Hedge Funds still a "Tier 1" career?
I'm an intellectually curious kid and have worked across a bunch of industries in my career, which includes a few years as an L/S Analyst at one of the smaller US pod shops (aka, not Citadel / MLP / P72 ...). My takeaway has been that the HF career is overhyped. Perception seems vastly disconnected from reality. Please challenge my thinking!
Pros:
- Prestige. Women (and your friends) will assume that you must be making lots of dollars, even if they're in high paying careers themselves and possibly made more than you last year. Lol.
- Largely intellectually stimulating work (there are exceptions ...), almost no politics, low bullshit tolerance (there are exceptions ...).
- In theory, lots of potential upside.
Cons — Compensation:
- Over a career, my sense is that the expected value of comp is below Software Engineering, Strategy Consulting, or even Banking. Analyst 7-digit bonuses don't seem very common, and very few people end up becoming successful PMs. I know more people who left the industry before making $500k in a year, and who had several years without a bonus.
- "Low" base salaries ($175-225k) ... so you never really know how much you can spend. In consulting or tech you know that you're getting paid your $500k-$1M+, in the absence of acts of god.
- Benefits suck (insurance, 401k match, company events, travel policies less generous than in client service, perks).
- Low average tenures, yet overly competitive job market... people spend a significant portion of their careers looking for their next seat. Contractual terms are hostile to employees (especially the non-competes and deferred bonuses).
Cons — Nature of work:
- There is more luck involved than people like to admit. Yet, somehow everyone looks at their short-term track records and thinks they are geniuses. Aren't we too smart for that?
- Lots of repetitive work that could be automated with some technology investment. But people all come from banking and don't even realize there's a problem. The investment process hasn't changed much in decades.
Cons — Culture:
- PMs have a terrible WLB (can never take a full week off unless fired, international travel is very difficult, etc.)
- No culture, no true incentives to collaborate and socialize with anyone besides your PM. Everyone has the same cookie cutter background, which can feel monotonous and boring. Analysts are isolated from most of the rest of the firm.
- As an analyst, you are not valued by the firm and have little control over your career. Management only talks to your PM when shit hits the fan.
- At most firms, there is no structured path to PM, no formal mentorship & coaching. And PMs are swamped and may have never learned how to manage/develop people.
Cons — Other:
- You become a magnet for gold diggers who don't know yet what e.g. senior SWEs can make.
Everything you said is accurate - that said the right tails in HF land are way fatter than anything you could find in other industries which is why it continues to attract talent. Also your experience at a non-tier 1 platform isn't a good point of reference..
This is the type of push-back that I'm looking for. How do you think the experience would have been different at Citadel / MLP / ...?
I think it doesn't change the median outcome but it certainly affects the mean outcome.. when you are at a top 3 platform and the guy next to you is printing 200 bucks (instead of 5-10m at the shty platforms) it keeps you motivated to keep grinding
Doing a startup and succeeding by far has the longest tail - cursor is 2.5B in 2 years
agree and is the path I respect the most - but that is the rightest of the right tails with significant technological barriers to entry for founders. Most anyone with an average IQ can do well in HF world with the right PM and some luck, not many people can create industry changing tech solutions that compete with Microsoft (GitHub)
i think what you said is all true. would push back on the "prestige" part a bit, though. Unless you're in a finance hub people will maybe have only heard of Citadel. Introduce yourself as an analyst at [xyz Capital] and people will have no clue what the heck you do or be impressed, even if XYX Capital is MLP and you run a carve.
Yes, I had that in version 1 of my post, but then removed some of the details to make it more succinct. I agree, the prestige factor works much better in NYC than in some woke Californian town, where everyone else is an influencer. In NYC you just have to say "HF Analyst" and people will understand that, and many won't even care much which firm.
Well duh who the fuck wouldn’t just say millennium to laymen. I don’t even think half the ppl on this forum know all the random =1B pods
loved it. start a podcast like the hawk tuah and report back with a similar structure. Curious to hear the pros, cons, and how overhyped it is (looking fwd especially to hear the pump and dump IPO on shittycoins, would say it's pro, but kinda con if SEC takes a look) thx
You need to sleep more.
For better or for worse, hedge funds will always be the "highest" of high finance. It's just that there's a lot of dispersion now when considering the variety of strategies and how a good few seats aren't very good.
And which strategies / seats are "good" changes randomly each year, given the industry is so short-sighted.
I think the only flaw here is thinking a tier 3 hedge fund is a tier 1 career (prestige and comp wise).
Obviously that’s not the case
Same question I asked above... why can the "Tier 1" places comp better, and do they really?
In the end, comp is a function of P&L, and P&L is mostly driven by PM talent. Why do the top PMs strictly prefer Tier 1 places, when those often mean more risk controls / less freedom / tighter monitoring / less alpha attribution / lower payouts / etc.?
Much, much higher comp is a function of PnL, which is a function of PM talent, yes, but also book size. Much easier to put up $100m of PnL and get paid $10m+ as a PM running $2-3bn of GMV at a tier 1 platform that can pay a PM 15-20% of PnL than at a tier 3 shop where the average PM runs $200-300m...
The best talent flock to the tier 1 shops, obviously.
selection bias too
Yeah I strongly disagree and think the biggest issue here is your assumption that tier 3 hedge fund = tier 1 career. Definitionally that’s just wrong. Tier 1 HFs are obviously a tier 1 career by any metric. Tier 3 HFs? Not sure…
I grew up in poverty; this career has changed my life / my parent’s life. What other career can a 29 year old make $4m? What other career can someone get an NBA size contract to switch firms?
And who is saying tier 1 HFs are not prestigious, and broadly speaking, who cares?
-
Also:
- Nature of the work: if you think this job is repetitive, maybe that’s the issue. If you have the same process you had 5 years ago, then maybe that’s the issue. If you’re not an expert on your coverage and tracking every single change / trend in your coverage, you’re doing something wrong. There’s always something and it’s never slow
- Hours / lifestyle: yeah, earnings aren’t easy time wise. But outside of that, it’s not that bad. I have pretty reasonable hours. Spend tons of time with my wife and outside the office. Go to the gym and hang out with friends multiple times a week. Only thing is your always thinking about the book - if you’re passionate about this job, then that’s not a bad thing
- I collaborate / socialize with tons of other guys at my fund, other funds, industry experts, sell side contacts, VCs / PE people, IR etc. Multiple times a day
- At tier 1 shops, there is absolutely a path to PM
Re/ "repetitive work": I'm talking about the fact that fundamental folks rarely know how to write code or automate basic tasks. People just don't question whether they should be doing certain things manually, because banking taught them that working dumb & copy pasting between PDF and Excel all day is the way to go.
Also, if the industry spends half of their day in Excel, why has nobody ever thought about replacing Excel with something more structured and less fragile? An issue at pods is certainly that major infrastructure/tech investments can't be justified, unless they happen at a firm level. Also, Finance bros seem more resistant to change than e.g. Tech bros. You can't even raise these types of questions without getting awkward looks.
Re/ "lifestyle": Hours worked are certainly less of an issue than in consulting or banking, also because the HF job feels less like "busy work" (no stupid client/partner/MD requests). But I was specifically referring to the fact that you can never take 1-2 weeks off as a PM, unless you get fired. You guys don't want to see the world?
Re/ "collaboration": Great, you work at a firm with a more collaborative culture. But big firm doesn't guarantee that. E.g., Citadel culture is probably much more collaborative than MLP culture.
Re/ "path to PM": Agreed, at 3-4 firms in the world there is a structured path.
Are you implying you made 4m at 29 or are you just citing some top %ile outcome?
Expected value is mean not median. Accounting for the right tails, if you're looking at earnings / year employed, the other paths you listed are not even close (unless you count founder/ceo as "software engineering"). It seems odd to penalize something as not "Tier 1" because it is hard to get and hard to keep? Someone had a good post earlier about the efficiency of job markets, the best jobs are the hardest to survive in, there is no free lunch.
And if you do have to dropout, all 3 above are still available options with a pivot, along with many others.
IMO hedge funds are one of the few fields where the correlation of wealth and skill is the highest (would put professional sports and a few other professions in this category) vs. most other careers wealth is heavily correlated to founding luck and/or politics.
I agree with your post unlike many others here. I work at a Tier 1 big 4 HF and the outcome at a Tier 3 is not that different.
However, the ones who have tasted the fat tails at a tier 1 would likely disagree with your post, but I would discount their opinion.
Prestige whoring on this site is on another level
I’d rather be the sole analyst under a PM and get direct mentorship rather than the 8th junior on a team who is a pure model monkey.
The 8th junior objectively will have a much likelier chance of lasting in the industry given he/she must be working for a pretty baller PM with a long-term track record to have such a massive team. Likely outcomes from there vs. a single shingle new PM with no proven track record seems much higher.
I'd expect you to get a bit of pushback on this topic given it's in the HF forum, but I agree. You really have to be in love with stock picking/winning to stay in a good seat. I'm actively looking to exit an objectively decent seat but being at a HF for a few years doesn't "lead" to any good exits. IB/PE/VC can all lead you to some pretty interesting/diverse roles in, or outside of investing. It's really not a thing for hedge funds– there's no natural next step. It's not just a job like PE and IB, you have to love it. Also fwiw, so many of these people on the buyside have rich parents so it's not a big deal for them to get zeroed on a bonus for a year. They are unlikely to tell you that, as well as the multiple people at pods who get shit pay. To those who love it/make it work, hats off to you, it's really a grind!
Agree on the exit opps part ... before the buyside, I received a very diverse mix of headhunter inbounds ... now it's 99% HF analyst roles.
yup... and no one tells you this going into it. Everyone knows that the career can be quite volatile but very few point out the lack of optionality once you're in a seat. When asked about exit ops on this site, the answer is always "HF is the exit opp"... never that another HF seat is the likely next gig for most the minute they take a seat haha. An interesting anecdote I will say, is that in my non-HF interviews the vast majority of questions pertain to why I want to leave my seat. Everyone already assumes you're pretty smart so interviews are more conversational than technical (little do they know we don't actually know how to do much lol). Or then they'll ask about the market which is always a breeze because almost any non-investor doesn't know the general market better than you do
I think it makes sense that you receive mostly HF roles. People in IB generally wants to leave to PE, HFs, etc, so recruiters will reach out with those roles. People in PE wants to leave maybe to corporate gigs or PE, so they will get those roles. I mean, IB, PE and other jobs are taken as a stepping stone to something else, many people in those roles are looking to exit. However, that is not usually the case in HF. While some ppl will get burned or dislike it and want to exit at some point, it is not like IB where most people wants out, there is a selection bias there. So recruiters will approach with the roles that make sense for people in your position.
I think the question is... if you proactively went to recrutiers and asked for roles in XYZ, could you still recruit for those roles? I don't think many companies would "veto" ppl coming from hedge funds. Maybe you would have to craft your story and do some more work to get the opportunities coming, but I think the exits could be there. But I have not been in that position, so I don't really know, so would appreciate anyone's thoughts
HF business is very different than it used to be.
Used to be the case that you could go work at any of a dozens of funds and they were jobs on par with MF PE.
The industry has really come under pressure and tons of storied shops have shut down like there was an earth quake knocking all the baubles off the book shelf. There’s just not that many really high quality stable shops out there any more. The game has gotten crazy hard.
Perry Capital, Greenlight, Eton Park, Maverick, OchZiff, Soros, Jana, Glenview… that’s spending 30 seconds remembering $5-10-20bn panty dropper HFs (mostly) run by (at the time) complete fucking wizards that ended up evaporating into thin air.
Now there’s prob 5-10 elite SMs funds where you could go work if a seat ever fucking opened up (Pershing, Viking, ValueAct) and then Citadel and Millennium.
Im sure people will shit in this post and cry about how I’m a PE Principal (according to the gospel WSO user title) so I know nothing, but above is the truth. Maybe bruises some egos, but thems the facts
One would assume a PE principal would be clued up to the good players given they'd probably have wanted to escape PE hell at some point /s
Sour grapes from someone who’s an “incoming telegraph operator”.
Also it’s exceedingly easy to move to HF from a legit PE firm, so most people have at least half considered it as a path after their associate programs. And a fair amount of given it real consideration if they had the benefit of a b-school break.
The reality is unless you were hellbent on HF since HS/College and did PE as a means to an end, next to one is making that jump if they have real high quality PE options available unless they somehow landed a spot at Pershing or ValueAct etc.
There are a small few folks who left mainstream PE for the HF world and they’ve almost exclusively lived to regret it. It’s not a 2-way door so you don’t get to take a Mulligan and go back to PE.
Being a HF monkey at a single manager fund that at best is going to blow up and shut down inside of 2-3 years or being an animal at a pod shop is no way to make a living, son. Clip your finger nails and go get a haircut.
PE is objectively a better job. It’s mostly based on social climbing which is pretty easy given u come from the right background and family. Also, if you’re a diversity guy or gal from not exactly the right background u can make a very solid living without rly performing at all. I’m pretty sure you have a legit shoe in to VP in a few yrs if you’re a woman or diverse and u can prob pull ~700k (low end) plus risk free. So yeah you’re not making partner but if you really were more ambitious than that you wouldn’t be in PE. The industry literally generates no alpha, you’re just getting analed every few years the IPO markets are dead and playing hot potato with your portcos. Look at any academic paper on the matter. Studies done every which way will tell you the same story on alpha generated VC>HF>>>PE (usually negative risk adjusted returns industry-wide). It’s not like you can sit on the billions in your fund like warren. They have to be invested even when the market is overheated. HF you have to be rly good, get lucky, and/or cheat. That is If you want a good career outcome like 10m plus NW in a few years. I’d argue prop trading is the best finance career but that’s also getting worse compared to the glory OMM days 10-15 yrs ago. I think it’s fairly easy to succeed if you get a spot at one of those places with really robust infrastructure and back office, but sadly I was never really crushing math olympiads.
Anyone that compares returns between VC, HF, and PE is likely conducting academic research for the DailyMail.
HF returns are clearly the worst of the bunch.
VC and PE returns are broadly comparable, but with way more dispersion within VC.
What might the 5-10 SMs be?
***
Tbh just sounds like you had a bad year. The business has its challenges, just like any other, but these issues have always existed. No need to overintellectualize this. Just need to learn from your mistakes and get back on the wagon next year. Cheers.
Security analysis is a skillset that pays $300-500k at best. For any numbers above that, you need to take some form of entrepreneurial risk/own equity (running a carve out, being a PM/partner, etc.) That being said, I don't really care whether its tier 1 or 5 and would happily take that $400k to pick stocks or bonds all day long. Doesn't sound like a bad base case for the average peeps..
Just not true. Half the investment team at LOs are doing well in excess of $500 (between PMs and sn analysts)…it’s insane how out of the loop half this forum is. Most juniors I know at LOs (26-30 yrs old) are making $300+ whether in equities or credit.
And that’s the floor. HF is higher.
One man’s thoughts:
1. When I left my last (and first) HF post after 20 years as a Partner/PM, a fellow HF retiree told me ‘you will probably be surprised to find that the average person holds trash collectors in rather higher esteem than hedge fund managers.’ This has proven to be true. Do not go into the field for ‘prestige’.
2. From what youve written, and the way you’ve written it, it seems fairly obvious that the path isn’t a great fit for what you’re seeking in life. There is no problem with this. It is a niche, and a demanding one, that very definitely does not suit everyone. Believe me, that puts you nearer to being a normal person and you should be glad of that.
Do your thing, your way, and don’t worry about the gloves that don’t fit. You will be much more successful, and far happier.
Good luck!
I (senior HF PM) agree with your broader points but I would like to add a different perspective on “prestige.” Being a HF (or for that matter PE) manager is not highly regarded by the average person from a “moral” perspective. But most people in finance care about “prestige” in the sense of “do people think I have outcompeted others in my career” and “would they prefer to be me.” And I think the answer to the latter questions is YES. Surveys show that people hold firefighters, nurses and caregivers in high esteem, but in reality, would they really rather do those jobs than be rich / powerful / famous? I doubt it. To me, prestige means other people envy you. Envy must be earned, words of appreciation are cheap.
Fair enough. There’s no doubt that succeeding, or even remaining, in a HF seat for many years, is a matter of outcompeting many others. This does in certain circles give one bragging rights I suppose.
I’m just saying the folks who arrive motivated by prestige seeking (however defined) might well find themselves outcompeted.
Put differently , if anyone asked me any of the above questions during an interview process I would probably not hire them. Would you?
No wonder I find everyone in finance so stupid and insufferable I never realized they genuinely think think this way
And out of curiosity, who is that you envy or "would have prefer to be"?
1. I think it's different in NYC. But maybe you are in NYC and I'm wrong.
2. What were you seeking in life that made it the right path for you?
Not sure what you mean in #1; I've lived and worked in LA, NY, and London (and spent a lot of time working in Canada, Mexico, Brazil, and most of Europe) and have had pretty much the same experience everywhere.
As for #2, constant learning and never being bored, along with the general quality of people around, were quickly attractive enough to keep me on the path.
So you work at Baly...
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