How do LO PMs make >1m?
Noting that many LOs have a number of funds that are barely 500mm-1bn, how do the PMs make >1m especially given management fees are only around 0.7% and (1) the firm also takes a cut and (2) their team of 3-5pax also needs to get paid?
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How do LO PMs make > $1m? They move to a hedge fund
this was a joke btw..
It’s common at shops for research to come from a shared pool of analysts/associates. And PMs can manage multiple funds.
Short answer is you're probably not making 7 figs at that AUM
When people talk about LO managers making bank, it’s at bigger funds. At the Fidelity type firms of the world, funds run $100B+ and it’s easy to see how comp numbers get massive
Aren’t there only a few 100bn funds? Even the ones in Wellington for instance are sub 3-5bn? How much do PMs there make then?
As the poster above said, its because analyst and firm resources are shared among all PMs. It is different to the HF model. You won't have 3-5 people managing a $500m-1bn book, it would be 1 PM (and as poster above says, often PMs manage multiple funds), and you might have say 100 analysts and associates spread across $250bn AUM (just making up numbers here).
So the economics of a $1bn fund at 70bps fee = $7m revenue. You might have 100/250 = 0.4 analysts on the fund (if 100 analyst + associate across $250bn AUM example), if the average analyst + associate makes $500k (range $150k new grad to $1m experienced analyst) then analyst cost to fund is $200k.
So if PM makes $1m then direct investment personnel cost of the fund is $1.2m. Now of course you have to pay management, sales, IT, firm takes a big profit margin, etc., but you can see how the economics work.
Its very common for LO PMs managing $1bn+ to make $1m+, in fact its probably almost all of them. $500m may not be $1m+, depends on the shop.
Good post. And in addition to pure mgmt comp / split of the 70 bps, they often get profit sharing comp based on their status/ seniority. So if the overall fund family does well, they get paid from an additional pool.
Sort of, this is typically baked into the total comp (would not expect total comp of a PM with only $1bn AUM to be very far above $1m p.a. to be honest, economics don't really support it, but it could be the case especially if very senior to accrue lots of company equity), but yes you are right that PMs and senior analysts get a decent portion (or maybe most) of comp from profit sharing.
For a PM getting $1m this may be $200k salary/ $400k profit share/ equity/ $400k expected bonus based on ok performance that can be variable year to year depending on performance.
Just making up no.s here but this is not a crazy split based on what I have seen
Clearly numbers go into the millions and even 10s of millions for the highest earners, and it tends to be driven more by profit sharing as you say rather than bonus.
Oh they make much more than $1m bud
https://mobile.reuters.com/article/amp/idUSL2N1CB01Z
Here’s an interesting article. Certainly not typical, but it demonstrates the importance of scale in the industry and how it relates to comp
Interesting data point on big shot PM comp:
https://www.wsj.com/articles/how-a-hedge-fund-ace-chased-silicon-valley…
Cousin was a fund manager. Primary manager of one fund and oversaw EQ investing for a well performing, but fairly small family (compared to the Fidos and Pimcos of the world). His fund was about 2B. He consistently earned 8 figures for yrs, topping out at about 18M. Eventually formed his own HF, grew it to 6B and made 9 figures for several yrs. Runs his own family office now.
He was a good fund mgr, but this wasn't a major fund compared to the ones you read about all the time. I believe most of his comp at the LO AM came from bonuses / exec type comp plan.
Was this in the past when LO fees were much higher? I assume fee compression probably has crimped this type of earnings for PM’s on average. Obviously all stars will still get paid well in any industry.
It was some time ago and he would agree it's harder to make that type of money but PMs can still do VERY well. He mentioned on his way out of running his hedge fund that it was getting harder to make money. He closed that down just a few yrs ago and was still making high 8 figures. Enough to start his only family office with 500M-1B.
Simple answer is yes, of course there are PMs are smaller firms that make sub 1mm a year. Its likely a combo of 1) firms that are small and will never grow but its a comfortable lifestyle so the PMs don't care all that much, and 2) newer funds were the PM is betting on him/herself that the AUM will scale and they will get paid more later. Also, 70bps is likely at the highest end for LO, fees can get as low as into the mid 30s, esp for large SMAs.
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