders.
"What wears on you is that most people are very competitive and you have to have an even keel-you want to be competitive but not be reactive," he said.
That's why Mr. Kennedy advises college graduates to get hands-on business experience before going for an MBA and a career in fund management.
That experience is invaluable to making realistic decisions about businesses without overreacting. Without experience, an employee may panic at the wrong moment.
Mr. Kennedy frowns upon the trend in the industry that has brought the average age of portfolio managers below 30.
"You want a bunch of fools out there," he said of competitors. "If you're 28 years old, you haven't seen much."
As he first joined MFS in the fall of 1987, Mr. Smith has first-hand knowledge of a market drop.
And while he said he could have been a portfolio manager earlier at MFS, he left for T. Rowe Price in 1992. He speaks highly of MFS but said that Boston was not as preferable as his native Baltimore.
Mr. Smith is among the younger managers at T. Rowe where the average manager is 44. He said waiting to become a portfolio manager was wise. As a young analyst, he said, he judged comments by some portfolio managers as being "ridiculous." Now he believes the comments he ridiculed were actually sagacious.
"The research role is where you grow up," Mr. Kennedy said.
In the industry, companies try to expose analysts to other disciplines.
It happens at both T. Rowe Price and OppenheimerFunds. Mr. Kourkoulakos asserts that it's a good system for learning about a broader variety of businesses in preparation for being a portfolio manager.
"You constantly know if your decision was a good one or a bad one," he explained. "There's a direct correlation between what you do and what happens to the bottom line."
"What's different now is that you need to think in broader terms," he added.
Mr. Kourkoulakos acknowledges that many analysts burn out because of the pressure, but he said that if your personality fits the job, you can thrive on it.
It's important not to get in over your head, said Alan L. Kramer, a lead consultant at the New York office of Drake Beam Morin Inc. He said taking a responsible position too early can result in a bad performance that could end a developing career. Instead, he said to look for the firms where positions are active and lead to greater understanding of the next job on the career path. Passive roles can stifle a career.
At T. Rowe, for instance, there are hybrid analyst/portfolio manager positions. Mr. Kennedy said that while the manager is always in charge, the opportunity for analysts to have more active roles is encouraged.
When the manager is traveling, for instance, an analyst can be a de facto associate portfolio manager, he said.
Having analysts sit beside portfolio managers to have them learn a style and create a sense of teamwork will benefit the research analyst, he said.
T. Rowe draws the line at cycling analysts through different industries every 18 months as some fund companies do, Mr. Kennedy said.
"That's just when an employee has learned the business and is adding value to your portfolio managers and clients," he said.
Mr. Smith takes the view that analysts probably add more value to a company than the portfolio managers who he said are overcompensated in today's marketplace.
He said you really have to like being an analyst if you want to be a portfolio manager.
Once you've made the leap, however, it's even more important to have a broad view, he said. Then you have to balance the demands on your time.
In the star-like field of portfolio management, there are an increasing number of ambassadorial responsibilities like speaking engagements that sap time from portfolio managers. Mr. Smith has watched those responsibilities grow, but thinks anyone interested in longevity as a manager needs to spend most of the time analyzing and picking stocks instead of talking about doing it.
"You don't want to waste too much of Ted Williams' time having him explain how he hits the ball; you want him at the plate," Mr. Smith said.