Very few equity researchers in banks ever exit to hedge funds or private equity firms

In principle, equity researchers are a pretty good fit for hedge funds, since the role has a lot of similarities to investment analysts. They could also bring their analytical skills to private markets with private equity firms. Despite this, less than 1% of equity researchers in banks ever make the switch in a given year.

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A study* by the Chinese University of Hong Kong and other universities published last month looked at the impact equity researchers have on markets when they leave for the buy side. It analyzed 34,000 datapoints of equity research analyst job movements (or lack thereof) over a yearly period between 2007 and 2016. 

The paper found that, on average, ~1.5% of equity researchers join the buy side in an average year, while 0.76% join hedge funds, PE firms or venture capital firms specifically.

This is partly because most equity researchers never left their jobs. 80% of the time, analysts remained at their firm from one year to the next. In days of yore, equity research roles could be some of the most stable careers in finance and elite-level researchers like Mike Mayo at Wells Fargo or Mary Meeker at Morgan Stanley became somewhat synonymous with their banks. Meeker is a famous example of a researcher that eventually left banking, however.

When looking at individual instances of equity researchers leaving the sell side, hedge funds and PE firms make up a more notable 6%. It's not hard to understand why they would make the switch; the paper said these analysts get "more direct involvement in investment decisions, greater long-term compensation, and better work-life balance" on the buy side.

2016 was, of course, a long time ago now and the industry has become much harder to survive in. Over the last few years, the likes of HSBC, UBS and Stifel have all made layoffs to their research divisions. The decline in popularity of IPOs has only hurt them, but the worst may be yet to come. In a recent paper, AI lab Anthropic said that investment analysts are the seventh most exposed role in the world to artificial intelligence.

*When Public Information Goes Private: Analyst Careers and Market Efficiency

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