Investment Consulting in Hong Kong: The Path to 50-Hour Finance Workweeks, Solid Pay and Enticing Perks?
If you’ve already had a look at Part 1 of our interview on investment consulting in Hong Kong, then you’re already on-board and you might even know how “investment consulting” differs from other professions that have “investment” and “consulting” in their titles.
But if you don’t know anything about investment consulting yet, you can rest easy because it’s not management consulting and you won’t be lumped together with normal consultants.
And if you’re looking for a stimulating finance job that gives you the chance to actually have a life, investment consulting might be for you.
You’ll even get to meet with Portfolio Managers, Managing Directors, and CFOs, and eat at 5-star restaurants all in the name of “business” – just a few of the job perks.
Here’s what you’ll learn in part 2 of this interview:
- The industry itself: what you do, how you make money and who the major players are.
- What it’s like to be a junior investment consultant: the tasks, the typical day and the culture.
- And last but not least, the pay, perks, hours and exit opps.
Investment Consulting 101
Q: We talked about investment consulting briefly in part 1, but now let’s dive right into it: Tell us what investment consulting is all about. Bonus points if you can explain why it’s better than management consulting.
A: In investment consulting you advise institutional clients (pension funds, endowments, sovereign wealth funds) on governance, asset allocation, benchmark design, portfolio construction, selecting investment managers and monitoring / performance review.
At some firms, consultants specialize in a few areas, and at other firms they employ generalists who do everything.
Here are the areas that consultants might specialize in at my firm:
Client Consulting: You build client relationships to win manager selection projects. You do this by educating and pitching clients our knowledge and services to help them stay abreast of developments in institutional investing. This is the “bread and butter” of investment consulting and it’s the most “sales-y” role.
Investment Strategy: You work on asset allocation, benchmark design, and asset-liability modeling projects, and you research asset classes alongside Manager Researchers. This group tends to be more quantitative and technical, and a lot of people come from trading or asset management backgrounds.
Manager Research: You research and rate fund managers to establish your own views on fund products for manager selection exercises. The top consultants have the broadest coverage of fund managers across all asset classes, from the largest mainstream funds to the most niche strategies. This role is a bit like what you do at funds of funds, but you don’t put your own money to work.
As I’ve explained before, asset management and investment consulting are different: asset managers manage their clients’ money by selecting the appropriate securities for them, but investment consultants only advise clients to consider certain asset classes or investment managers.
So asset managers might invest directly in Apple, but investment consultants might just say, “You should consider Latin American stocks, and you should consider investment manager X for this because…”
We don’t manage money, but instead recommend products from different investment managers based on the strategy we’ve recommended.
Q: So if you “recommend products,” how is that useful?
I don’t mean to be rude, but why would clients pay you when they could just go to investment managers and get advice directly?
A: First off, not all asset management firms have investment consulting services, so clients would be limited to a few firms only.
Second, not all clients are looking to pick managers – some clients just want to review their investment strategy without ever implementing anything (don’t ask why), and they feel investment consultants are less pushy about coming to a conclusion that differs from the status quo just to gain AUM.
Lastly, it’s the same logic that explains why boutique investment banks have become popular as the credibility of bulge bracket banks has fallen: many are independent, so they can recommend investment products from different fund houses, relatively free of conflict and bias.
If you just went to an investment manager directly, he might tell you to invest in whatever would earn him the highest fees, and the product range would be limited to that manager only. How can a client go to a bond manager and consider private equity, equities, and hedge funds at the same time?
Q: OK. But still nothing on investment consulting vs. management consulting – thoughts?
A: Well, we don’t rack up as many Starwood points as the management consultants do – not that those are useful when buying bottle service anyway.
But on the plus side, we also don’t have to travel to the Yukon Territory or some other random spot every week to answer clients’ random demands.
Both investment consultants and management consultants work for and get paid by clients, but investment consultants also work closely with investment managers, even on a daily basis.
The working relationship with investment managers is obviously different from working with clients, as we are the ones making demands and calling the shots.
The hours can also be better, but for more on that you’ll have to keep reading!
The Investment Consulting Industry: Got Cash?
Q: I’m assuming that many readers aren’t familiar with investment consulting since it’s not as well-known as investment banking, private equity, or hedge funds – who are the main players in the industry?
A: Investment consulting is not as mainstream as the usual sell-side or buy-side opportunities. Maybe it’s because you don’t hear about massive bonuses in this field or glamorous deal-making – but this industry has been around for a long time and it plays an important role between asset owners and asset managers.
There are a handful of sizable players, and the main ones include Towers Watson, Mercer, Cambridge, Hewitt and Russell. These names are generally agreed to be top global firms, but there are a number of other successful firms within the American and European markets.
Note that even though those firms are the top ones globally, many are not dedicated investment consulting firms – they handle everything from HR to financial services. On the list above, only Cambridge and Russell are dedicated investment consulting firms.
Q: And the question we’ve all been waiting for: How do investment consulting firms make money?
A: An investment consulting firm typically charges its client based on the scope of services offered (e.g. manager selection, asset-liability modeling, etc.). For manager selections, the number of mandates (e.g. global bonds, Asian equities, etc.) dictates the total fee.
In Hong Kong, firms charge a fixed fee for each mandate, but in other parts of the world the fees can be a percentage of assets under management (e.g. 10 basis points on client assets).
Clients usually look for anywhere from 1 to 10 mandates at a given time. This is where most revenue comes from, but we also provide other consulting services on top of that to generate even more fees. In the UK and US, swap and derivative programs as well as an “outsourced CIO functions” are quite common.
The client also pays their usual management and performance fees to the investment manager, but the investment consulting firm doesn’t receive a cut of those.
A Day in the Life of an Investment Consultant
Q: So what’s the average day in your life like? Are we talking stress-filled but market hour-based days like you see in trading? Or prolonged marathon days with a lot of downtime, as in banking?
A: There is no typical day – it really depends on the projects I’m working on. Each project lasts from 1 to 6 months, and I usually work on 2 or 3 projects at the same time.
I’m in investment strategy, so I work with clients to determine their asset allocation between equities, bonds, private equity, hedge funds, and infrastructure. When we account for sub-asset classes such as US Small Cap Value Equities or Emerging Market Debt, we have hundreds of asset classes to consider.
After figuring out the client’s investment goals, the project team creates asset-liability models to view risk and return from many different angles. These models are meant to simulate the value of assets (the portfolio) and liabilities over a long horizon, which is a process known as ALM.
With pension plans, we work closely with actuaries to model liabilities, which is why many top consultants also offer actuarial/pension consulting.
Once the analysis is done, I’ll turn it into a report discussing the background, requirements, results and recommendations.
Then, if the client proceeds, we’ll provide advice on an investment manager line-up and other value-added services to generate additional consulting fees. The client consulting team takes care of the actual manager selection at my firm.
Q: You mentioned “hundreds” of assets classes – what are the hottest classes right now?
A: In Hong Kong, popular asset classes these days include Greater China Equities, Asian Bonds, RMB Cash/Bonds and Emerging Market Debt. Global Equities & Global Bonds are all-time favorites and are typically a core selection.
Hedge funds and other alternative asset classes demand a higher sophistication and governance level from clients, and tend to be less popular in Hong Kong.
You have to keep in mind that investment consulting is extremely long-term-oriented since we deal with institutional clients. This is why you don’t see everyone jumping in to invest in hedge funds – they’re not convinced that such funds will outperform, or even perform on par with, the market in the long-term.
We focus on strategic asset allocation for the long-term, which explains why global equities and asset classes that may underperform now are still relevant during financial crises.
Q: The moment of truth: What do you like and dislike about your job?
A: The best part is the exposure I’m getting as a young individual! For example, it’s rare for a new graduate to have the opportunity to pick the brains of seasoned portfolio managers and discuss their investment process.
Asset managers value good relationships with investment consultants, even the juniors, since we have the influence and ability to send large sums of business their way.
Similarly, the trustee of a pension fund – normally an experienced executive like a CFO or Finance Director – is there to listen to our advice and recommendations. I also get to attend meetings with investment managers and conferences to network and build industry insight.
The worst part is the billable hour system specific to consulting. We have billable hour targets which translate to revenue goals and utilization. The projects are sourced by senior consultants who often charge a fixed fee (i.e. fixed number of billable hours) to the client. This means that I have a goal I have little control over, and yet this goal is an important part of the performance review.
Q: So while you may not rack up as many Starwood points as management consultants, you’re still racking up the hours.
A: Yes, and that’s the downside of this job – just as with other professional services such as law, your pay is tied to your hours.
Whereas if you’re investing your own money, you get to earn based on the quality of your decisions rather than how many hours you put in (assuming your fund does well and doesn’t collapse, of course…).
Money! And Culture…
Q: Since investment consulting is a hybrid between investing and consulting, what’s the compensation like in HK – financier or consultant?
Do you get legendary bonuses, or should you expect coal in your stocking?
A: Well, before we talk about investment consulting, I should point out that at the junior level for sell-side roles at top-tier firms, you can expect a global package which is similar to or even higher than what you would earn in New York or London.
(Note: This is based on discussions with friends and colleagues in the industry – I don’t have hard data to back this up and haven’t done a formal compensation survey).
Also note that in Hong Kong, the highest tax bracket is 17%, so that translates into significantly more take-home earnings than in other countries.
For second-tier firms (on the sell-side), compensation can be significantly lower than at top-tier firms in Hong Kong, once again according to friends in the industry.
The traditional buy-side compensation is generally lower than sell-side pay in Hong Kong, which is consistent with some other countries – and investment consulting tends to be near the low end of buy-side jobs.
In investment consulting in North America, here are the all-in pay figures:
- Junior: $50 – $70K USD
- Mid-Level: $120 – $140K USD
- Senior: $160 – $200K USD
- High-Level: $200 – $300K USD
These figures are lower in Hong Kong on a pre-tax basis and even after-taxes once you adjust for the lower tax rate here.
So if you’re looking to be a millionaire in 5 years, you should look elsewhere, but if you’re looking for a comfortable lifestyle, good work-life balance and rewarding responsibilities, investment consulting might be for you.
Q: It’s certainly not investment banking pay, so the hours better be fantastic.
Are they?
A: Yes, work life balance is very good, unlike in investment banking! I work about 50 – 60 hours a week and also get 2 weeks of leave to study for the CFA. I rarely work weekends, and if I do, I access my work PC from home.
Also, unlike banking and other fields in finance, my schedule is predictable – so I can actually plan vacations and other events.
Q: If you take into account the cost of living, are you better off than your North American counterparts? Surely the lower tax rate must help?
A: Hong Kong is actually very expensive – similar to New York when it comes to going out. For everything else from food to clothes, though, you will be able to find both cheap and expensive options.
Based on my spending habits, I find Hong Kong to be more expensive than Toronto. I pay the same amount for rent here as in Toronto, but my place is a lot smaller.
Despite the lower taxes, I think I’d actually be better off in North America in terms of money.
That would be different if pay were comparable to or higher than what I would earn in North America, but as I mentioned above, investment consulting pay is actually lower in HK.
Q: What about the work culture – is it very different from Canada?
A: The work atmosphere at my firm is pretty collegial and the structure is relatively flat, but you have to keep in mind that I work for a global firm.
Local firms would probably be much more hierarchical.
Q: What about perks? I think you mentioned 5-star restaurants in the beginning – anything else?
A: Hong Kong people love eating and traveling!
We often have team lunches and meals with investment managers, which is a great way to network and a great way to try expensive 5-star restaurants for free (they cover everything).
Also, my firm often sends us elsewhere in Asia for training, which is a nice way of racking up traveling experience in case you’re a globetrotter-type.
Got Exit Opps?
Q: And finally, any exciting exit opportunities?
A: Investment consulting is quite sales-oriented and so the most popular exit opportunity is asset management sales, but a range of roles is available on the buy-side.
The experience working to select managers gives you a huge network of clients and a track record of placing money into fund managers.
So if you were working on capital market assumptions and investment strategies, Analyst / PM / risk roles for liability driven investment (LDI) managers, multi asset funds or passive investment manager roles are available.
On the other hand, if you were a Manager Researcher, it’s possible to become an Analyst / PM for a fund of funds. Sometimes you can move into large asset owners with in-house investing capabilities like CalPERS in the US or CPP in Canada and do any of the roles I just mentioned.
However, the traditional analyst or PM route for equities or bond funds will not be the norm, because as I’ve said earlier, we do not deal with individual securities. If you are looking to become the next Bill Gross, investment consulting is probably not the path for you.
Overall, exit opps are pretty diverse, but moving to a sell-side role is rare (as is moving from anything buy-side-related over to the sell-side).
Some people do transition into investment banking, but you don’t see that very often.
Q: That’s about it for my questions – thanks again for speaking with us. I learned a lot!
A: My pleasure – talk soon!
The Financial Globe-Trotter started investing at age 11, after drawing inspiration from It’s a Wonderful Life. She’s from Canada, has worked in private equity, and is now enrolled in a Master’s Program at a top European school.
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Hi,
Great article! I have a several questions about the lifestyle in HK:
1) Do people who work in Tier 1 Sell-Side Banks, hang out with their friends from work over the weekend, or do most people keep to themselves?
2)What are the ‘opportunities’ like for Bachelors/Bachelorettes ? :)
3) I’ve had many friends from HK who tell me that HK people love to go on vacation to the rest of Asia, even on 3-day long weekends.( I hear Thailand is very popular). Is this true?
4) The ‘HK Local-Mentality’ – My friends warned me time and time again about the obsession with short-term results at the expense of long-term goals that is a signature feature of the business mentality in Hong Kong. They also warned me about the way that money is treated as a near-universal religion by the local people. Is this true?
5) We’re both from Toronto. Are the people there as self-centered,remote/cold as the people in T.O.?
Thanks for your time,
1) A lot of people in HK have relocated there, so if that’s the case they hang out more with co-workers.
2) Can’t really comment on that as it’s very subjective. There is a decent nightlife scene.
3) True.
4) Again, subjective questions so really can’t answer definitively. Just as in other financial centers like NY and London, money is important and some people care about money a lot.
5) More subjective questions, so can’t really answer without annoying other people who are reading and from either of those places. You see more diversity with foreigners working there so if you spend time with them, it’s probably better than what you described.
Hey! Great article.
Actually, I have also few questions regarding HK, especially for graduate recruitment.
First, how does the immigration works in HK? Is it very difficult like in the US or more open, like in the UK? (I am an EU citizen)
I have heard that as a graduate you should focus on the area where you have the right to work (i.e. “start local”), because banks do not bother applying for Visas for interns/graduates.
However, I have recently attended a Deutsche Bank presentation in London where they where clearly targeting EU students for their opportunities in Asia.
Despite this, are they only interested by people with Asian origins (citizenship and/or native in a local language) or anyone stand a chance?
I mean, do you see some white Europeans/Americans (British, French, American, German…) non-native speakers working in Hong Kong, or it is mainly people with Asia roots/ties?
Thanks!
It is more open and easier to get work visas there. Chances depend on what role you are going for – if it’s something like trading where you don’t need local language knowledge, you see lots of foreigners. In investment banking and PE you see fewer foreigners because language skills are so important. There are also lots of people with Asian origins in HK who don’t know Mandarin/Cantonese but are from the US or EU or other places. Banks are targeting HK for growth because Asia is one of the few geographies they’re optimistic about these days.
Asian topic, great ! Is there any target university to in Asia if i want to break into IB ( asia segment ) ? I know it’s vague, cos I’m thinking to take SAT next month and plan to go US next year when they start recruiting. Sadly, fees are sky rocketed for international students, and loans are merely impossible for student out of the states. So, what are the good B-schools in Asia, good enough to break into Asia IB :) BTW, i’m from Malaysia ( tiny country that nobody knows ).
Generally they respect the top US/UK schools the most there. There are a few in Asia as well but ironically they value outside schools more. For a worldwide list, see: http://www.topuniversities.com/university-rankings/world-university-rankings/ I would target the UK if it’s too expensive to enroll elsewhere.
If you worked in PE, why did you switch to Investment Consulting?
The interviewer worked in PE and now is doing a Master, the interviewee works in Investment Consulting.
Oh, I see. Interesting how the interviewer is writing the article about the interviewee.
its kind of weird but alot of the guys at my firm (we aren’t investment consultants but we have roles that do VERY similar things) leave for sales jobs.. and these jobs are normally product sales at bb (ie equity related products)
Very interesting article, it convinced me to apply to an IC firm! Reading it, I understand that prior experience in Private Banking and/or Wealth Management must be quite appreciated for an Investment Consultant candidate, right?
In my perspective, yes. However, the writer might have more to add
Thanks! I agree with Nicole. The interviewee had no experience in private banking or wealth management,so I wouldn’t say it’s a requirement, but it could certainly help you.
Hi thanks you for your insight on investment consulting and showing us a better understanding of the HK worklife. I am currently an auditor for one of the big4 trying to get into investment consulting
1) How likely is it for auditors to transfer to investment consulting/strategy consulting? What do I need to do?
2) Do people in investment consulting present their recommendations to the clients in Chinese or English?
3) Do they value workers with dual US/HK citizenships?
Thanks
1. I’m sure its possible but I don’t think experience is directly related. However, your accounting skills & ability to analyze financial statements would be valued in IM. You should network as much as you can in such fields
2. Depends. Many clients are from China these days so it is preferable if someone speaks Mandarin
3. No – doesn’t make a difference unless you’re looking at a role that requires the candidate to fly between HK & US and that you have to be based in US
Thank you for your advice. With that said, I have a few more questions:
1) Do consulting value much for CPA? I understand that CFA and MBA will help but what about Hong Kong CPAs?
2) Would you saying Hong Kong Consulting in a growing industry? I mean the reason why Hong Kong is prospering is because of the backing of China. So wouldn’t China companies hiring local consultants rather than Hong Kong consultants? So what is the outlook for consulting industry for HK in like 10 or 20 years?
3) The interviewee hasn’t answered what is the starting salary for analyst working in investment consulting. What would you say is the average salary for entry level investment consultants out of undergrad at top investment consulting firms like russell and cambridge? how is the increments in pay after 1 year, 5 years etc?
1. I’m sure it helps a bit but I don’t think it matters as much as a CFA
2. Yes. That’s a good question. Increasing # of funds in China & HK. I think growth will continue in HK too given HK’s infrastructure, low tax rate (vs China), access to foreign capital. China can’t really compare on this front
3. I don’t have the stats re the average salary or increment. Perhaps you could refer to sources like Robert Walter’s salary survey
Hey sorry for bombarding you with so many questions but questions just pop up after you answer my previous ones:
1) How likely will working for a Big 4 transaction services (e.g. valuation) help into breaking into investment consulting?
2) I know management consulting is a hot career nowadays but will that overshadow investment consulting? So is that a good thing that there will be less competition in this field?
3) Lastly, I know this is mergersandinquisitions tailored for banking/finance careers…since you did an interview for consulting, can you also do one for big 4 advisory namely valuations?
Thank you for all your help. I am very interested in investment consulting and I believe it is a job for me because I want a long term job with more stability relative to banking, equity research, management consulting, etc.
1. The two are not directly related so I would say 50-50
2. They are two different paths. I can’t compare the two!
3. I will speak to my team re your suggestions
Is Strategy Consulting for an Asset Manager similiar to Investment Consulting or is it just a subset of Management Consulting?
Not 100% certain but probably similar to investment consulting.
Is Strategy Planning & Business Development in an Asset Management firm similiar to Management Consulting?..And can you give some good examples of exactly what Strategy Planners and Business Developers do in Asset Management?
I really don’t know enough about those fields to say. I would assume that it’s similar so I would look at resources for consulting interviews and case studies.
Aren’t Investment Consultants just another name for Investment Advisors (i.e. Registered Investment Advisor)? Don’t you need a series license to be an Investment Consultant?
You can say so. Yes if you deal with clients directly. In HK you need a SFC license.
What are your thoughts on stepping into a Financial Advisor role in the investment consulting business?
Depends on your background and goals. I can’t answer that based on just one question, and frankly hard to answer on comments page
I’ll explain. I have the opportunity to step into an advisor role in two years. As a 24 year old kid, this is an opportunity to make an incredible amount of money. However, if you come up short, you’re fired and branded to the retail side of the business. In your opinion, do you think it is a mistake to leave a role with hard skills to early in one’s young professional career? And, would it be possible to make a jump to the V.P./Managing Director level of an investment bank if successful as an institutional advisor?
And, would it be possible to make a jump to the V.P./Managing Director level of an investment bank if successful as an institutional advisor? I haven’t seen any examples who made reached this at your age but you might be an exception. Given how bureaucratic banks are and the quality of candidates you are competing with, I’m not quite sure if that is a realistic goal at your age.
No, a mistake is what you define it to be. I can’t answer this question for you
What are the most prestigious investment consulting firms in the US? I’ve heard of Cambridge, Hewitt Ennis Knupp, Mercer, and Russell. Would you say this is the top 4?
Its hard to say who the top 4 are because it depends on your perspectives but the above are well known firms.
Thanks, and can you elaborate on what the different perspectives are?
How do you rank them? Based on the amount of business they do? Also which geographical location are you referring to?
Financial News, Global Pensions etc rank various investment consultancies so you may want to refer to them. Other than that, I think readers may be able to offer you better insights into the matter.