Evaluating HF Offer Out Of Undergrad
I just got an offer at a very small HF (200mm AUM, 2 analysts and 1 PM ). How should I go about evaluating the firm? The founder went to a top school and worked in a variety of buy side roles at a few large household name firms, so he appears to have the pedigree. Firm was started 5-10 years ago so my guess is that part of the reason AUM is so low is because the firm is somewhat new. I know this does not look as good as starting at a MM or doing IB, but I don’t really care too much about “prestige” or pay right out of school, all I really want is a job that’ll allow me to be an investor in a style I enjoy. Also, I know starting here is a risk but I figured worst case is I either jump to a different small fund or just do IB as a reset. Edit: Not looking for a “you should take it” or “don’t take it” response but rather how I should go about evaluating the firm. I know performance is probably the main thing to look at but I assume there are other factors beyond raw performance.
The absolute best thing you can do is reach out to prior analysts on LinkedIn to diligence the firm / PM.
“Just do IB as a reset” is easier said than done, amigo. If you didn’t get an IB job out of undergrad, it’s gonna be a lot harder to break in without a top MBA, especially from a no name fund.
The most important things would be how much you like/Can learn from the PM, and how the economics of the fund are broken out. Considering there’s only a couple employees, the interviews should be a two way street with you getting to know the firm, culture, and personality of the PM and what his style is.
2016 isn’t that new. $150 million after 7 years is a bit of a red flag for ability to scale.
Exactly! Most funds of this age should be into the billions. Bain will seed new funds with $50-$100m to start.
I don't understand how it isn't as "prestigious" as joining IB in NYC. If your goal is to be in hedge funds, starting out of UG should be a great step forward. I think it's more of what you make of the opportunity. No name fund or not, your work is just as viable...
Small funds like this often discount fees in order to attract money. Then say $50m of the $150m might be founder's money paying zero fees, etc. So, blended, they might be getting 1% mgmt fee and definitely below 20% performance.
I would also ask about investor concentration.. if you have say only 2 big investors accounting for 80% of the capital, the moment one of them decides to pull out for whatever the reason, it might be lights out for the fund.
I would strongly advise against this. Start in Equity Research or Investment Banking, switch after a year if you hate it, otherwise wait two years and you'll be set to join a decent fund. Obviously this would be contingent on you knowing your stuff and working at a at top 10 or so shop. I highly recommend that you do not join a hedge fund that manages less than $400mn, and even below $1bn I would be very picky and focus on fit and most importantly the funds AUM trend. The reason you want to stay away from funds under $400mn, aside from the economics that someone else already mentioned, is that large funds see this almost as you self selecting into something 'inferior'. Whether it is warranted or not, you have to imagine that for example P72 receives hundreds of applications for each open position. Are they going to interview one of the 200 JPM, GS, BofA, Citadel etc... candidates, or are they going to look at the guy from 5th Street capital that manages $200mn? Also between IB and research, there really aren't as many transferrable skills as you would think.
Think the above is correct. Most HFs default to hiring folks with a linear path from recognizable places, even if your acquired skill set is perhaps more relevant by starting directly on the buyside at a small firm. Speaking from my own experience. (Although, would caveat that I've seen many successful buysiders start their career at unknown shops.)
But, at the end of the day, you will check certain boxes of perceived competence and training by coming from well known institutions (e.g., Goldman, JPM, MS). Your resume will make it past more HR folks who default to heuristics of familiarity and "pedigree". Think you'll find that if you gather a couple familiar names early on that resume, you'll optimize your LT optionality and marketability.
A small shop like that has a lot of downside risk. They're likely hiring from undergrad so they can underpay you (likely out of necessity given AUM) and there is real risk that you may not have a job if your fund fails. If this were a start-up fund with a well known PM/founder that is just getting going, it maybe worth taking the flyer to get in on the ground floor.
Best of luck.
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