Comp Ceiling for MM / multi strat SM L/S analysts?
How do you think about comp for MM / big SM L/S analysts (not PMs / partners) -- guess I'm asking about MMs and funds like Viking, Third Point, Farallon (insert big multi strat that didn't get killed in 22'). Is it formulaic?
I'm asking about ceilings so let's talk about top performing / upper quartile performance years. At Citadel (since analysts manage risk), I believe its formulaic -- analyst manages $500 - $1bn sleeve, in a good year does 3-5% on GMV (call it 4%), gets a 5-7% cut (call it 5%), and makes a $1-3.5m bonus? I would think that's the ceiling at a MM fund, because then you become a PM, get a bigger book, if you're good you put up similar numbers (we all hope), and then of course you get a bigger cut of PnL (15 - 20%).
How does this work at the big SM multi strat type funds I listed? Assuming analysts cover $XXXm worth of positions, do they get paid a % of PnL on these names? Woudl appreciate any anecdotes or stories, thanks
Bump
Also curious
IMO $1-3.5 mio is unheard for analysts; principals / vie presidents do take home those numbers depending upon fund return, strategy return, team return, and individual performance.
Might be unheard of to you, but definitely real numbers to me.
By the way, what in the world is a principal/VP. Titles like that mean nothing in the HF world.
Unheard of in pods or big multi start SMs? What do u think the ceiling is in a pod vs SM
Can ppl stop posting stupid inaccurate shit like this
What’s ur take on OPs question (as someone senior)
I've heard anything from $1MM-$10MM. Top median comp would be something like $2-4MM if I would guess. Extremely rare something higher than $10MM I would say.
So $2-4MM for analysts at big multi strat L/S SMs? Do you know how that’s structured (discretionary vs formulaic)? Is it just based on how your names do (ie analysts oversees $500m of positions, generates $50-100m+ for the firm in a good year and gets a 4% cut), or also how the fund as a whole does?
Mostly formulaic in my experience, but the formula may not always be fixed because actual analyst merit on the performance of his stocks may be overstated or understated in a given year if historical formula remains constant; also yeah overall fund performance is quite important to the formula. My data points come mainly from SM L/S and SM LO
.
While possible, it's pretty unlikely for a MM analyst to be pulling in 7 figures. There are definitely teams across the street that are paying analysts $1m+ but those teams probably just as hard to get into as a top SM. Think about it, majority of MM teams would be happy making $20m/ year, that doesn't translate to paying analysts 7 figures. Also if you are able to generate enough PnL to justify a 7 figure salary in the MM context you would (should) immediately jump to a PM seat somewhere. So structurally it doesn't make sense that many analysts are being paid in that range, more likely 300-700k.
I would be very surprised if many analysts didn’t make $1M+ as many of the MM pod shops are offering mid 6-figure guarantees for entry level Associates / Analysts.
500k to get you in the door for year 1, year 2 you're back to 100 - 200 base and its sink or swim
very different than consistently paying analysts 1m+
would agree analyst at 1m+ is quite doable but far from the majority
$1bn pod (average for the big 4) making ~3% (after trading costs; average) and keeping 20% of P&L is ~$6mm of comp to be split across the PM and whomever they have working for them (average team might look something like a 28-35 year old senior analyst, a 26-30 year old senior associate / junior analyst, and a 23-26 year old associate). Generally PMs keep 75% of the payout but obviously have discretion, besides what they may have contractually promised their more senior subordinates. The 24 year old is more or less a commodity and would probably be paid $300-400k i.e. what first year associates at good PE shops expect these days which leaves $1.1-1.2mm to be split across the senior analyst and senior associate. Because the senior analyst is more likely to leave if they don't get paid (because their tenure / track record makes them more hirable), maybe the PM splits the comp 60/40 so an average senior analyst in an average year is in the $600-800k range while the senior associate makes the other $400-600k. If the senior analyst crushed it and could lateral to being a PM elsewhere (albeit with no support and way less capital, maybe even less than the sleeve they're already managing), maybe the PM cuts them an extra few hundred K (~$500k is only ~10% of what the PM is making in this hypothetical year) to keep them around so yes I think $1mm, maybe even $1.5mm is feasible.
I know of one anecdote of an analyst in their late 20's having a killer year and negotiating $7mm guaranteed to start as a PM at a different pod shop. Note that this $7mm is not a signing bonus but more like downside protection i.e. a guarantee that if they get fired within the first 1-2 years, they still get paid $7mm. Not sure what stipulations came with the $7mm but I'm sure there was an aggressive non-compete tied to it.
Can you elaborate on the 7mm anecdote? What type of returns on a sleeve (and how big a sleeve) did the analyst have to manage at the old shop to get a guarantee like that? Was under impression 7mm was something onlyTop PMs could get
Also, how big of a book / payout (% of pnl) is he getting at new shop (relatively speaking if you know)
I cant elaborate really.
Not sure you going to find an answer that satisfies you. The main thing to remember on MMs is that the biggest hurdle is when you initially bring someone on, establish/grow a pod. This is why nowadays some MMs are paying lower salaries to sub-pms with different structures to bring them on. MMs have to spend their upfront dollars on the PM (that is the product they sell to investors). Likewise if you cannot attract the right talent to start you could fail massively, so you will hear stories of someone paying up big for analyst from somewhere heck maybe a summer intern. Cause the firm sees vol coming and wants butts in the seat today.
That all said, after a pod is established for 2-3 years anyone can get paid anything. There is analysts who certainly make 7 figures and then there is others who could make less than their initial guarantee years.
This is very generic. There are a lot of moving variables.
1. How is your pod's book organized? Is it per analyst/subpm/researcher or are all trades and ideas comingled into one big book?
2. How is P&L attribution completed, and is there way to keep track of what's going on?
This is based on my experience which may not be a representation of what's going on:
if pod generates $100m,
- top line costs are deducted (cost of capital, fees to brokers which include corp access, data costs, your team's bbg costs): assume $10m
- then your pod's pay-out is calculated by your PM's payout: assume 20%
- then your PM has (100m - 10m) * 0.20 ~= $18m
- Now, bottom-line costs are deducted (your team's base salary, insurance, and other stuff: this really depends on how the contract is constructed, but on average the salaries are in the bottom line costs). Say $200k for 5 people ~= $1m.
- Now, your PM has $17m P&L to allocate among the members.
- On average, I think most PMs take 80% of the pod. Some good ones would take 50-60% of P&L.
Case 1)
- assume your PM took 80% of PNL - it is 13.6m
- Now, the remainders are $3.4m for 4 people. So this comes down to $800k+ per person, making your total comp for approx $1m+
- This is 1% of your pod's P&L
Case2)
- assume your PM took 50% of PNL - it is 8.5m
- Now, remainders are $8.5m for 4 people ~= $2.1m+ for bonus, making total comp approx $2.3m+ per head.
- This is 2.3% of your pod's P&L.
If there are easier ways to identify and map the Alpha Attribution, you'd be able to get more.
Again, depending on the product (e.g., quant vs discretionary), your net return could be different to the firm.
To a PM's visibility, fundamental LS people tend to use almost no leverage (1 - 2x, rarely saw anyone using 2x), while quant pods tend to use more leverage (4x - 10x depending on the holding period). But this is only from a single PM's perspective. Two examples below.
Case 1) Fundamental LS PM with GMV=$1B. With 2x Leverage, your capital is $500m. Assuming 5% DD Limit, your $DD = $25m
Case 2) Quant Eq PM with GMV=$1B. With 5x Leverage, your capital is $200m. Assuming 5% DD Limit, your $DD = 10m
Generally, Capital is important for calculating return and DD, as MM tends to calculate DD with respect to Capital. So, having a higher Capital is good for your pod, as your $Draw-Down Number will be higher. However, you'd have to pay higher cost of capital, since you are borrowing more money from the firm (again, from a PM's perspective).
But, your MM Hedge Fund isn't really putting all $500m Cash (for Case 1) or $200m Cash (for Case 2). The firm would actually be putting 1-10% of that number (again, depending on the size and relationship of your firm with the broker), so the HF is only depositing the margin of $10m and $4m (assuming 2% - this is usually for firms like MLP, Citadel, P72, Baly. The smaller the firm, the more you pay for your margin).
So from layman's perspective, 2-3% return on GMV looks too small. Assuming 3% return both fundamental and quant (case 1 and 2) generates $30m.
But, if you calculate return on the margin that the fund is posting, the returns now get interesting.
ROM (Return on Margin) for Fundamental: $30m / $10m = 300%
ROM (Return on Margin) for Quant: $30m / $4m = 750%
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