Crazy to take MM offer if lead analyst in ER?

I’m currently a lead analyst in ER and in my young 30s. I got an offer for one of the well known MM HFs with a PM that is just starting and I would be his first analyst. Major cut to the base salary going to $150k and probably a cut to total comp for a couple of years until I get my own sleeve which is certainly not a guarantee. PM has suggested that I would have autonomy for my coverage and could get a sleeve within a year depending on performance but who really knows…

Made $385k all in last year and expecting $425k this year. Probably will cap out at $500k given my sector unless I get a bid elsewhere. Job is fairly easy outside of the grind of earnings. Though I don’t enjoy the sales/promotional part of the job and would much rather be actually researching companies and industry trends rather than talking to clients/investors and saying the same thing that I’ve already told 5-10 other clients. Don’t enjoy the marketing aspect of ER

Have wanted to make the switch to buyside and have that reward potential based on performance and actually get paid for my research/calls. But had decent upward mobility at current firm and never was proactive about making the switch. Would I be crazy to take the offer now and make the switch from the cushy ER lead analyst spot for a risky analyst role at a MM?

 
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Senior seats on the sellside are rare and can be incredibly lucrative even at non-bulges -- I know for a fact that there are senior analysts at the likes of Raymond James, Jefferies, and Stifel who are pulling in seven-figures.

Buyside seats, especially at MM HFs, are remarkably plentiful, and this doesn't sound like an especially good one -- you have a new PM (always an incredibly high risk prospect) who wants you to take responsibility for a good amount of gross while he focuses on learning the ropes of managing risk. In addition, that base salary for a sr analyst at a MM indicates this probably isn't MLP or Citadel -- while places like Cinctive or Exoduspoint are perfectly good places to work, you are looking out from a top sellside seat and that opportunity cost is hard to look past especially in this environment for L/S.

In order for an analyst to make career-justifiying money, your ideas have to generate PnL, your sector has to be incrementally investable, and your team has to make money. Here are a number of ways this could go wrong in the near-term w/o fully blowing up: 

1) Your PM runs the book smart. However, you have a difficult time parlaying buy ratings and top 3 ideas into a multi-manager set-up. Your smart friends all seem to pitch the same ideas and you tend to agree with them. But in late November, one of your top positions blows up and you find yourself spending your year-end review how the print met the bar, coincidentally the Street consensus number. You walk out of the year-end w/ a $50k check and ask a former competitor for the number of the DoR at Seaport Global.

2) Your PM runs the book smart. You guys largely avoid the crowding factor and show high idio, but non-fundamental issues drown out any idiosyncratic stories in your sector (regulatory issues, macro concerns, take your pick). You walk out of the year-end w/ a $100k bonus and the PM agree that next year that the book will come out swinging. Maybe even bet on a factor.

3) Your PM comes out swinging, and bets on a factor. Things go great at first, but in September he gets caught on the wrong side of a rotation and the book draws 350bps and you lose the entire YTD of PnL and some. Eyebrows singed, he spends the rest of the year running so tight and not sizing your conviction names. Maybe he blames you, maybe he doesn't. You walk out of the year-end w/ a $50k check and ask a former competitor for the number of the DoR at Seaport Global.

I've seen plenty of perfectly good buyside colleagues trade risk-taking seats to be junior sellside analysts -- your seat sounds like perfectly good sellside seat from which to build a business. I think another question you should ask yourself here is if your sellside franchise has any weaknesses (i.e. low sector interest, subpar stockpicking, too high level of a view) that could prohibit successful execution in a buyside seat.

Big4 Audit --> TMT L/S
 

I would add that in my personal opinion, moving back to the sell-side would be quite easy. If your interest really lies with the buy-side, I think it's worth the risk. Just perhaps not for this particular role and this pay cut. At the end of the day if you can't see yourself staying on the sell-side forever, then don't stay. 

 

Yea I agree about moving back if needed. Regarding the pay cut, base salaries are fairly standard to be somewhat lower at MM HF relative to sellside as far as I understand. You make your true comp from the discretionary bonus based on how the book+you performed. But realistically speaking, I would assume it would be a pay cut in the near term until I get my own carve out (even then could be a pay cut) or unless we crush it which is certainly not a guarantee. Really tough to say because its all dictated by performance and your PM.
 

 

Really appreciate your reply and insights.

Do you have any insights into what a typical sleeve would look like for an analyst? For example if book is $500m starting out and maybe its gets sized up to $750 million - $1 billion. What type of sleeve could one expect if the performance was there? Are we talking just 100-200m and then having only 5% of PnL off it? Because that doesn't sound too exciting unless you absolutely crush it which is by no means a given obviously... I would assume an analyst would also still get a discretionary pay out on the PM's 15% PnL of total book in addition to his/her sleeve but not sure if that is correct?

Regarding my sellside franchise, I run it more focused for the MM L/S's. I have the top broker votes on the street in my sector from them. Typically focused on relative calls rather than broad/high level view on the sector. So from that standpoint, it already matches the way I view investment calls in a sense (obvious with some caveats as it's much easier to quickly change a view in the very near-term on certain read throughs that come out on the buyside relative to the sellside given published views). So from this standpoint, I feel like I'm getting to the point where actually doing more work to make accurate calls won't get me paid more and its not worth it to me then... What will get me paid more and to the levels you mentioned (seven figures, etc.) is becoming much more promotional, driving more call volume with clients and increasing marketing which isn't really what I enjoy but is frankly much more important to sellside research than your actual stock calls. That said, I would be somewhat content making less than those top analysts and just continue doing what I am doing without the increased promotional aspect...Just think I would enjoy the work more on the buyside given the reward for performance and don't want to live with a regret that I never gave it a shot. But tough decision given the opportunity cost and cushy WLB I currently have so trying to weigh everything and gain insights from those with experience.

 

This seat sounds like it has some red flags, namely a new PM who seems to be undervaluing your experience. If you are truly making close to 500k on the sellside there's no way your expected comp for your first two years in a HF seat should be lower than that. I would expect to pay a minimum of your previous earnings as a guarantee to get you to make the leap and offer economics that allow you to make 1.5-2x in a good year in order for you to leave your admittedly "cushy" job. If their budget doesn't allow for that they need to offer sufficient equity-like upside to get you to make the move, namely economics on a sleeve day 1.

 

No good answer here on the sleeve. Really, there are never hard and fast rules on what a sleeve means. Are you a mini-PM running a book, able to reject capital or scale? Are you a senior analyst at a single-manager w/ positions tagged to your name? What risk parameters do you have, and how do you interact with those of your PM? Dozens of ways this 

What you really seem to want here is a shot at putting your ideas to work. I don't think there is enough language ensuring you'll have that opportunity here.

Big4 Audit --> TMT L/S
 

Truly, a tough one. Since as mentioned by others you were never the right fit for this role, discussions should have ended a while ago. 
Only possible conclusion could be is that the PM has all the goods (was sub-PM, strong resume etc..) possibly left a strong pod to take a leap of faith and wants a strong #2 to take that leap with them. If so, they believe pod performs well upside is big, that all said that needs to go into writing.

 

Genuinely curious what you mean by me never being the right fit for the role? Is it just cause of the differences in comp expectations or something else?

PM has pretty decent resume and came from a top pod previously. He covers the subsector adjacent to mine and so from a scaling perspective he wants someone with subsector experience in the one I currently cover. So I do think the scenario you laid out is kind of what the hope would be if I were to take the role. Obviously definitely a risk given he is still a new PM. But I struggle to see how a better opportunity would come along for me and kind of view this as the make or break it in terms of me moving to the buyside if I want... Maybe I am wrong here? For example if its an established PM, then he probably already has his team in place. Also would think an established PM/team already has their hierarchy in place and wouldn't be looking for a more senior analyst to come in. Further, if I do make the transition to buyside then I would want to start by covering the subsector I currently cover and so from that perspective this limits me as well.

 

Also would think an established PM/team already has their hierarchy in place and wouldn't be looking for a more senior analyst to come in.

Employees usually have a non-compete / non-solicit with the firm. When PMs get poached they usually have to start with a new team as their old team can't move over with them (at least not for a while). Or the team doesn't want to move over because they may get a shot at running the book at the old firm. So there are definitely established PMs out there that are looking for a new #2, no reason to settle for one just making the jump from Sr. Analyst (unless they were at a Citadel where Sr. Analyst is almost a real PM).

 

I always say that base salary doesn't matter, but offering you $150k and the half-promise of a sleeve in a year is massively inconsistent. 24-yr olds get $150k base these days.

It wasn't clear to me whether you meant the PM is new to this fund, or whether it's his first go at being a PM anywhere. If it's the latter, avoid at all costs, and would explain the paltry salary he's offering.

 

I disagree. Maybe when you're super young...but even then. To me a low base means the firm is cheap, sets a bad tone, bad culture. Paying someone 25-75k more a year isn't that big a deal and if it is then the firm isn't really a sustainable operating entity. This is more pronounced the older you get and have real expenses like a mortgage or kids. It makes life so much more stressful waiting for a once a year windfall when your salary is low. 

 

I was told that all analysts have the same base at this MM regardless of experience considering total comp is driven mostly by bonus. Frankly not sure how accurate this is or not but I thought this was somewhat standard across MM platforms (ie. lower bases relative to sellside with bonus the driving force).

It's actually both lol... PM was poached from another top pod. New to this fund and new as PM. Certainly agree that's a major risk. Though like I said in another reply, not sure how a better opportunity would come about if I truly wanted to make the switch. An established PM likely has his team/hierarchy in place already I would assume. I also would want to cover my subsector that I currently cover already and its not the largest out there by any means so not too many seats available. Edited to tag MMPM as I meant to make this a reply to you.

 

Great info. Correct, PM should know roughly what your salary/comp was and getting you would not be easy. 
Besides that seems pretty much what I described, top sub-PM poached, sector specialist wants the best guy in the sector to jump off a building with him.

Sleeve should be 20%-30% of overall pod size. Sleeve pod math should be basically slightly less than pod math (5% is a joke). 
Now, why would the PM be as generous?

1) He has someone to hit the ground running in a sector he believes in and yet does not have the time to learn. This allows to grow his pod faster and make sure he can have a 3-5 year plan after year1.

2) He gets a “management fee” over time from someone considers could be his equal or close to. Plus very likely he will take your best ideas and size them up anyways (afterall till you have a team below you, you are the analyst).

Someone with your background is typically hired by a well experienced PM with deep pockets, who wants the best sector person with the best ideas. Hired gun, many call them. Hired guns get paid a lot but pod COOs sometimes enjoy life better.

 

I'm at a SM, not MM, so discount my advice appropriately because I have no ability to assess the riskiness of this seat. However, does it really matter if the seat comes with above average risk? If it is easy to return to SS ER as you said, then why not take the HF opp while you're still relatively young and see if you like it? If you hate it or find that you think that SS ER is a better longer term career option, I feel that this is the time to figure it out. Otherwise, if you pass on this opportunity, then I feel like you will always wonder what could have been. Plus, it's better to take this risk while you are in your early 30s, as opposed to late 30s / early 40s -- i.e., if it's a hard decision now, it will only become exponentially harder when you get older.  

 

It might be tough to get hired directly back into an analyst role and getting back there will require some politics which is potentially annoying. Might have to take another paycut to VP maybe? Someone can correct me if I’m wrong. 

Not saying I have an opinion one way or another - quite a tough situation. Maybe for a more established platform or SM I’d be more willing to take the jump. Seen people play musical chairs in platform seats and it seems taxing to have all that stress + minimal bonuses for years on end. 

 

Does not seem worth it to me 

As others have mentioned, you have a great seat. I don't think getting back to a sell-side role will be as easy as you think, only because there are so few head analyst seats across banks, and once there, people generally don't leave

What I don't understand is: if you really want to do this, why not try for a senior analyst seat with an established PM at another (or even same) MM? 

Just makes no sense to me to take so much career and personal financial risk to see how it goes with a new PM 

 

You should be getting a first year total comp guarantee of around $500K. I would be absolutely sure to negotiate that as a starting pt. High likelihood you or your pod gets blown out in y1 and it'll be pretty devastating walking away from a cushy gig to get fired and only getting 150k or Less in base pay

Second, I would think long and hard about whether you really want the high stress MM lifestyle. Sellside is a pretty good gig and you can make very healthy steady cash flow

 

I don't think it's possible to avoid having a salary cut while moving from senior SS analyst to junior buy-side analyst.

It would be a bit easy and the risk-reward for the firm is unfavorable.

 

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