base/bonus 1st year analyst at HF
Hi, I work at an equity LS hedge fund with about 200mil AUM (20% PM's money+80% client money) as an analyst.
I worked at bulge bracket IB for 2 years after graduation until last winter and joined current firm in April.
Our return was OK (+13% from fund's inception in April) and I currently earn 120k base.
We are small team of 2 analysts+1 PM+4 OPs and have 2/20 structure.
Although I don't have independent book, I would say I was involved in at least 50%-60% of portfolio construction(and also trading) and performed well.
What base and bonus do you think I should negotiate?
Thanks.
Given the sub-scale nature of the fund I would dial down your expectations. The reality is that your PM will pay you the bare-minimum necessary to keep you from leaving. My guess is that you will get something in the range of USD 80-100K, which would bring all-in comp to the USD 200-220K level. That's not bad money for a HF analyst with only 1 year of buy side experience. The fact that you're asking this question suggests to me that bonus levels were not a part of the recruitment discussion (your fault for not asking). My advice would be to use your bonus discussion to get a better idea on comp ranges and where your PM sees things going. Also, be grateful to be in a seat and use this experience to become a better investor. If you're any good the real money will follow.
You can’t just compare people at the same age (as relevant experience and other factors are important), HF comp is a lot more volatile, and people with 3 years in IB making 250k bonuses (not total comp) is not standard (so your friends might be exaggerating a bit). If they are getting that they are at the very top (that is around $350 total comp) and you can’t compare a small fund with a fine year to the top performers at other places.
A first year at an established fund will generally be all in around $200-400. If you are heavily involved in the investment process you should be negotiating for a cut of the PnL. Your base is a little low but I wouldn’t be concerned about that if you can get the right bonus.
Being at a smaller fund you should be able to share in the PnL more, there are fewer people, the risks are higher (so should the rewards), and small teams tend to want to grow people within the firm as training is expensive and finding a good analyst is difficult.
Let's not be naive here, of course we all would prefer to be at Lone Pine of Viking than at a $200mm fund. But there are 5 open seats of the former a year, its near impossible to get those.
The boss at the $200mm fund knows this. Maybe you could rake in a little more in IB, but then you'd be pulling all nighters, which you are currently not.
As someone mentioned above, he will pay you the minimum needed for you to stay. In all honesty, a 25yr old kid even with the right background will be perceived as a commodity in most HFs, and will be paid accordingly. You get testy about your pay, he will let you go because there are hundreds of guys with your same skillset in IB who are dying to get into a HF. It's only later in your career when you have developed more specific expertise that you start to have negotiating leverage. Sorry to be so blunt but its the truth.
-13% return on internal capital of $40mm is $5.2mm. -I would be really surprised if he is getting 2/20 on the $160mm of outside capital. 1/20 is more common now, particularly for newer launches. The initial investors might have a discount on the 20 too. Lets call $1.6mm in mgmt fees, $4mm on incentive fees.
-What does 4 ops people consist of? A CFO is expensive. A GC/CCO can be expensive. Admins are not.
If you were a 1st year associate at MF PE with the same experience you would be making 350k all in. That could be off - I'm old now, but I think that is what I'm guessing the market is around. The economics of a start up hedge fund are not nearly as good as MF PE. I'd expect $250k-$275k all-in. Don't be disappointed with $240k. If he gives you $30k then yeah, thats bullshit and you should leave.
The further up you go on the ladder the less people share numbers with their friends. PE comp is pretty uniform. HF comp is slightly less uniform the first few years, but there are market rates. Once you start getting close to 30 the variability is all over the place.