Pages

4/10/13

Full disclosure, I'm biased to the HF path, but have friends at top PE shops. First things first, PE and HF are two fundamentally different career paths. Yes, they're both buyside gigs and both pay extremely well. However, it's the differences you'll have to pay attention to.

1. Hedge Funds = Less Financial Modeling

I would say HF is less modeling intensive than PE just BC at the top PE funds you're only going to be modeling as a pre-MBA associate, whereas at a top HF (fundamental value / long-short equity) you'll be doing some modeling to support an investment thesis but you'll also be screening for ideas, crafting the thesis, and defending it with valuation models, et al. Obviously this a blanket statement and realistically the real answer is that it depends on the shop.

At the top non-sourcing PE shops, dealflow is going to be driven primarily by bankers and the rolodex of your operating advisors and senior professionals. This means that as an associate you're going to primarily do LBO modeling with little work on the sourcing side and little work on the post-acquisition operations side. This is great because it'll make you extremely comfortable with modeling down to a very granular level and it'll help you understand swappable cap structures and HY debt. As mentioned in some other threads, megafund PE is very much banking 2.0.

At a top L/S fund, on the other hand, the place you want to aim to for will operate in the ex-Tiger tradition of PMs cultivating a culture of idea generation at the junior AND senior level. This means intensive fundamental research both bottoms-up and top-down. From a top-down perspective, how is the current turmoil in Japan opening up interesting opportunities in Asia? As a research analyst, one line of thinking could be: Earthquake in Japan --> billions of infrastructure damage in the region --> increased China-Japan trade over last decade --> long China cement producers --> which China cement producers are currently undervalued? --> identify opportunity and accumulate X shares at Y price and exit position at Z price. Each junction in that predicated decision tree needs to be thoroughly researched via reports, valuation modeling, diligence trips, etc. If your thesis is complete horseshit, your PM will chew you out but at least you'll learn how to identify value more efficiently. This is an excellent model as it teaches you to become an Intelligent Investor and is a crucial experience if you ultimately want to manage your own portfolio.

2. Pay Slightly Better in Private Equity at pre-MBA level

Pay is roughly comparable, although probably skewed towards PE at the pre-MBA associate level (BC PE funds tend to be much larger than HFs) and then towards HF at a more senior level (where PMs are generally more predatory with comp vis-a-vis returns). The inflection point is highly dependent on the shops and their investment strategies, returns, management structures, etc.

3. Promotion Schedule

Can't speak to the PE side, but on the HF side, there's no set timetable to promotions. If you're a senior research analyst at Viking, for example, it could be years before you make it that next step to become a PM. However, what's common a lot of times is leaving a top fund with another PM, securing LP commitments, and starting your own shop. That way, you're making much more money and also in turn getting a promotion to PM. You see this a lot recently given the instability within banks and other large shops.

4. Markets or Deals?

I think this decision comes down to something all college juniors are asked when they think about IBD vs S&T: are you passionate about the markets? It's a simple question, but important. If you don't give a shit about where the VIX is at because you're an M&A banker and want to continue working on deals on the buyside, lever up a company, and exit at a higher multiple, then PE is the way to go. If you're an ardent follower of the markets, enjoy reading earnings transcripts, digging through K's and Q's, and coming up with investment ideas, then the HF route makes sense. Possible to do both, obviously, but most people have a leaning one way or another.

And to your addendum, most people do PE and then move to a fund after business school because a lot of top HFs require buyside experience. Generally, they'll move to L/S equity funds, but if you're coming from a LevFin or restructuring background, end up at a distressed PE shop, event-driven funds like Third Point are a good fit.

Mod note: This comment was originally posted in
HF vs. PE for Pre-MBA Associate and we wanted to share this great post on the differences between the two routes to those who missed it. Click here to see more top rated comments.

Comments (363)

Best Response
5/7/15

Full disclosure, I'm biased to the HF path, but have friends at top PE shops. First things first, PE and HF are two fundamentally different career paths. Yes, they're both buyside gigs and both pay extremely well. However, it's the differences you'll have to pay attention to.

1. I would say HF is less modeling intensive than PE just bc at the top PE funds you're only going to be modeling as a pre-MBA associate, whereas at a top HF (fundamental value / long-short equity) you'll be doing some modeling to support an investment thesis but you'll also be screening for ideas, crafting the thesis, and defending it with valuation models, et al. Obviously this a blanket statement and realistically the real answer is that it depends on the shop. At the top non-sourcing PE shops, dealflow is going to be driven primarily by bankers and the rolodex of your operating advisors and senior professionals. This means that as an associate you're going to primarily do LBO modeling with little work on the sourcing side and little work on the post-acquisition operations side. This is great because it'll make you extremely comfortable with modeling down to a very granular level and it'll help you understand swappable cap structures and HY debt. As mentioned in some other threads, megafund PE is very much banking 2.0.

At a top L/S fund, on the other hand, the place you want to aim to for will operate in the ex-Tiger tradition of PMs cultivating a culture of idea generation at the junior AND senior level. This means intensive fundamental research both bottoms-up and top-down. From a top-down perspective, how is the current turmoil in Japan opening up interesting opportunities in Asia? As a research analyst, one line of thinking could be: Earthquake in Japan --> billions of infrastructure damage in the region --> increased China-Japan trade over last decade --> long China cement producers --> which China cement producers are currently undervalued? --> identify opportunity and accumulate X shares at Y price and exit position at Z price. Each junction in that predicated decision tree needs to be thoroughly researched via reports, valuation modeling, diligence trips, etc. If your thesis is complete horseshit, your PM will chew you out but at least you'll learn how to identify value more efficiently. This is an excellent model as it teaches you to become an intelligent investor and is a crucial experience if you ultimately want to manage your own portfolio.

2. Pay is roughly comparable, although probably skewed towards PE at the pre-MBA associate level (BC PE funds tend to be much larger than HFs) and then towards HF at a more senior level (where PMs are generally more predatory with comp vis-a-vis returns). The inflection point is highly dependent on the shops and their investment strategies, returns, management structures, etc.

3. Can't speak to the PE side, but on the HF side, there's no set timetable to promotions. If you're a senior research analyst at Viking, for example, it could be years before you make it that next step to become a PM. However, what's common a lot of times is leaving a top fund with another PM, securing LP commitments, and starting your own shop. That way, you're making much more money and also in turn getting a promotion to PM. You see this a lot recently given the instability within banks and other large shops.

4. I think this decision comes down to something all college juniors are asked when they think about IBD vs S&T: are you passionate about the markets? It's a simple question, but important. If you don't give a shit about where the VIX is at because you're an M&A banker and want to continue working on deals on the buyside, lever up a company, and exit at a higher multiple, then PE is the way to go. If you're an ardent follower of the markets, enjoy reading earnings transcripts, digging through K's and Q's, and coming up with investment ideas, then the HF route makes sense. Possible to do both, obviously, but most people have a leaning one way or another.

And to your addendum, most people do PE and then move to a fund after business school because a lot of top HFs require buyside experience. Generally, they'll move to L/S equity funds, but if you're coming from a LevFin or restructuring background, end up at a distressed PE shop, event-driven funds like Third Point are a good fit.

4/10/13

Fear for losing your job based on performance.

HF > PE, right?

4/10/13

it's also completely different investment styles. I am not a big a fan of a long only illiquid highly levered forced entry timing forced exit timing investment strategy.

4/10/13
4/10/13

This may be somewhat irrelevant, but you also have to consider the actual geographic implications. For example is PE more attractive than a HF if you are in an environment with particularily regulated capital (I.E. Australia which has fairly large amounts of capital through compulsory pensions - Superannuation, data suggests that 64% of HF LP capital is from HNWI, whilst the majority of institutional capital goes towards PE).

4/10/13

Much thanks for this.

Would you say one path involves more teamwork / interaction with people than the other? And does one path involve more communication and debate about your work?

4/10/13

both are very cyclical but does one provide more job security than the other?

I am think that in PE you would have to worry less about losing your job since you are looking at investments on the 5-10 year horizon? where as HF PM can get can get canned after one or two bad year. Is this view point accurate?

4/11/13

well detailed post on the front page with no follow up... :(

In reply to Specialxknc22
6/13/13

Just want to bump this thread as I think it's a valuable discussion for those of us just entering our first years.

6/15/13

great information. thank you OP.

5/7/15
5/7/15

Be careful about the allure of big bucks at hedge funds, as the $ does not trickle down to the junior folk at many hedge funds. Often the lion's share is hoarded by the few top guys. If possible, try to get some points of carry - if you can manage that, then you know you are dealing with a group willing to share the goods. I have a ton of friends at all different sized hedge funds, and it is shocking how great the variance is in pay. Some ended up making less than they did as bankers without knowing this going in, while others are pulling in more than their former MDs did. Bonus range is a point worth clarifying greatly once you have an offer in hand at a hedge fund.

5/7/15

Another thing to think about with hedge funds is that you may be required or feel obligated to keep your entire bonus in the fund which could mean you may not actually get that money for quite a while.

In reply to BankerNoMore
5/7/15

what is the typical vesting for carry in hedge funds vs. PE? 3-5yrs for the junior guys?

In reply to nychimp
5/7/15

for those who get carry how much is it as a percentage of total fund revenue

In reply to jermo
5/7/15
In reply to nealpancholi
5/7/15

Base pay for junior guys at PE funds range from usually $70k - $100k

In reply to Chimpimp
5/7/15

what's the highest bonus you've heard of at a hedge?

In reply to nychimp
5/7/15

what is market vesting schedule for PE shops?

In reply to jl02116
5/7/15

vesting depends on the shop, typicaly 3-5 some even 5+. alsodeprends onholdng period of the deal. as mentioned earlier you usually have to 'buy' your carry or points

In reply to Chimpimp
  •  5/7/15

Could you name which funds are more generous in comp?
Thanks!

5/7/15

Funds that are most generous are likely to be the big ones - Citadel, DB swirn, Fortress, cerebrus etc.

5/7/15

funds that are most generous are likely to be those that make money. choose wisely.

5/7/15

How hard is it to get a job at a hedge fund after working as an analyst at a bb?

5/7/15

I second the above question?

What does it really take?

5/7/15

so hardness is difficult to quantify. Either you have a gold plated resume, or you have a silver-plated resume only and network your way to an interview. I've had friends who went without tremendous effort, just got lucky, right time/right position etc. Only talking about top/mega funds here. I'm sure if you dig you can come up with jobs at start-up funds pretty easily these days, but it's a dicey proposition.

Obviously need to be a quick thinker and do homework on funds/industry. Easier said then done since cannot be done through web really and must get airtime with people in the industry to do properly.

Btw. I disagree with initial statement here that you get better earning potential in HF vs PE, assuming both top funds. It's just more risky, so top earner earn more, and underperformers less. On average it's gotta be comparable. Of course everyone who goes in the industry thinks they are going to be the next Steve Cohen, so this line of argumentation isn't going to stop the lemmings...

  •  5/7/15

If you could get a trader position at any hedge fund, which fund would you work for?

5/7/15

what hedge funds give junior analysts carry?

5/7/15

you're more likely to get carry if you can land an undergrad p.e. job

5/7/15

of course those jobs are close to impossible to nab.

Blackstone hires a few analysts each year. they're compensated quite adequately.

5/7/15

But staying at Blackstone more than a couple of years could be a mistake.

5/7/15
5/7/15
In reply to gunboatdiplomat
5/7/15

why is it a mistake to stay more than 2 yrs at Blackstone?

5/7/15

Blackstone analysts do not get carry.

If anything, I would think that you would want to stay at Blackstone for more than a couple of years to start receiving carry.

Yes, you are going to have to work long hours (as with all decent PE shops), but nowhere is going to pay you that well and not expect you to be working hard (you are getting paid top comp for a reason).

5/7/15

This may seem kind of weird but what does "get carry" mean?

In reply to whutzup
5/7/15
5/7/15

what happens to those who work for the hedge funds that go under?

5/7/15

a cut of the profit (the increase in equity) once the asset has been sold (or recapitalized). The PE fund will return 80% of the upside to the LPs (the investors) and will retain 20% for the GPs (the private equity firm). That 20% is then split between all the employees that "get carry" (with a significantly heavier weighting to the senior employees). This is where most of the compensation for private equity professionals comes from.

5/7/15

the TMT -> KKR route is virtually impossible, but yes that would be more lucrative

5/7/15

Obviously everything is relative here, and this question can only be a fun hypothetical at best.. but..

It really depends on what you are good at. If you're more quantitative, HF would be more lucrative because you'll go farther in that career. On the other hand, if you're quantitative and qualitative, the first option would be better.

Either way though you're making a ton of $$$, so I'd rather be doing which ever I thought was more interesing / less of a killer on my personal life, so I'll take the HF all day.

In reply to mrbellaiche
5/7/15
mrbellaiche:

the TMT -> KKR route is virtually impossible, but yes that would be more lucrative

Why is it impossible? Hard to get to TMT, or hard to get to KKR from TMT?

5/7/15

I think he meant the whole route in general, only the best of the best can get into GST TMT and then to KKR. Isn't GS TMT the number 1 feeder into KKR along with MS M&A and GS FIG??

5/7/15

I think thats a stupid fucking question. Get the best job you can get and after that you will move forward.

5/7/15

If you look at it in terms of absolute income - e.g. how much money you make in total over your whole life, KKR might be ahead of the $10B fund. Past a certain point, though, you realize that additional hours are more valuable than additional dollars. You will get worked like a dog via the GS TMT --> KKR route... 100 hours a week for years.

My friends who have gone to hedge funds are in general much happier with their lives and careers than friends at PE shops even though ones at the largest PEs might get a slightly higher income/bonus.

5/7/15

I guess you haven't seen the nummbers for some of the hedge fund managers. I am not sure what the "average" salary for an "average" employee of a hedge fund compares to that of a PE employee but I bet the upper limit is higher for the hedge funds. I was reading somewhere that a hedge fund trader at SAC Capital makes about ~150 million a year , his name was Ping Jiang or something .....

In reply to stern2005
5/7/15
stern2005:

I guess you haven't seen the nummbers for some of the hedge fund managers. I am not sure what the "average" salary for an "average" employee of a hedge fund compares to that of a PE employee but I bet the upper limit is higher for the hedge funds. I was reading somewhere that a hedge fund trader at SAC Capital makes about ~150 million a year , his name was Ping Jiang or something .....

He was in Top 100 traders so it's at least $50 mil but probably closer to your number since he was about middle in the list. But he's also tangled up in a sexual harassment lawsuit. Really weird case.
http://www.cnbc.com/id/21224443/

5/7/15

You guys have to take into account risk-adjusted income. Hedge funds seem lucrative because we only hear about the most successful guys at the biggest funds. Even if you work at a big, established fund, your job could be wiped out faster than you can blink (how many Amaranth guys do you think are enrolling in HBS these days?). And even if the fund does ok, if your book doesn't perform very well, you're gone (or poor). PE relies more on teams in general and the firms invest longer term and tend to be more stable. There are ways to work your way out of unforseen situations and only the more senior guys have their careers on the line if deals fail. I think some of the people saying the work-life balance is better at hedge funds might be fooling themselves. The senior guys who are multi-millionaires are laughing, but some of the guys who still need to make it get ulcers and night sweats knowing that their career and pay hinges on a bunch of positions in the public markets.

5/7/15

Who in the hell goes to KKR after one-year of work experience?

Do you have any idea how the PE recruiting schedule works? You'd have to be interviewing at KKR before you even started working in IB.

In reply to aachimp
5/7/15
aachimp:
stern2005:

I guess you haven't seen the nummbers for some of the hedge fund managers. I am not sure what the "average" salary for an "average" employee of a hedge fund compares to that of a PE employee but I bet the upper limit is higher for the hedge funds. I was reading somewhere that a hedge fund trader at SAC Capital makes about ~150 million a year , his name was Ping Jiang or something .....

He was in Top 100 traders so it's at least $50 mil but probably closer to your number since he was about middle in the list. But he's also tangled up in a sexual harassment lawsuit. Really weird case.
http://www.cnbc.com/id/21224443/

It's so weird that I have to reproduce the allegations from your link. the "victim" seems really dumb to be taking those hormones.

"
The judge said he sealed the details of Tong's allegations contained in the lawsuit because it is not in the public interest to disclose the salacious nature of the complaints. CNBC has learned the suit includes the following allegations made by Tong against Jiang:

* After being hired at SAC, Tong alleges that Jiang came to him and told him he had a trading method in which his traders must not be too aggressive; that traders must be more effeminate and to do so, he directed Tong to begin taking female hormones.
* Tong says he then took the female hormones that he bought on the black market.
* Tong then alleges he suffered emotional and physical distress. The hormones, he says, caused him to begin wearing women's clothes. He also could not perform sexually with his wife, who wanted to have a baby.
* Tong says the sexual harassment included sexual relations between the two men.

Tong's attorney had no comment.

5/7/15

I think the U.S. long/short equity field will dwindle. I think more Insitutional Investors will look abroad to generate alpha so look for more BRIC/Pan-Asian HFs popping up especially since the recent volatility makes going to a HF a viable option. As for PE, the mammoth deals are a thing of the past, that day will not return for the forseeable future. Again, I see PE firms looking abroad to generate sizeable returns but probably taking stakes as passive investors rather than the Western model.

5/7/15

I think that success in finance today, moreso than five-ten years ago, requires an international approach. A lot of the emerging markets (and I'm not just talking about BRIC) present favorable opportunities for both PEs and HFs.

5/7/15

Seanc seems a little biased toward international exposure but I think there remain great opps domestically especially considering current market trends. Regression to the mean indicates that US stocks will inevitably return to normalized levels after having been beaten down during an economic slowdown. Many fundamentally strong companies have been negatively affected by the overall negative sentiment of the market/economy.

I'm not sure why Seanc thinks mammoth deals are a thing of the past. As the credit markets begin to recover in the next 12-18 months deal flow will certainly recover (although probably not to levels seen in (05-1H07). PE is an extremely cyclical industry that will inevitably continue to prosper (people probably didn't think deals could get bigger than KKR's in the 80's). I think club deals will allow consortiums to take down even larger game moving forward.

One important note pertains to Washington and current tax reform issues, which may make PE less attractive as returns and compensation are compressed.

5/7/15

Yeah, I think people who predict PE is over aren't right in any meaningful way. The industry evolves (in the late 80s KKR was putting 5% equity into deals, ridiculous), but putting private capital into leveraged deals as a strategy isn't going anywhere. Then again I think over any meaningful period of time mega deals are the exception not the rule. Because most of us are relatively young we may have a skewed perspective on this, but PE has been a perfectly good business over periods of time when it subsisted on corporate divestitures more often than 40B take privates. Compensation structures may change, but it's worth remembering that at the end of the day it's returns net of fees that investors care about. If anything I see the result being more heterogeneous fee structures if returns come down generally, because there will be more competition from investors to put capital to work with the smart guys.

5/7/15

There's going to be a significant re-allocation of Capital away from the U.S. over the next few years. Most of the World is still overweight the U.S. and it's bound to happen, just a matter of time. Most of these US long/short equity funds were "long/short" in name only, charging 2 and 20 while riding a bull market, now they're being exposed.

As for PE, the entire model has to be re-evaluated. The era of cheap credit is over plus people are beginning to realize that PE shops don't possess the midas touch that Wall Street once thought they had. China's SWF investment into Blackstone has been an embarrassing failure. On top of all of this, the socialists taking power next year will almost certainly pass laws that levy taxes on carried interest....

5/7/15

Honestly, 5-10 years is too far away to make any reasonable prediction. Consider this:

Back in 1998, if you had told someone that the entire economy was going to go into a huge recession caused by the tech bubble, come out of it a few years later, then go into a housing/credit bubble and then crash as easy credit ended and result in Bear Stearns collapsing and massive layoffs/writedowns at other banks, would anyone have believed you?

Sure, we can say basic stuff like, "More investing will be international" or "Washington regulations will come into play more." But beyond that, detailed predictions are difficult to make.

I do think pay on Wall Street will come down, partially due to regulation and partially due to investors realizing they shouldn't be paying so much for sub-par returns/commodity services. But they'll still make a lot more than normal people.

In reply to ruscal
5/7/15
ruscal:

Yeah, I think people who predict PE is over aren't right in any meaningful way.

You might enjoy this article, http://www.businessweek.com/2000/00_42/b3703116.htm

My favorite quote, "For the most part, the day of the large buyout shop is over," says Richard A. Friedman, co-head of merchant banking at Goldman, Sachs & Co.

5/7/15

Yup, good illustration MMmonkey. I don't think anyone who joined one of those moribund "large buyout shops" as an associate in 2000 is too sorry 8 years later. And Friedman's smart as hell, but he was raising a fund and it was in his interest to make it sound like you're better off investing with Goldman than a large stand-alone shop. Now GSCP is the undisputed king of BB merchant banking, but it's worth remembering at the time DLJ had the bigger fund, and might still be the bigger player if they hadn't been bought and reigned in by CS. Both of the DLJ guys quoted in the article you linked to now run their own shops, Avista and Diamond Castle.

There was an in depth article I came across at some point in businessweek or the times from the mid 90s, about how KKR had fallen on hard times, was being passed by places like CD&R, working for Kravis was passe, etc. Worth thinking about.

I think some of Seanc's predictions are pretty good, at least the ones that are sufficiently obvious or nebulous. But Sean, I'm not sure I agree that the whole model of PE has to be reevaluated, just because I don't think that any experienced and intelligent investor believes the 50B public to privates constitute the whole model, nor do I think riding the wave of easy credit is the whole model.

And what does the China investment in Bstone have to do with PE returns? That was an investment in the GP not an LP investment in the fund, so the return on China's investment, which we all realize is massively negative right now, is a direct result of how China valued, or agreed to value, Blackstone when they made the deal. The "sub-par return" there is China's, not Blackstone's. If you really want to generalize from this one specific transaction, which is dangerous, your conclusion is more likely to be that China illustrated the danger of thinking that they can put capital to work just as effectively themselves. If investing is so commoditized, how come China failed so spectacularly in this instance?

5/7/15

Everything is cyclical and 5-10 years is a long time in the investment world. Even if the government puts new regulations in place, it is only a matter of time before a bull market makes them change their mind, or Wall Street finds loopholes in the new regulations.

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli

5/7/15

there is no set rule, but PE shops would be more likely to originate financing / be the sponsor of a recovery effort, whereas a HF would more likely buy into an already-syndicated DIP / term loan / etc.

5/7/15

agree with yes man...PE shops also serve as the stalking horse bidder in in chapter 11 filings and HFs may provide bridge financing or DIP financing

The lines are certainly blurred and you will often find that each of these groups dabbles in the same space

5/7/15

In general the PEvsHF debate has nothing to do with comp. Most well known HFs will pay similar to a megafund and MM PE and smaller HFs will pay in a similar band. In fact, you can make far more as a star at an HF then you can in a PE firm and make more sooner if you are good at your job.

The reason most people go for PE vs HF out of IBD is the type of work. HFs focus on equities, trading, and usually short term gains. PE firms focus on long term value, acquiring whole firms, and manage businesses. PE is very similar to IBD work and HF work is much more similar to trading, capital markets and investment management.

So, you tend to stick in a job with similar responsibilities unless you decide that one is a better fit for you then the other.

--There are stupid questions, so think first.
Financial Modeling Training
Banking Resume

5/7/15

...bankers focus on PE because whatever skills they learned in banking are mostly useless at hedge funds. If this board was all about sell-side trading then people would talk about hedge funds more the private equity firms because their skills are more relatable to the hedge fund world and not PE.

And to the above poster, there are many more non-equity funds then equity funds...dont know where the notion that equities dominate the hedge fund world came from. Look at a list of the top 20 biggest hedge funds and like 70% of them are FX/rates/macro because the equity market really isnt liquid enuff to put multiple billions of dollars to work in a responsible way.

In reply to Bondarb
5/7/15
Bondarb:

...bankers focus on PE because whatever skills they learned in banking are mostly useless at hedge funds. If this board was all about sell-side trading then people would talk about hedge funds more the private equity firms because their skills are more relatable to the hedge fund world and not PE.

And to the above poster, there are many more non-equity funds then equity funds...dont know where the notion that equities dominate the hedge fund world came from. Look at a list of the top 20 biggest hedge funds and like 70% of them are FX/rates/macro because the equity market really isnt liquid enuff to put multiple billions of dollars to work in a responsible way.

Wouldn't someone with banking experience be better suited for an equity hedge fund though? Especially if they are going to do something along the lines of merger arb? I'm more curious about what types of hedge funds and what roles former banking analysts go to.

In reply to CoreAsset
5/7/15
CoreAsset][quote=Bondarb:

I'm more curious about what types of hedge funds and what roles former banking analysts go to.

Fundamental hedge funds.

5/7/15

Saw a presentation by the Viking Global COO this past summer where he mentioned they recruited mainly from M&A in Investment Banking. They're a fundamental HF. I remember reading that Paulson used to be an M&A guy at Bear Stearns before he started his Merger Arb fund

5/7/15

...i have worked on the buyside for the last 9 years and cn count the number of former banking analysts of worked with on one hand. Paulson was an M&A guy, but his fund used to be an merger arb fund and isnt anymore. Obviously there are exceptions but if you want to work at a hedge fund becoming a banking analyst isnt the clearest path thats for sure.

5/7/15

I interned at a relatively large L/S equity fund this past summer and every single person was ex-IB.

Many reputable funds in this space hire almost exclusively out of IB (ESL, Oaktree, Glenview, Blue Ridge, Cerberus, York, Pershing, Eton Park, Perry, TPG Axon, Baupost, etc).

5/7/15

No one can answer this?!

5/7/15

I think the more important question is what would you rather do, be closer to the market side or be more in a process driven industry?

answering your question, I would say going from PE to HF would be harder than the opposite.. but you could make the argument for either case

5/7/15

let me change the wording. is it easy to go from one to another?

5/7/15

First step:
look at what the firms (forget the pe hf description) do and check whether "prestige" and a good position in any structured hiring practice is of benefit.
Second step:
check whether anything you would learn during the CFA might be of benefit to an extent that would justify the time required.

( I can only repeat what I see therefore correct me if I am wrong and you know other examples)

MBA HF: although it depends: generally MBA not really important in HF as there are little structured hiring processes + the knowledge = worthless

MBA PE --> you already know

CFA HF --> anything long short obviously. To find out whether this is true for the hf you talk about, just look at the curriculum of cfa and at what strategy the hf follows.

CFA PE --> lots of discussions. Summing up: nice to have, nobody cares too much, not worth the time, knowledge not really applicable to an extent that would justify the hours, absolutely no requirment as opposite to AM, You will most likely only get in coming from IB hence no time for CFA anyways

5/7/15

I appreciate the nice replies. It seems to me that a lot of the time the CFA designation isn't really looked at too high in regard which I find very strange but mehh.

This is a little off-topic but how do hedge funds even recruit for portfolio managers. Do they promote their staff, hire mba graduates or bankers/traders/researchers with a lot of experience... ?

@ awp : what do you mean by "little structured hiring processes" ?

5/7/15
5/7/15

From what I know, HF's are secretive due to the fact that they make money off of their often unique methods.

5/7/15
5/7/15

Visibility on the web is another avenue for PE funds to source deal flow. Bankers and entrepreneurs can click around, learn about the fund, and decide if they want to sell to that PE fund.

HFs obviously don't benefit from this visibility like PE funds do.

CompBanker

5/7/15

Hedge funds also aren't allowed to advertise, as they are only open to accredited investors.

5/7/15

Private Equity firms typically have the same restrictions. My shop only accepts investments from accredited investors.

The point of the website isn't advertising to LPs so much as it is advertising to bankers and business owners.

CompBanker

In reply to CompBanker
5/7/15
CompBanker:

Private Equity firms typically have the same restrictions. My shop only accepts investments from accredited investors.

The point of the website isn't advertising to LPs so much as it is advertising to bankers and business owners.

I also feel like potential investors like to see pictures of the people running the firm/handling their money.

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

5/7/15

A lot more PE firms also recruit at top MBA programs. Blackstone, KKR, carlyle, TPG, Silver Lake, etc., all visit the HSW each year for campus recruiting. Hedge funds can be very sporadic and hire on an ad hoc basis. I know a few years back D.E. Shaw interviewed like 100 students at the top 7 business schools and only gave out 1 offer. And some hedge funds, like soros, paulson, Citadel, SAC, are even more selective than the PE shops. Paulson usually only hires harvard mba's. They just hired a guy this year who was a marshall scholar and did a JD/MBA at harvard.

In reply to Nefarious-
5/7/15
Nefarious-:
CompBanker:

Private Equity firms typically have the same restrictions. My shop only accepts investments from accredited investors.

The point of the website isn't advertising to LPs so much as it is advertising to bankers and business owners.

I also feel like potential investors like to see pictures of the people running the firm/handling their money.

How would this be any different for a HF?

5/7/15

I would say PE tends to invest in more illiquid assets (private companies, real estate) while most HF, depending on the strategy, focuses on more marketable securities (equities, derivatives, CBs)

5/7/15

None of you self-acclaimed knowledgable monkeys know?

5/7/15

Compared to my friends in PE I work on more investment ideas/portfolio investments at a given time with a smaller amount of time devoted to each.

I also spend more time monitoring investments in "real-time" vs. PE where you get updates from portfolio companies but post-deal things happen over longer time horizons.

I try to think of investment ideas as well as helping the more senior people research their ideas; in PE it's almost entirely top-down as far as I can tell (bankers call the fund's principals, the funds principals work their connections to find deals).

The kind of analysis you do for a liquid investment in a public security or derivative is very different from the kind of analysis you do with a live PE deal where you presumably have at least some non-public information.

Our modeling depends on the type of investment, how long we have to research, and what information we have.

This is based entirely on my experience and that of a few of my friends, I'm sure others have different things to add.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

5/7/15

I've done both, and my experience is that they're very different. As a HF analyst, you're working much more independently--you're expected to be generating, analyzing, and pitching your own ideas right off the bat. In PE, you're almost never involved in generating the idea--it comes from senior people, and your job as a junior is to make sure the numbers and other diligence items are okay. So it's much more of a brute force job, but you're able to get a lot more information and really dig into a company's operations much more than you can as an HF analyst working with public information.

They're very different roles--you need to figure out what's best for your personality and what kind of role you ultimately want (as the roles for senior people are obviously really different too).

5/7/15

The majority of HFs will have 'silos' in which different teams are given a portion of VAR. The junior guys in each team will either be tasked with generating alpha trading ideas or number crunching someone elses.

In PE the junior guys will have more downward instruction and will spend their time researching companies, modelling and then doing extensive due diligence - with the ideas coming from the sell-side/partners in the firm.

In my role I have done both (we run a small hf and do a lot of co-investments / secondary direct transactions) and for what it is worth I prefer the illiquid side of things.

5/7/15

Keep models up to date, keep cap tables up to date, put presentations together for IC meetings, and sometimes give a little quick write up of a deal thrown your way by a VP to make you feel included.

5/7/15

This is something I'm incredibly interested in as well.

Most people do things to add days to their life. I do things to add life to my days.

Browse my blog as a WSO contributing author

5/7/15
5/7/15

def like to hear some thoughts on this topic as well. anyone???

5/7/15

If your long term goal is to start a business quite honestly at your level it doesn't matter what you do right now. If you want your next job to provide you with some training around starting a company you should be pursuing VC jobs not PE/HF. Go with what you're interested in now, if you like capital markets hit the HF path. If you're more into deal based work and LBOs, go the PE route. It's ultimately up to you where your interests lie and what kinds of opportunities you can get. Hope that helps.

5/7/15

Here are my thoughts on the topic. If you really want to be an entrepreneur, you should probably look into growth capital, micro PE or even a place like Lightbank where you can be exposed to startups. A search fund would also be a possibility (google it, there is a wealth of information out there). Start taking a divergent path (isn't that what entrepreneurship is all about?) now. PE could be acceptable but it is ultimately just banking redux, the majority of the learning you will do about companies is from reading CIMs. As far as HFs, it is a good fit for people who really love analysis and from a skill-set point of view is as far from entrepreneurship as you can get within the choices you have available.

5/7/15

PE

"too good to be true"

See my WSO Blog

5/7/15

1) Are they both internships for front-office positions?
2) Is the PE firm comparably prominent to the hedge fund?

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

5/7/15

I believe they are both front office training. I think I will be assigned a mentor in each and learn from them. And the PE firm is one of the top 10 REPE firms but I would say the HF is larger and probably has more prestige think top 3. So what would look better for FT ibd interviews senior year. And will they definitely look good?

5/7/15

If the HF is top three yes maybe choose it over the PE firm. Work in PE might be more comparable to IBD but I guess prestige can go a long way when it comes down to recruitment. If you can sell your work the right way it might make sense to choose the HF

"too good to be true"

See my WSO Blog

5/7/15

Why would you want to go from PE/HF -> IBD? Can you possible sign up full time after the summer is over or is that out of the question?

5/7/15

I think its pretty much out of the question. They use a few internships to look at kids but they both want IBD experience in order to come back full time.

5/7/15

Some people think that RE PE tends to typecast you as a RE guy-something to think about. I would think the HF experience will probably be broader, as a rule-tough to say since those places don't have big/formal internship classes.

If both places are top-10 in their sectors then the names will carry enough weight to get you full-time banking interviews.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

5/7/15

Do the one you think will be more interesting - if you managed to get these offers on your own you will easily get a banking job

5/7/15
5/7/15
5/7/15

I thought this thread was very revealing on PE vs. HF:

http://www.wallstreetoasis.com/forums/former-ms-ma-KKR-here-to-field-questions

Basically, he explained that guys who were at KKR and figured out they either weren't going for the partner-track or just were tired of the structured environment all went to HFs. Not other PE firms, not banks, but essentially all went to HFs. I read it a while ago so I don't entirely remember the details, but that was one of the points that stuck with me. I think their reasoning was that HFs have huge upside and your comp is much more closely tied to your actual performance, and that guys wanted a more entrepreneurial environment without actually going to a start-up (as it seemed that a lot of them were very judgmental about where they worked, and a start-up wouldn't be nearly prestigious enough), but don't quote me on that.

Hi, Eric Stratton, rush chairman, damn glad to meet you.

5/7/15

Thank you that post was helpful. I pretty much narrowed down that the mega-shops like KKR, TPG, Bain, etc aren't for me so if I took a PE gig it would need to be more middle market focused and entreprenurial.

For HF, it would be L/S equity or event driven. I also find distressed investing interesting, but my background doesn't really suite me as well in that arena. Any other thoughts / advice would be greatly appreciated....

5/7/15

I think the most important consideration is this: in private equity it takes years until you get to the point where your balls are on the line; truly responsible for sourcing deals, being a key part of the decision making to put in a bid and how high to go, these are typically very senior responsibilities at a fund. At the post two years of banking level and even beyond you are just an employee processing data, people may ask your opinion but they will make their own decision at the end of the day. When you go to a hedge fund if you are an Analyst the responsibility is on you, yes the PM makes the final call but he is choosing from the Analyst's recommendations. From day one the pressure is on and it doesn't matter how nice your spreadsheets look or how well you can make a powerpoint presentation, the only thing that matters is your investment picks. This is a very different role than in private equity. The pressure is immense from day one and you can and will lose your job if you suck at investing. In private equity you can be good at excel and powerpoint and due diligence and stick around for a while with very little pressure on a relative basis. I know some people can handle it and some people can't. Hopefully you can judge your personality before making the decision because the last thing you want to do is be four weeks into your hedge fund job having not generated an investment idea yet or have already lost money on two trades, your stress level will explode and you'll probably be so worried that your brain won't function well enough to make objective decisions. Before you think about potential industry growth you need to realize that not all people can easily go back and forth between PE and HF, they require very different skills.

5/7/15

Very interesting points, lots of questions. I defiantly agree with you and have heard very similar advice after speaking to others in the industry. My problem is I feel like my personality falls between each - I do not want to just be a cog in the wheel processing data anymore but I also don't know if I can handle the immense stress that comes with a hedge fund when it seems like is a true pressure cooker. However, I do know I am much more interested in the markets than doing deals and I want my next gig to have much more responsibility with some hopeful client interaction.

I like the concept of Growth Equity but the fact that you cold call all day everyday concept turns me off a little bit.

Could you please elaborate what skills it takes to be successful in HF rather than just the general analytical skills, investing knowledge, etc.? Thanks in advance.

5/7/15

I understand that PE pool is possibly larger in Asia with the focus on equity driven deals

5/7/15

I understand that PE pool is possibly larger in Asia with the focus on equity driven deals

5/7/15

From my experience, PE people move to HF more than the other way around. Particularly if the HF where you started is one that deals only in publicly traded securities. That said, a lot of people in HF are obviously super-smart and so they can get a job wherever they want even if the skills aren't perfectly matched up. If you're working at an HF that's internal in a BB in HK and you've got language skills, etc, I'm sure you'll be able to find a PE gig somewhere in Asia. Throughout Asia (particularly China, Vietnam, Singapore, etc.) PE firms are hungry for people with language skills and BB experience.

As an example I know someone who was an ivy grad from the U.S. and spend 2 years in DCM at a BB in HK and then was hired at a top megafund PE shop in China... typically you wouldn't see that - but he was an ivy grad, head some type of *kind of* applicable bb experience, and he spoke mandarin/cantonese/english

5/7/15

Thanks Pymp,

Do you happen to be based in Asia too?

Thats the issue, BB always tend to hire the Ivys who do not have Asian exposure with the rationale being US has more developed and advanced markets. Seems like there are very few HF developments in Asia and most hires are probably senior hires from the prop desks in BBs.

I am an Asian candidate, and able to speak English, Mandarin, Taiwanese and abit of Cantonese.

Any idea on the other questions I have?

5/7/15

Go for HF over PE. PE in Asia is a nightmare because the legal systems are just so bad. Look at the fight Bain is in with Gome. You can forget about buyouts since an LBO debt market does not exist. PE in Asia often times winds up being PIPEs, which a HF can do anyway. At least at a HF you can get paid more since performance fees would be charged annually and on unrealized P&L.
If you like the PE style that much, think about going VC. VC in China has done far better than PE. I would prefer to be at Sequoia over KKR or TPG in China any day.

5/7/15

Indeed Dkr, I personally was in close proximity with the Gome /Bain group and I have seen it myself personally. Not to mention a slew of deals that went sour with lack of intensive due diligence.

Few openings for HFs, even rarer when I have no CFA/MBA, no Ivy and no 5-10 years experience.

5/7/15

DkrCap is right in one sense - PE in Asia is extremely complex legally and half of your job is finding out ways of structuring transactions to fit in with nonsensical and opaque laws... moving money in and out of the country (particularly in China) is tough too and it requires keeping a low profile, government relationships, and showing restraint and patience

But in another sense I think you should realize that the complexity of navigating PE in China and other less mature Asian economies is what makes it so challenging and fascinating to work here, and also what keeps competition for deals so low and potential returns so high. If you want to learn how to find a company that's slightly undervalued, leverage it up in an optimal way and squeeze that value from the company using expert management etc., that's PE in the developed world.... it's different over here and it's much less of a science and much more an art...

5/7/15
5/7/15

is it easier to get into a top MBA from PE than from HF? i know based on alpha mail's discussion HF's get very involved in qualitative understanding as well but do you think business schools, whether accurately or not, perceive PE guys as better operators and HF guys as investors? it seems like MBAs have a bias towards McKinsey and BCG guys over banking guys, so i can see this play out in the HF/PE scheme

In reply to alpha mail
5/7/15
alpha mail:

Full disclosure, I'm biased to the HF path, but have friends at top PE shops. First things first, PE and HF are two fundamentally different career paths. Yes, they're both buyside gigs and both pay extremely well. However, it's the differences you'll have to pay attention to.

1. I would say HF is less modeling intensive than PE just bc at the top PE funds you're only going to be modeling as a pre-MBA associate, whereas at a top HF (fundamental value / long-short equity) you'll be doing some modeling to support an investment thesis but you'll also be screening for ideas, crafting the thesis, and defending it with valuation models, et al. Obviously this a blanket statement and realistically the real answer is that it depends on the shop. At the top non-sourcing PE shops, dealflow is going to be driven primarily by bankers and the rolodex of your operating advisors and senior professionals. This means that as an associate you're going to primarily do LBO modeling with little work on the sourcing side and little work on the post-acquisition operations side. This is great because it'll make you extremely comfortable with modeling down to a very granular level and it'll help you understand swappable cap structures and HY debt. As mentioned in some other threads, megafund PE is very much banking 2.0.

At a top L/S fund, on the other hand, the place you want to aim to for will operate in the ex-Tiger tradition of PMs cultivating a culture of idea generation at the junior AND senior level. This means intensive fundamental research both bottoms-up and top-down. From a top-down perspective, how is the current turmoil in Japan opening up interesting opportunities in Asia? As a research analyst, one line of thinking could be: Earthquake in Japan --> billions of infrastructure damage in the region --> increased China-Japan trade over last decade --> long China cement producers --> which China cement producers are currently undervalued? --> identify opportunity and accumulate X shares at Y price and exit position at Z price. Each junction in that predicated decision tree needs to be thoroughly researched via reports, valuation modeling, diligence trips, etc. If your thesis is complete horseshit, your PM will chew you out but at least you'll learn how to identify value more efficiently. This is an excellent model as it teaches you to become an intelligent investor and is a crucial experience if you ultimately want to manage your own portfolio.

2. Pay is roughly comparable, although probably skewed towards PE at the pre-MBA associate level (BC PE funds tend to be much larger than HFs) and then towards HF at a more senior level (where PMs are generally more predatory with comp vis-a-vis returns). The inflection point is highly dependent on the shops and their investment strategies, returns, management structures, etc.

3. Can't speak to the PE side, but on the HF side, there's no set timetable to promotions. If you're a senior research analyst at Viking, for example, it could be years before you make it that next step to become a PM. However, what's common a lot of times is leaving a top fund with another PM, securing LP commitments, and starting your own shop. That way, you're making much more money and also in turn getting a promotion to PM. You see this a lot recently given the instability within banks and other large shops.

4. I think this decision comes down to something all college juniors are asked when they think about IBD vs S&T: are you passionate about the markets? It's a simple question, but important. If you don't give a shit about where the VIX is at because you're an M&A banker and want to continue working on deals on the buyside, lever up a company, and exit at a higher multiple, then PE is the way to go. If you're an ardent follower of the markets, enjoy reading earnings transcripts, digging through K's and Q's, and coming up with investment ideas, then the HF route makes sense. Possible to do both, obviously, but most people have a leaning one way or another.

And to your addendum, most people do PE and then move to a fund after business school because a lot of top HFs require buyside experience. Generally, they'll move to L/S equity funds, but if you're coming from a LevFin or restructuring background, end up at a distressed PE shop, event-driven funds like Third Point are a good fit.

very insightful post! SB to you.

5/7/15

HF, Really? Versus PE? Get real. PE's are picking up their classes much earlier these days.

5/7/15

And another silver to you alpha. This question has been (somewhat) asked a few different times on the boards, but never with as straightforward and complete an answer. Congrats, you added value (alpha?)

Beat, what are you talking about?

5/7/15

I think that deserves the post of the year award.

Most people do things to add days to their life. I do things to add life to my days.

Browse my blog as a WSO contributing author

5/7/15

Your trolls are getting more and more discrete every day. I love it.

5/7/15

nope, i was actually being completely serious. how does this seem like a troll question?

5/7/15

I doubt firefighter trolls anymore because the market is too saturated with trolls so it really isn't funny so he is trying to lay low...

I see right thru you.

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

5/7/15

actually, blackfinancier some of the prestige posts i made weren't really trolling but just making fun of how prestige obsessed wso is. some of the posts i made about prestige being more important than happiness were obviously sarcastic but guess it's hard to pick up online

anyway, anyone have any idea?

5/7/15

I am curious as well.....

Get busy living

5/7/15

I have been studying b-school admissions for the past several years and do not agree that adcomms favor top performers from consulting over IB. I am also unaware of any significant difference between the candidacy of PE vs. HF professionals. What matters in any one of these instances is the prestige of the company, your level of responsibility and leadership within the company, professional growth, etc.

For example, all else being equal I see no reason why a PE analyst at Apollo would have any advantage over an analyst at SAC or a consultant at Bain over a banker at GS.

Its all about the total package (undergrad prestige/gpa, GMAT, work experience, ECs, essays, etc.)

In reply to firefighter
5/7/15
junkbondswap:

I have been studying b-school admissions for the past several years and do not agree that adcomms favor top performers from consulting over IB. I am also unaware of any significant difference between the candidacy of PE vs. HF professionals. What matters in any one of these instances is the prestige of the company, your level of responsibility and leadership within the company, professional growth, etc.

For example, all else being equal I see no reason why a PE analyst at Apollo would have any advantage over an analyst at SAC or a consultant at Bain over a banker at GS.

Its all about the total package (undergrad prestige/gpa, GMAT, work experience, ECs, essays, etc.)

Good point but there is def something to be said for adding value to class discussions. Operational experience is important in the context of a General Management MBA program. As a generalization, Quant HFs are the least likely to produce a candidate who can analyze a business and its competitive positioning. VC/Growth PE is the most ops focused, all partners have board seats/observer seats. LBO/PE also operationally focused, partners hold board seats. Some activist l/s funds will have similar interaction esp if PM is on board of port co. but substantially less than PE. Other HFs focusing on more rate and mortgage products, Quant, Macro, Structure Products, MBS, among many, often do not yield investment professionals w/ operational exposure.

5/7/15

DUH I THINK MEGAFUND IS BEST WAY U GUYS JELLY?

In reply to DurbanDiMangus
5/7/15
DurbanDiMangus:
junkbondswap:

I have been studying b-school admissions for the past several years and do not agree that adcomms favor top performers from consulting over IB. I am also unaware of any significant difference between the candidacy of PE vs. HF professionals. What matters in any one of these instances is the prestige of the company, your level of responsibility and leadership within the company, professional growth, etc.

For example, all else being equal I see no reason why a PE analyst at Apollo would have any advantage over an analyst at SAC or a consultant at Bain over a banker at GS.

Its all about the total package (undergrad prestige/gpa, GMAT, work experience, ECs, essays, etc.)

Good point but there is def something to be said for adding value to class discussions. Operational experience is important in the context of a General Management MBA program. As a generalization, Quant HFs are the least likely to produce a candidate who can analyze a business and its competitive positioning. VC/Growth PE is the most ops focused, all partners have board seats/observer seats. LBO/PE also operationally focused, partners hold board seats. Some activist l/s funds will have similar interaction esp if PM is on board of port co. but substantially less than PE. Other HFs focusing on more rate and mortgage products, Quant, Macro, Structure Products, MBS, among many, often do not yield investment professionals w/ operational exposure.

When you say 'operational' you mean general management, and not operations? Or both?

Also, is the intended focus of study a factor in admissions?

Get busy living

5/7/15

Durban, all good points. My only counter would be that adding value to classroom discussions, in the form of operational experience or exposure to that facet of business, is important when judging candidacy but not necessarily determinative. For example, there are plenty of MBA students at top programs who bring zero relevant experience in regards to operational experience but contribute in other ways.

UFO, you are correct. He is not referring to "operations" but instead to the exposure to the operations of a business. To elaborate on his example, early stage PE / VC will work closely with their portfolio companies to structure the capital stack, implement merchandising strategies, cut costs, etc whereas guys who sit in front of computers all day trying to outperform (based on mathematical algorithms) the market by a few bps do not (work closely with companies or have operational experience).

Intended focus of study is only a factor in admissions in that your MBA story and future goals should coincide (unless you are a career switcher). For example, a PE guy coming in should not say that he would like to focus on marketing because he would like to pursue a career corporate finance. Its all about the story and how well you sell that story (just like everything else in life).

5/7/15
5/7/15

I can see this being true (though I haven't really been around long enough to comment on the distant past).

Lots of hedge funds are growing so large that they consider themselves 'alternative asset management firms'. The point is, they are such gorillas that they allocate funds to PE-like investment strategies (mezzanine debt, senior debt, leveraged loans, VC, etc. I think this is probably the result of a few things, one being so large they move the price of equities they trade.

5/7/15

it is harder generally for junior hf guys to go into PE associate/senior associate roles because HF associates/analysts don't deal with due diligence (accounting, legal, finance). Also, the skills are almost non-transferable if you work in a macro fund (more relevant if in the fundamental value investing fund).

That being said, why would you want to go into PE if you get a HF job out of banking? I always see PE people wanting to move into HF or just stay at PE, not the other way around.

In reply to RonBurgandy
5/7/15
RonBurgandy:

I can see this being true (though I haven't really been around long enough to comment on the distant past).

Lots of hedge funds are growing so large that they consider themselves 'alternative asset management firms'. The point is, they are such gorillas that they allocate funds to PE-like investment strategies (mezzanine debt, senior debt, leveraged loans, VC, etc. I think this is probably the result of a few things, one being so large they move the price of equities they trade.

I see the push coming from the other direction, actually. While some hedge funds end up in something of a private-equity role due to distressed debt or loan-to-own transactions, and a few have raised PE funds at one point or another (Greenlight and SAC come to mind), almost every significant PE sponsor has some form of debt capacity (mezz, CLO, distressed/opportunities, etc) and these operations start to drift into hedge fund strategies or become liquid credit funds in their own right (GSO at BX for example runs basically every type of debt fund under the sun). Lately there's been a push towards equity and macro management as well, such as KKR hiring the GS prop team.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

5/7/15

I guess that's true, as well. I just see the movement with the larger hedge funds that are looking to really diversify their reach and strategy base. Also a bit skewed since the firm I work for has made this move into the PE/loan space, and has also reached into VC a bit, yet it made its namesake as a converts desk.

5/7/15

I see the push coming from both directions. I work for a macro fund that most would be surprised does some stuff that I would call private equity, and likewise I have seen alot more private equity firms either hiring teams of liquid products traders or attempting to seed new hedge funds.

5/7/15

Yeah, seen this on both directions as well particularly in the larger funds. I think Tudor even has a VC fund if I'm not mistaken. Posting solid returns is getting harder and harder nowadays even for the top shops so they're looking for other areas to exploit.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy

5/7/15

Interesting. Being in the more illiquid end of the debt spectrum I guess we see the sponsors more (constantly buying up CLO capacity, etc). Bondarb does your fund do any control PE, vs. growth equity/VC or PIPE situation with public companies?

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

In reply to Kenny_Powers_CFA
5/7/15
Kenny_Powers_CFA:

Interesting. Being in the more illiquid end of the debt spectrum I guess we see the sponsors more (constantly buying up CLO capacity, etc). Bondarb does your fund do any control PE, vs. growth equity/VC or PIPE situation with public companies?

I am not sure the full scope of what the PE guys do because they represent a really small part of the firm, sit on a different floor, and I have never met any of them...I know they do some venture capital but thats it. It's literally like 3 employees. They also "trade" (or whatever its called in venture capital) out of a different entity so i dont really care about how well they do.

In reply to Jorgé
5/7/15
Jorge:

Yeah, seen this on both directions as well particularly in the larger funds. I think Tudor even has a VC fund if I'm not mistaken. Posting solid returns is getting harder and harder nowadays even for the top shops so they're looking for other areas to exploit.

Yes; Tudor has a VC fund based in Boston. They also gave money to Headlands Technologies, a Chicago based high-frequency trading firm founded by ex-Citadel partners.

5/7/15

Aside from KKR, what other big PE firms have hired liquid products traders and macro teams?

5/7/15

Excluding the less liquid/illiquid debt strategies that most major funds have (CLOs, mezz, distressed, mid-market lending) but including liquid credit strategies (relative value, synthetics, etc):

BX is big into seeding new equity and macro managers though I'm not familiar with them having any liquid products internally except to the extent that GSO has liquid credit desks.

Carlyle has an emerging markets-focused credit and macro fund.

Bain: Sankaty has some liquid HY and structured credit/synthetics, plus Brookside which is a public equity fund and the originally named Absolute Return Capital, which is macro.

Apollo has a value fund and an Asian multi-strategy fund

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

In reply to Kenny_Powers_CFA
5/7/15
Kenny_Powers_CFA:

Excluding the less liquid/illiquid debt strategies that most major funds have (CLOs, mezz, distressed, mid-market lending) but including liquid credit strategies (relative value, synthetics, etc):

BX is big into seeding new equity and macro managers though I'm not familiar with them having any liquid products internally except to the extent that GSO has liquid credit desks.

Carlyle has an emerging markets-focused credit and macro fund.

Bain: Sankaty has some liquid HY and structured credit/synthetics, plus Brookside which is a public equity fund and the originally named Absolute Return Capital, which is macro.

Apollo has a value fund and an Asian multi-strategy fund

Thanks for that. Yeah, I totally forgot about Bain. Working at brookside or absolute return is pretty close to my dream job. I know one guy at brookside now: ivy pedigree, bulge bracket banking, top hedge fund, stanford business.

5/7/15

In addition to the above, Carlyle also owns a controlling stake in Claren Road, a $5B liquid credit hedge fund.

5/7/15

I stumbled on this thread while searching for real estate related hedge funds.

In terms of REPE both hedge funds and private equity firms seem to be moving closer to one another at the top end of the spectrum. Larger Hedge Fund managers like Fortress, Oaktree, etc... have become involved in REPE (mostly special situations & distressed) through dedicated funds or their distressed debt funds. At the same time, Private Equity firms like Blackstone have set up special situations funds to compliment their opportunity funds (i.e. REPE) to allow them to invest in distressed RE debt, special situations and other non-controlling positions.

It makes sense for the larger alternative investment managers (whether they started as PE or HF) to expand their offerings. They already have the distribution to market these new funds, the infrastructure/team to support/train/attract talent and the brand to allow extension into new markets.

Also, the bulge bracket banks are retrenching from these areas due to new regulation and structural change. So there are lots of areas where alternative managers are not competing with Citigroup's cheap shareholder/depositor money, etc...

I wonder how this would change the required skill-set in the future. More people who invest in both debt and equity? Better understanding of finance among sales/relationship/capital raising guys?

In reply to Ricqles
5/7/15

Ricqles:
it is harder generally for junior hf guys to go into PE associate/senior associate roles because HF associates/analysts don't deal with due diligence (accounting, legal, finance). Also, the skills are almost non-transferable if you work in a macro fund (more relevant if in the fundamental value investing fund).

That being said, why would you want to go into PE if you get a HF job out of banking? I always see PE people wanting to move into HF or just stay at PE, not the other way around.


with regard to the last point -- which I understand simplistically as HF > PE -- I am curious is the fact that few people move from HF into PE because they don't want, or they can't? Provided that the skill set at HF is hardly transferable, I always can't help to second guess that the answer is the latter. Pls correct me if i'm wrong. thx.
In reply to navy000
5/7/15

most people who go to hfs are ones who are passionate about the markets. They want to learn about and look at the companies they find interesting. These type of guys won't be too thrilled working on a deal being outbid by a strategic and have all the works going to waste in the past 6 months. hf is all about looking at companies and have opinions on its market value whereas a large part of pe is about facilitating the transaction and pray that you are the highest bidder

navy000:
Ricqles:
it is harder generally for junior hf guys to go into PE associate/senior associate roles because HF associates/analysts don't deal with due diligence (accounting, legal, finance). Also, the skills are almost non-transferable if you work in a macro fund (more relevant if in the fundamental value investing fund).

That being said, why would you want to go into PE if you get a HF job out of banking? I always see PE people wanting to move into HF or just stay at PE, not the other way around.


with regard to the last point -- which I understand simplistically as HF > PE -- I am curious is the fact that few people move from HF into PE because they don't want, or they can't? Provided that the skill set at HF is hardly transferable, I always can't help to second guess that the answer is the latter. Pls correct me if i'm wrong. thx.
In reply to navy000
5/7/15

navy000:
Ricqles:
it is harder generally for junior hf guys to go into PE associate/senior associate roles because HF associates/analysts don't deal with due diligence (accounting, legal, finance). Also, the skills are almost non-transferable if you work in a macro fund (more relevant if in the fundamental value investing fund).

That being said, why would you want to go into PE if you get a HF job out of banking? I always see PE people wanting to move into HF or just stay at PE, not the other way around.


with regard to the last point -- which I understand simplistically as HF > PE -- I am curious is the fact that few people move from HF into PE because they don't want, or they can't? Provided that the skill set at HF is hardly transferable, I always can't help to second guess that the answer is the latter. Pls correct me if i'm wrong. thx.

This is probably tough to gauge, since everyone's reasoning is different. However, if I were to venture a guess, I'd say it's because people generally do alright working for HFs, and will often finish their careers there. Why leave the HF industry if you're doing well? If the fund you work for struggles, your skills are definitely transferable at a similar firm, so jumping ship is easy.

More recently I've spoken to a number of PE professionals who are actually trying to make the opposite move, from PE to HFs. While many of them have been at large buyout shops, it seems as though they are generally discouraged by the lack of LBO opportunities across the space. They're also struggling to see their long-term success as associates doing all of the analyst & associate grunt work (though the same could easily be said for a HF structure).

5/7/15

also interested

I didn't say it was your fault, I said I was blaming you.

5/7/15

As good as it gets for equities/value shop lifestyle: http://www.Amazon.com/Money-Mavericks-Confessions-Manager-Financial/dp/027373198X

Maybe a 2-4h read.

Both career paths require very different personalities. PE will allow you to bloom much later (20 years down the line at partner level) but is arguably less risky. I would say ask yourself what kind of personality you truly have, what you are like, and then choose based on this rather than first order factors (hours, office location, analyst pay, etc.).

5/7/15

Recent history has seen the top private equity firms (Bain being the worst offender) jump the gun and begin interviewing at a ridiculous early date, which of course causes all the other PE firms to begin interviewing. In a week or two (or even one day, really) the big funds will have offered the majority of their associate classes and there is significant pressure on them to all accept quickly.

This means that unless you are very, very sure you want to do a hedge fund, momentum will be pushing you to do PE with all the other analysts at your bank. Hedge funds are (usually) much smaller and thus much more selective about who they hire. They start interviewing later and you'll likely have many rounds to go through with no guarantee that you come out the end with a job offer. Thus a lot of monkeys seem to shoot for the surer thing with PE, or at least go through the interview process. This brings another set of issues as you risk pissing off the headhunters who usually specialize between PE and HF - (i.e. you tell one HH you're 100% PE while you tell another you're 100% HF, etc)

So I'd say a lot more monkeys are being pushed the PE track than the HF track for that reason alone.

I went the PE route at one of the larger, well known funds, and have found the lifestyle to be somewhat better, with the caveat that if you are in the hunt and cranking on a deal, you'll be there in the office as late as in banking. On the off time, you're left with more independence to accomplish an overarching goal (e.g. read over this CIM or look at this company, tell me what you think) and generally you are required to think critically much more than in banking. It's refreshing to dig in and really learn about a company, the main drivers behind it, the space/geography it operates in, etc. rather than simply process like you would in banking. Also, it's definitely much more professional, no shooting the shit and throwing footballs around with other analysts in the bullpen. You get in, get your shit done, and get out.

Also, you quickly realize that this shit matters - you fuck up a number in a model and you can really torpedo shit quickly, including your reputation. For that reason it's definitely much more stressful. You can't just shove your work to your Associate and hope he catches all your errors - that shit's all on you.

As for motivation for one vs. the other, I really felt that I needed time to really learn how to become a thoughtful investor, which I just felt that PE would give me. I really wanted more experience in a structured environment before going to a hedge fund to start swimming with the sharks. Some people might consider themselves to be (and some definitely are) much more savvy investors, and for them going to a HF makes perfect sense, I'm sure. It really depends on you and your personality and circumstances.

Hope that helps. And yes, I am up at 2:30am waiting on comments

5/7/15

I went mega HF --> VC, a bit off your question but it was the best move of my life. The HF I worked at was as miserable as banking (regarding lifestyle). The pay was unreal, but didn't really matter given the hours I was working.

"Jesus, he's like a gremlin; comes with instructions and shit"