I've heard of portfolio managers (not senior PMs) at MLP getting contractual payouts of 12-18%. How exactly does that work? Does the firm bear the netting risk of the pod (that's run by the senior PM) overall loses money?
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How exactly does this work? Is this the average situation for a senior PM there:
A SPM oversees a pod that runs $2-3bn with 3-5 PMs under him, and each of those 3-5 has an analyst. So let’s say 4 PMs running $500m sleeves with direct payout (as you said 12-18% of their PnL on those sleeves), and then maybe a centerbook ran by SPM of $500-1bn that just scales the best ideas in the individual sleeves. How does the payout work here?? If the SPM has a deal with MLP where he gets 20% of the pod’s PnL to pay himself + PMs under him + analysts, how is there nearly enough $ to go around? In other words, if the PM is getting 12-18% of his PnL, does that mean the SPM is only getting 2-8% of the PnL generated by those under him (meaning if one of the sleeves is +5%, the PM gets $3m to pay himself + his 1 analyst and then the SPM gets $2m?)
If the full pod is up 5% (for simplicity sake let’s assume each individual sleeve is up 5% and the centerbook is up 5%) and the PMs under the SPM get 12%, does this mean the SPM would make:
$500m * 4 sleeves * 5% = $100m pnl from the sleeves. $100m - $10m of data costs = $90m of net pnl * (20% - 12%) = $7.2m
$500m centerbook * 5% = $25m pnl * 20% = $5m, all of which goes to the SPM
So net payout for the SPM, after paying the PMs and analysts, is 7.2 + 5 = $12.2m, meaning ~10% of the total PNL? Where in this math are the assumptions wrong?
Or is the payout # for SPMs higher than 20%? Only asking because I hear stories of SPMs there making $20-30m+ in equities and I’m just curious how the math works
Also, are those #s for a “PM” (not SPM) too low? In a +5% year, the PM would only make $2-2.5m, which seems too low
Bump
Generally yes. In my experience SPM book / centerbook is closer to 50-66% of the total pod size, and PNL $s on that centerbook are obviously more accretive to the SPMs payout (SPM doesn’t have to pay anyone 12-18% of the centerbook PNL / ends up collecting 80-90% of the payout on the centerbook PNL) So maybe $2.5bn pod, $1.5bn managed by SPM (who maybe has 1-3 analysts), then 2 junior PMs (analyst at citadel is equivalent to this title) running $500m sleeves. After costs and everything, maybe SPM gets 5% of the sleeve PNL and close to 18-20% of centerbook PNL
Obviously it’s totally dependent on performance, but in this model, assuming +2.5% across the entire pod (we can debate but I’d consider a pretty average year), after data costs / paying analysts, the SPM would make ~$6m (with 5+ of that coming from the payout on the centerbook, remainder from the SPM’s cut of the sleeve payout). The junior PM (basically someone managing a relatively large sleeve, so an analyst at citadel) would make around $1-2m.
As your data costs are fixed, there’s obviously leverage in the model, so in good (+7-10%) years, the SPMs payout can jump to $20m+, and the junior PM’s payout can flex to $5m+. Someone with the junior PM title there is probably in their late 20s or early-to-middish 30s I’d think? I’ve also seen mid 30s senior PMs. But being a PM is definitely a young persons game
As general ranges (take with grain of salt), over a performance range from average to really good, so let’s say +2.5% to +7.5%, the senior PMs payout can range from $5 - $20+, and the junior PMs range would be $1 - $5+. Of course you can have 0-1% years and +10% years. Just providing a range here. The stories you hear of senior PMs making $30m happen when the $1.5bn centerbook is up 10% and they end up keeping 90% of the centerbook payout. This isn’t for every pod…talking tier 1 here. Capable of putting up $50-100+ of PNL every year
Again it really varies pod to pod. There are people in the junior PM camp running $1bn with 18% payouts. Those folks can make $10-15+ in really good years. Wouldn’t say that’s typical, but I tried to think of the average good pod ran by a solid senior PM
For a typical PM at Citadel/P72, what kind of guarantee can they expect with SPM offer at MLP? $10-25m?
How about for a senior analyst at one of the above getting a PM offer at MLP? 5-10?
Paid over 2 years?
Yeah every senior analyst is getting 5-10mm guarantees in your hypothetical dream world.
Any PM who can earn a 8 figure guarantee can make the same amount of money in expectation by sitting on his ass in his current firm. Instead of asking "how can I get paid this guarantee" start asking how you can earn that PnL in your book and get paid out fairly on percentages. In the long run you'll only get paid proportional to your own output. No career analyst without a book can demonstrate an output of $5-10M/year. More realistic is <$1M
I don't know if those numbers are right or not; but surely the contract will be much more complicated than a simple number, and will specify things like a hurdle rates or a lower payout if the overall pod loses money, etc.
So if the pod loses money does the PM get paid from future bonus pools? E.g. the contractual bonus is structured as a draw on future performance of the overall pod?
Yes, this happens. Have been offered something with that structure at MLP, mostly because they are competing with other multistrats for talent that will give the same person their own book and zero netting risk. In my case, taking full netting risk was a nonstarter because I had offers elsewhere with zero netting. They way they usually structure it is just guaranteeing a minimum payout % for the PM.
And it's not MLP that eats that netting risk, it's the LPs.
Thanks good color - yes the LPs eat the netting risk but it hurts MLPs fund returns so it's more or less the same
Does thay payout come out of the SPMs pocket (ie the SPM gets 20% of the pods PNL and ends up having to pay the PM 12-18% of the PM’s individual PNL so the SPM gets 2-8%)? Or is it passed directly to LPs (meaning SPM gets 20% AND the PM gets a separate 12-18% so the total payout to the pod is close to 30%)?
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