What is the appeal of mega-funds?
Just out of curiosity, would love to hear people's views on this:
So many of us finance guys spend all their time worrying about getting into the top group at whatever bank so they can move to mega funds in private equity or big hedge funds, where the lifestyle can be close to if not just as bad as a banker's.
Personally, I always have seen myself ending up at a small fund with a few hundred million bucks under management...3-5 guys in a room, so to speak just slaying it with no bureaucracy. Outside of the 'prestige' and 'status', which no one outside of finance would even understand anyways, what is the appeal for you guys for ending up at a KKR or multi-billion dollar hedge fund in the first place?
you might want to do some more research before you make complete bs statements.
large hf dont work anywhere near banking or kkr hours and bureaucracy is very limited.
aside from making the assumption that some hedge funds work banking / kkr hours, OPs not really too far off, and his question is still totally valid. so chill out and dont be a dick because he grouped megafund PE hours in with large hf hours.
Stick to corp fin man.
Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.
Something about the phrase "per annum" just ruins my day
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xoxo
I understand that pre-MBA associates don't make as much as people think, but what's the comp progression for a post-MBA person?
Thank you for the very thoughtful and informative comment. It concurs with what I have seen and heard from colleagues in the industry.
One benefit of being at smaller firms over the mega funds is that, for the more senior hires, it is possible for one to participate in the fund's upsides via profit shares/carried interests in a much more meaningful way than at larger firms. This makes sense as fewer partners and personnel mean that there are larger slices of the pie to go around, even thou the overall size of the pie is considerably smaller.
This is largely dependent on the corporate structure, culture and personal preferences of each firm's senior management so it may not apply to all firms equally.
the deal flow?
Some people want a chance to work on gigantic deals at mega funds. Small PE funds in Lincoln Nebraska aren't working on the buyout of Dell.
In general,I'd say the reason someone would want to work for a megafund is about the same reason someone would rather work for google than a startup: more name recognition, less chance firm ceases to exist, better pay, better exit opps, larger projects.
There are also benefits to a small firm and I think small HFs aren't really comparable to startups but still, I think the comparison is okay.
I am not trashing small funds I have no desire to work for a megafund but I think those are the reasons you'd likely find.
cause most people like to say they're a BSD...
So, the only points that make sense to me so far are job stability and resume recognition. In my view, compensation on the buyside is a function of being good or not. If you're a beast stock picker (for HF at least), funds will compensate you well regardless of 500M under management or 2B...
I'm sure KKR salary is nice, and I'm sure it's great telling your friends you worked on the Dell buyout also but like above mentioned, is it worth the cost? To each their own I suppose.
a) Even in a hypothetical world where comp were perfectly meritocratic (pro tip: it's not), a $2bn fund is going to be able to put more capital to work in an idea and generate more revenue for a given return all else equal. A big part of the appeal of hedge funds is that the business model is pretty scalable.
b) It's rare that analysts come straight from banking and start swinging around their own positions-even at the leanest funds there's still at least some amount of apprenticeship under more senior analysts, PMs, etc.
Bigger funds can and do have better pay structures. Obviously, your employer can pay you more if he's collecting 3 and 50 instead of 2 and 20.
I can see much more of an argument of mf vs mid market (especially if its larger mm shop that pays nearly the same with much better hours) in the pe space.
On the hf side large funds at the entry level will pay better with only marginally worse hours, you get the brand have no fund blow up risk and are sure your pm is somewhat good at what he does.
Smaller funds are interesting if you have experience cause there's more upside if you and fund performs. At junior level straight out of banking no one will let your run investment decisions (also ask yourself do you want to make investment decisions with essentially no idea what you are doing?), so you don't get that much upside and the fund can blow up your pm can suck and your stuck with zero brand name etc.
If anything I'd wager the weighted average management and incentive fees decrease as funds grow past a certain size, because they are more likely to offer discounts for very large commitments from institutional LPs.
The much relevant important factor is the increase in what the X and X0 are being multiplied by.
sofa king: You're overlooking the value of back-office support, which you won't get at your 3-5 person fund. I cannot overstate the value of having people dedicated full-time to all the BS issues like compliance and investor reporting, IT analytics, trade execution, PNL reporting, trade confirmation, end-of-month marking, fund-raising and investor relations, managing the database of all your trades, setting up IT connectivity to data providers, legal stuff, etc. Without a back-office team to handle all that for you, your 3-5 person firm will never find time to trade (or at least, not trade profitably).
And don't say "but I'll outsource all that to a hedge fund administration service like Northern Trust or Omnium" -- trust me, you can only outsource so much of that.
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