There’s a lot of gloomy talk around the hedge fund industry these days. Weak returns, pressure on fees, pensions rethinking their hedgefund allocations. This state of affairs has not been lost on the hedge fund investment professionals who are increasingly rethinking their commitment to the industry. Many previous “masters of the hedge fund universe” are now second guessing their career choices. One experienced HF PM wrote to us this week “I’m looking for new opportunity to further my skill set as a Portfolio Manager; it does not have to be Hedge Fund structure”. So where are people looking to go?

Odyssey recently surveyed over 100 nationwide first- and second-year investment banking analysts, from both bulge bracket banks and leading boutiques. The goal of the survey was to get a better sense of analyst sentiment towards recruiting practices and career choices. What we found were some interesting perspectives on the draw of the buyside, the practice of leaving banking programs early and reactions to on-cycle recruiting.

As part of the survey, the junior bankers shared their most desired long-term career paths with us. Private Equity was the most common response, followed by hedge funds and then, just a few points lower, joining a start-up (see chart). Only 3% wanted to stay within investment banking long-term. While we know that most investment bankers don’t end up staying in the industry in the long-term, we were still surprised to see that proportion to be quite so low – especially given the perceived instability on the buyside right now.

The investment banks are trying a variety of ways to retain talent, as discussed in our last newsletter. The results of this survey would suggest that banks are losing the battle. Of the 2014 banking class, 34% of analysts said that they would be willing to leave before the end of their banking program. For the 2015 banking class, this proportion shot up to 48%. It is apparent that many junior bankers see the analyst program as a continuation of their education or a place to learn a valuable skill set, and they will leave as soon as they get a compelling opportunity.

What’s driving this exodus? While there are push factors from investment banking (the frustrations with the layers of bureaucracy, a face-time culture, a slower deal environment), there are also pull factors from the investing world. There are many investment bankers that have a genuine passion for investing, but that’s clearly not the only motivation: one banking surveyee commented rather frankly about moving to the buyside: “Half the hours, double the money, right?”

More broadly, what we saw was that those joining hedge funds did so mainly for “passion for the work” (rather than factors like compensation, lifestyle, prestige, etc.). For those joining Private Equity, the most common response was that “the experience will be valuable later in my career,” highlighting that many see being a Private Equity associate as just another step after their analyst program in developing a financial career.

Many clients of ours express frustration with the on-cycle first year banker recruiting process; with a February start this year, it was an earlier beginning to that process than in years past. However, we also saw dissatisfaction from the bankers in this survey. While nearly half (46%) said they participated in on-cycle hiring during their first year (and over half of those that accepted PE offers did so within 9 months of starting their first year of banking), the same proportion (46%) said they did not feel adequately prepared to interview so early in the year. When investigating the data more carefully, we saw that for those bankers with a non-finance or engineering background, this proportion of feeling unprepared increased to 67%. There weren’t enough data points to analyze the importance of other factors such as gender or working in non-core geographies, but we believe anecdotally that recruiting so early goes against efforts to diversify the intake population. If you’re looking to hire an enthusiastic Wharton finance undergrad who’s been preparing case studies since college, the process works well; otherwise, there might be dividends to hiring later in the cycle.