2023
I work for a $2B SM that's down 20% in 2022. I've been at a HF for 5 years (this one for 1 year, it launched in 2021) and have been pretty disappointed by our process. A couple LPs are starting to redeem.
I know it's a tough job market but there's no point staying on a sinking ship. My all-in comp for 2022 is $350k which was the lowest I've been paid since 2019. Would it make sense to start recruiting despite joining 1 year ago?
If yes, would new funds look down on taking 4-6 weeks off before recruiting?
$350k is not bad given performance. But LPs redeeming is not good. Once they start it keeps going (have seen it before). How is the track record? Your fund is not at the scale where you can support bonuses on mgmt fees alone.
Not sure if taking time off is acceptable - I’ve heard both sides. I think it should be fine if you have a good reason (not just traveling, etc)
Launched in 2021 and was down MSD, so no real track record to speak of. Was a spinout of another fund.
I joined beginning of 2022. Most of my upside is from equity in performance fees
How many years of experience total?
7 YoE total
It's a tough environment and 350 should be enough to live off of unless you're spending above your means imo. Easier to look for a job when you have a job.
Approximately what percent of performance fees do you get?
Without going into detail on fee structure, rough math is every 1% of fund performance is ~$100k
What's your non-compete? I'd recommend finding a job while employed and just negotiating a start date. If you have a 3+ month non-compete, the time off point becomes moot anyways.
LO or L/S? 350k TC for this kind of fund performance is really generous imo (am assuming at least 100-150k of bonuses).
I would look at the total redemption, and if the "lead" LPs are redeeming as well. It's an uphill task to beat the high watermark when your AUM has been slashed by half...
Why does AUM getting cut make a difference for high watermark? It’s still the same % to make up
I’m L/S
Permanent losses of capital are pretty devastating for long term compounding returns. Clients looking at a long term track record might see more risk if the fund is very volatile or see flaws in the strategy. Decreases in AUM also decreases your firms earnings potential as well.
Same boat. 350k TC in down DD % year, 5 YOE. I joined start of year when fundraising kicked off to leverage track record of internal capital, but book blew up and fund raise was shelved. Decided to find a new seat elsewhere instead of waiting to see if plan B with capital we do have works out as seems like a very uphill battle.
How did you find the recruiting environment? My early feelers are saying only the pods are hiring
Recruiting was fine; this was for a distressed seat. My HH relationships were still warm from my last recruiting cycle (the seat I'm leaving was not from a HH) and they understood the situation, wasn't a big deal.
Funds down 20% and still making so much... Guess this is what the HF world is like
For real…i need to move to a HF asap
The only places I saw equity guys doing fine are pod shops.
SM land, not so much. Most of them are pseudo market neutral, entirely focused on myopic high-beta names picking. Many are balls deep in tech. It's a strategy story, not a firm story.
So if you jump to another SM, it's probably the same happening with that SM, underperformance & redemption, and not sure they're even hiring.
Is there any SM tilt their portfolios to value names when the tide turned earlier this year? Yes, but very rare, given SM investment horizon tends to be quite stretched and not doing frequent rebalancing.
Maybe tweak your profile a bit and lean towards to shops doing strategy that are tied to economic downturn but still highly relevant to your skillsets (e.g. distressed). Or jump back to PE on turnaround space.
LPs redemption will continue. And not just at your shop. 'Money' is disappeared, liquidity needs from LP will be heightened for a variety of reasons, and will be forced to pull money out of vehicles that are not cash generative. From allocator perspective, equity hedged AUM is being smashed this year and will continue to bleed. Macro, CTAs, and Quants AUM on the other hand are building up.
What does CTA stand for?
Commodity Trading Advisor
I agree with almost all of this except for the career move advice. I think largely there will be SM's that weather the storm (there's a reason Viking/Lone Pine down single digits % vs. Tiger down ~60%). There's also TONS of SM's out there varying in size, strategy, and sector so I think completely changing asset classes unless you felt compelled is the wrong move.
Any time you're trying to time the market by making a career change, especially across asset classes, is probably the wrong move. Right when you get into PE turnaround space could be the second the market turns, rates go to 2.5%, and deal flow evaporates from the distressed space (I have no clue but this is just my train of thought). Point being you're better off focusing on what you enjoy about investing, what you're good at, and then matching that to the best seat available. Opting for a seat in distressed because of the prevailing market narrative is by no means the right strategy here; but if you preferred that style of investing, i.e. deep value/turnaround/credit-focused work then you should be looking there (and only there).
Yes, most L/S equity AUM is challenged. Yes, some MM pods and distressed funds may gain assets at their expense. But people forget every strategy has its own cycle and it's useless trying to base a career path in chase of a strategy that's working at the given moment. I don't know of many people who are top-tier investors who have jumped strategy to strategy while timing it according to the mkt.
Note I did see your post about looking at a distressed seat via HH - again it's 100% fine if that's where your interests lie but it's worth noting distressed guys have down years too.
https://docs.preqin.com/press/Distressed-Debt-May-19.pdf
Think this is a really good comment. Trying to time your way into an asset class that you may or may not like isn't great advice imo. Distressed 5yr returns are ~6% prior to this year and tons of big name distressed funds have shut down in the past few years (York, BlueMountain, Solus, Anchorage, etc). Given likely high CCC exposure i wouldn't be surprised if some distressed funds are down HSD. Sure the current environment may suggest there will be higher returns going forward, but its probably going to be kicking off with an ugly cycle of LMEs from sponsors trying to protect their equity checks first. If that's interesting then it might be a great fit but many people don't find getting into scraps with other creditors over generally bad businesses (again this might change in the upcoming years given rates) to be what they want to do.
Would just note Viking is the main tiger cub that's performed well (down MSD), coatue basically survived by market timing and grossing down exposure and is down in line with spx. Lone Pine was down ~30% as of July so would be surprised if they're down single digits like above poster mentioned. That being said there's other SMs that have performed well like Anomaly and theres also new tech focused launches that likely dodged the major drawdown of this year via timing of launch like Avala or the new Lone Pine spinout.
I think a new fund that is down both years since inception is a dangerous situation to be in. I'd recruit just to be safe.
That’s what my plan is, but it looks like the only options right now are pods. Not against going to a MM but very different style and hard to go back to SM funds later on
I'm in a very similar situation (more years of exp, more points, but smaller fund) and I'm debating leaving, so I'll share my framework for your situation. Would welcome any pushback.
Situation:
$2B launched in 2021
Fund down MSD (5%?) last year, 20% this year, so you're down 25% since inception. So no history of making money, and you have $500M to make up…. No wonder LPs are mad!
Looking ahead:
You have $1.5B AUM after losses. How much has been redeemed?
You said the fund investment process is lackluster. Are you in any privates? I assume you're a typical tech/crossover fund. If in privates, you likely have more markdowns ahead.
If LPs are redeeming, you need to show positive performance asap to stop outflows. My guess is the strategy is very net long so you need the market to cooperate.
My suggestion:
Maybe stay if you think you can get back to breakeven in 2 years or less (15% annually). You're basically making the tradeoff of $350k for 2 years and then hoping for the big paydays afterward once you earn performance fees.
However, I would get out. As others have said, don't chase strategy/cycles. But your fund is down a lot with no track record and you'll have way more upside at a fund that has better process and isn't bleeding AUM. You need to ask yourself the question - if you’re an LP why stay in your fund vs the other crossover funds out there.
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