Advancement opportunities at mid-sized or smaller hedge funds

Where would you move to?

I'm a Canadian so Toronto is most relevant to me, but I'm also interested in how hedge fund advancement typically works in the States as well.

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@mrmarket Great/well thought out answer. +1 Silver Banana!

@"mrmarket"

Hit the nail on the head.

A small firm is great because the role is somewhat more dynamic (you may be research but also may have the chance to trade, etc.). But the upside is far more limited. I was with a firm where guys were there for 8+ years, yet still were not given the opportunity to invest significant $$- just given more 'interesting' titles.

Unless you already have a rapport with the PM's/founder before joining and communicate your intentions, moving up at a small fund will be a uphill battle.

I think it completely depends on the mindset / culture of the senior partners at the fund. There are funds where one or two PMs are comfortable making all the final investment decisions, and aren't looking to grow AUM significantly, and basically treat analysts as idea generators / processors. At the other end of the spectrum, I've met PMs who are simply passionate about investing and are keen to train up people and give them P&L responsibility fairly rapidly.

If you're interviewing at funds with relatively small teams, just ask the partners questions about career progression and the structure of the team. If some of the partners have made it by climbing up the ranks within the fund, then that is probably a positive and vice versa.

Great discussion. Then what are examples of the "bigger" funds that an analyst out of banking should ideally aspire for? Places like Tiger Global and Viking?

Thanks, this is really helpful. What would you consider to be the "bigger firms" that you recommend one joins before being at the PM level? Also could you elaborate on the comment about funds being more risk-centric than research-centric?

Hey OrangeBanana,

I think the whole risk/research centric label applies to the role as much as it does to the fund. Smaller the fund, the risk taking responsibility is likely to be held by a very few people at the top (if not just one person). Therefore, the task that gets delegated to you will purely be a research focused task. Whether you are further enhancing the ideas generated by the risk takers or sourcing/generating ideas yourself for the risk takers, in the end, that will be your main role.

I was once told by a fund manager that manages $300mm that he can probably manage $100mm by himself without having any analyst or traders on his payroll. I think that's largely true. So its even truer that delegation of risk would never actually trickle down to the lower level guys if the AUM is too small. However, in larger firms, places that have the scale and the ability to attract "sticky" money, as long as you are in a front office role, there's a good chance that you might be given the chance to run your own book on the idea that you've generated after x amount and for x years of solid idea/work. Because in their mind, if you actually turn out to be a star, they will always have the ability scale the business to give you allocation. Realize that the bigger firms can take such risk on a potential talent. On the other hand, sub $250mm fund will have to first get over the fact that 1) they dont need you to run their existing money 2) they have difficulty attracting asset past $250mm as is 3) what if you lose money... how will the client react if they find out? often the client base of a smaller fund is different from the larger ones.

Smaller hedge funds, like any other small business, are very tenuous operations. The whole thing could collapse at any moment due not only to a bad trading decision but also due to an issue with a prime broker, a bad operational error, or, most importantly, on the whim of just about any single investor. With all this to keep the small hedge fund operator up at night he rarely wants to also have to worry about an inexperienced kid taking risk with part of the capital or spend time training people. That said, large hedge funds have their own set of challenges in terms of advancement (more structured hierarchy, extremely talented competition for coveted jobs, etc). So I believe a more accurate statement is that advancement in the hedge fund industry is very hard regardless of fund size.

Thanks guys. But to clarify, what are we describing generally as the "big funds" and "small funds" day in terms of AUM? Sub billion versus above (generally speaking)?

Hi - sorry didn't see the responses here until recently. I'd categorize big firms as top-50 firms (so $5+bn) and small firms as anything from there down to, say $300mm. Below $300mm and you should probably be related to the founder for it to be worth the risk.

In terms of risk-centric vs research-centric funds (basically s-t vs l-t orientation) - good research is time and labor intensive, and PM's need support to farm the work out - this creates more of a two-way give and take relationship. Risk management, on the other hand, is best not done by committee, and if the PM is more of a trader-type, where his success depends less on being right on the call and more on trading well, your input may be unwanted and genuinely un-helpful to the process. That being said at the latter firm you likely do have more chance of becoming a PM over time - but overall its a semi-hostile environment to be an analyst in as guys aren't used to working with others., and they won't pay you for ideas or work

I like that categorization of the middle. I was at a bigger firm, and had to take a job at a smaller one to get out of that "trap" and ultimately achieve semi-autonomy. Hopefully almost there and life improves from hereon.