Company Coverage (L/S Fund)
I was speaking to an analyst who works for a team that covers a specific sector within a large long / short fund. Within that sector, the analyst said he covers about 60 or 70 different companies.
Now that just struck me as a ton of companies for one person to cover. Just staying on top of current events for 60 or 70 companies would be challenging.
Am I not understanding the analyst coverage role correctly? Is the analyst really just covering a smaller portion of those names, but if one of the names becomes interesting for whatever reason then the analyst would start looking into that name more? I am just trying to figure out how demanding that sort of coverage model is. Thanks.
Depends on the fund structure/strategy and what is meant by "coverage", though I really doubt that he covers 60-70 positions (ie actual long or short investments) at a time. The amount of time we put into every company we're invested in and strong leads we're considering would make covering that many at one time impossible for one person. Also, a jr analyst may assist a number of more senior anaylsts covering the names, ie he works for a team with 3 seniors who each cover 20ish names and he helps with all 60.
Yea it's completely different than "company coverage" in banking, and equal to sellside equity research.
First hand experience - covering 60-70 names = his total investable 'coverage universe', and likely the mash of 2-4 sectors. It is demanding. You follow all the names (news feed aggregator on your bloomberg launchpad for example), and are ready to trade/invest in any name if anything particularly interesting happens (an event) in the context of your strategic mandate (e.g. restructuring or M&A = interesting in L/S, fed raising rates less so in the near term).
At earnings you will pay attention to all companies, whether they met/beat/missed market consensus and whether they raised/lowered guidance and what they have in store strategically. You can first about the names you have positions in, then the second tier: -First tier: Within this space you have some names you own or have shorted, which you follow as priority.
-Second tier: names you don't know and follow. You and your (1 or 2) Jr. Research Analyst(s) likely have models on all the names in your "coverage universe"-- or are continuously striving to build/maintain models on all. These models are less exhaustive than IB models (not a 30 tab model), but serve the purpose to fundamentally identify how one event might or might not enhance/or be detrimental to value.
I'd schedule some time with a jr. research analyst on the sellside at your bank who employs the exact same coverage model as a L/S equity hedge fund, he'll school you on how this all works.
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