How much AUM to jump ship to new firm
Current college senior, interned at an AM (Welly/D&C) last summer. I liked it and got a return but have some reservations primarily about the long-term potential of the industry.
I got a separate FT offer from a newer hedge fund that’s quite small in terms of headcount, but the people they have are top-tier in terms of pedigree. I’m frankly more excited by this offer but I want to weigh my options carefully considering that this is a new fund. It’s about 4 years old—was founded during Covid but didn’t really start taking outside capital until maybe two years ago?
Same city, similar comp… I’m wondering what amount of AUM (or AUM per head) you would look for to consider jumping to a new fund with no brand name after a few years of operation.
Based on the most helpful WSO content, there are several factors to consider when deciding to join a new hedge fund, especially in terms of AUM.
AUM per head: This is often used as a measure for opportunity and stability. However, it's important to note that it's a proxy for carry dollars per head and doesn't always paint the full picture. For instance, a hedge fund could be growing AUM in a long-only product (which carries a far lower fee structure) while core hedge fund assets are shrinking. This could lead to an optical increase in AUM per head but a decrease in carry dollars per head due to fee dilution.
AUM trajectory: This refers to the growth potential of the fund. If the fund has a strong track record and could scale to $1bn if they wanted to, that's generally a more attractive opportunity than a $2bn firm with sloppy returns and AUM on the decline.
Firm's track record: A firm with a good track record, especially if it's outperforming its benchmark, minimizes the existential risk of the opportunity versus peers.
Learning experience and firm trajectory: These depend entirely on who you're working for and the historical PM returns and AUM trajectory of the firm.
In conclusion, there isn't a specific AUM or AUM per head that you should look for. Instead, consider the factors above to make an informed decision. Remember, it's not just about the numbers, but also about the people you'll be working with and the learning opportunities available.
Sources: Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, $1B hedge fund with, Planning to launch a small scale Hedge Fund., AM vs HF: The Business of Our Business
At least 100mm per investment professional. I think a better figure would be 1bn AUM minimum as it's only at that point that management fees really scale well enough for the fund to be able to afford proper back-end systems (bloomberg, research, operations, tech, etc.).
What about AM worries you?
I'm thinking of jumping from PE to AM.
https://www.wallstreetoasis.com/forum/asset-management/is-anyone-bullis…
I'm certainly not that confident about anything, but it seems like there are headwinds that hedge funds wouldn't face.
I'd personally start at the bigger name... people don't really weigh internships too heavily, if the HF goes under and that's your first job that'll be a tough hole to climb out of.
Don't need to stay forever but if you have 2 years at a top-brand AM, you will have a much stronger base to fall back on if you move somewhere risky and it doesn't pan out.
Also, don't let one thread sway you too far away from AM, because HFs are not immune from industry headwinds either... how many HFs have beat the S&P over the long term? It's also a very volatile job with many people getting laid off several times over the course of their career. There is still a place in the portfolio for active management including HFs, but don't get too swept up in the prestige and allure, because it faces the same issues an AM does.
Given that it's your first job, I would go with the brand name so that you can give yourself a strong base for your career. If you're still wanting to go to the fund, it should be >1bln IMO. There'll be plenty of time to take a punt on a risky move down the road. Right now, you should develop skills, a strong network, and some stable savings to fall back on.
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