Why Are Fund of Funds looked down upon?
I've noticed people here tend to shit on FOF when it's not a bad way to go directly to the buyside.
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WSO is populated by preftige whores who want to be involved in either dealmaking or finding the next GOOGL to invest in pre-IPO at a hedge fund.
FoF analysts don't get paid like HF analysts, they're not doing bottoms up security selection, and there's an argument that recruiting is less competitive than say Millenium.
fuck prestige, if you can get into a FoF and that's what you want to do, get that money.
Yeah it's not a bad spot to be in at all. I mean the comp is around the same as ER but with less hours and politics. Sounds good to me.
I echo the points above. FOF is a great fit for some people. I usually encourage folks to speak with people who have taken each career track and figure out what’s best for them. I know an extended colleague who purposefully targeted FOF recruiting because it was their preference. If you want a respectable paycheck and a life outside work, FOF can be very good.
Yeah it's pretty awesome if you ask me. I've been casting a wide net and FOF definitely sounds like something to do if given the opportunity. Not to mention the fact that people could move between PE and AM/HF at the same firm.
You kids have the wrong idea. If all you care about is the "buyside", you're not going to do well in this industry.
Fund of funds is fine, but it is a very different skillset from other types of finance jobs (i.e. IBD, ER, HF, PE, etc.). If you like talking and meeting people despite the secular decline and double set of fees, it's a fine career choice. Plenty of people do well in FoFs that wouldn't do well in say, IBD, and vice versa. Is the FoF in equities, PE, VC, etc? Do you have the opportunity to do co-investments?
For every job in finance, ask yourself two things: 1. "What skills am I learning?" and 2. "What skills are required to become great at this job?" and see if you have those skills. If your only focus is on "buyside" vs. "sellside" you're doing it wrong.
THIS.
I've worked at both a HF and a large family office (FoF structure) and the skill set needed is very different. Working at a HF as an analyst you need ZERO people skills, whereas working at a FoF you will be talking to current and potential managers all the time and trust me when I say there are a lot of managers coming after you asking for money. And as you said, you will be doing security-level analysis at a fund and more higher level analysis (answering questions like how the manager has performed in situations in the past etc.)
I wish I could SB this twice. John Wooden: "Be more concerned with your character than with your reputation. Your character is what you really are while your reputation is merely what others think you are."
FoF is a great place to be. Depends on whether or not you prefer bottom up vs. top down portfolio construction. I would argue that some places have better FoF opportunities and you get exposure to all of the Managers that you could possibly imagine.
The only issue I see with FoF is that its a declining industry, more so than HF. So that's a risk. Otherwise, as others have said do what you like - FoF is more of a social job than being at a HF. So if you're a more social outgoing person that wants to have lots of meetings and phone calls its a better fit than someone that likes digging into research.
I work at a FOF and like it quite a lot (easy hours / good comp / less corporate BS). Of the negative points above, the one I'd ascribe the highest value to is the skillset question - the stuff done at a FOF is pretty much not transferable to other finance jobs, so the ability to go into other sectors is about zero.
saw your FOF thread and I think you should do an AMA.
I'd be happy to do so if there's interest - Andy?
What do FOF really do? In my company, the FOF team (consisting of two people) manages 4 FOF funds with AUM ranging from $4-35m. How does fund selection at FOF? Are you more of a macro specialist than modelling specialist?
So the primary goal of most FOF teams is to put together a portfolio that has 1) low correlation to your typical beta factors / markets, 2) lower volatility and drawdowns in a crisis, and 3) positive expected returns (typically in the high single digits). FOFs, in a perfect world, should generate a steady stream of alpha that reduces the correlation of our investors overall portfolio.
When it comes to fund selection, this manifests itself in that we want to understand what their risk exposures are (especially the sensitivity to GDP shocks), how/why they make money doing what they do (we DO NOT try to pick the smartest guy in the room - this is pretty much impossible to underwrite and puts you in the same boat as other alpha chasing investors), and whether there is any alpha to be had in a strategy. Of course, things like fees and the quality of their middle/back office are also really important, but these issues are more go/no go evaluations (e.g. they are necessary, but not sufficient conditions).
I'm sure it varies across the industry but, at my firm, we're all generalists. People tend to develop an area of expertise as time goes on, but nobody just starts taking merger arb meetings and nothing else. To your modeling question - I'd say modeling is about 30% of my job and is typically much more high level than what I did in banking. Most of what I do is either statistics, writing memos, reading (lots of this!), taking meetings, or reporting.
I'd love to work at an FOF. I really don't like modeling that much and I feel like FOF is the most qualitative high finance job out there. Unfortunately, I think it's a dying industry. Plus, you get exposure to a lot of different investment strategies, which I think would keep things interesting.
I had superday with a $5 billion FoF in Greenwich a while back. The firm was fairly lean with 3 associates and 10 people total on the investment team. There were more administrative/operational folks than investment professionals. It sounded like associates did a good amount of traveling - attending conferences and listening to fundraising discussions held by fund managers where they discuss upcoming rounds, strategy, industry etc. Associates are responsible for taking notes and distributing them to the rest of the team. They also build FoF specific macro models, research portfolio companies to stay in the loop, etc, etc.
However, one interesting thing I noticed was the political nature of the investment process at FoFs... For example - let's say Sequoia is out fundraising and requesting a $100 million LP check for their 4th China Growth Fund. If the FoF doesn't agree with the new fund's strategy and decides not to invest, it could bite them in the ass as Sequoia won't let them into their flagship fund. There's a surplus of LP cash versus actual need for top "brand-name" funds which leads to political BS / the stroking of unenthusiastic checks. This obviously isn't the case with every firm, but it sounded like there was a good amount of politicin' involved.
Speaking strictly of PE FoF here:
I think it can be a great place to be if 1) that's what you genuinely want to do and are not trying to use it to get to a direct investing role (very difficult) and 2) at the more senior levels, like VP or above. I also think there's a distinction to be made among different strategies too - are you focusing just on primary investing (committing capital to new funds), secondaries (buying/selling existing LP stakes - and to further differentiate, are you looking at funds that have called 25-35% of capital or funds in the 80-90% range?) or co-investing (investing alongside GPs). Or maybe you're getting exposure to two out of three or all three.
I know two types of folks that have worked in PE FoF - the people who wanted to do banking/PE but took the risk in trying FoF and absolutely hated it and the people who wanted to be on the Asset Management side or were undecided on their career path and/or stumbled into it and liked it.
what are you guys' thoughts on secondaries?
Let's be honest: FoF, secondaries, etc. and any other kind of job in which you analyze a fund, and does not involve direct analysis of securities, fundamental analysis and/or trading DOES NOT lead to an investment role in Asset Management, that's why is looked down upon
some considerations:
1) some FoFs include a macro overlay so (if you're lucky) in the "coolest" places you might end up formulating some considerations about how interest rate / currencies will move
2) exit opp in Asset Management seems to be only Sales-related
3) definitely you need people skills and there's no opportunity to learn a lot of technical stuff
SO... any other ideas in terms of exit opps. ???
Does that (being looked down upon) also apply to say BX’s Hedge Fund Solutions team?
I hope no... There must be ‘elite’ places like well respected institutional consultants, AM (think about GSAM’s AIMS), big pensions (CPPIB) where teams should be very strong and pay hopefully decent........
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