Howdy WSO,
I am about halfway through the interview process with a HF. I currently work in sell-side ER with almost a year under my belt. I have 5 years of other work experience mainly focused in FP&A (in the sector I now cover), so 6 YOE total.
The principal/owner of a hedge fund reached out to me directly about a month after I had done a few calls with one of his other partners on the sector I cover. I did two rounds of interviews and then told him now is not the right time for me to make a move as I had just moved across the country and still felt like I was learning a lot at my current job but maybe in a year it would be a better time. He then goes into talking about general details of the comp package. It would be a similar base to where I am now with a bonus that is dependent on the fund's performance, but could be multiples of the base salary (so way more upside to my current comp). This seems like a fairly standard package structure for someone's 1st buy-side gig (from the little that I know about the buy-side). He also mentioned I would get "units" in the fund (didn't get into specifics), but that aspect seems pretty compelling.
Is getting units in a fund a compelling part of the comp package (keeping in mind this would be my first HF gig)? Would I be foolish to turn down an offer like this at this stage in my career? I have a suspicion I would be waiting awhile for another opportunity like this to turn up. The fund is relatively new (<5 years, but owner has ~20 yrs experience at another well-performing HF), has ~$300M AUM, sector-specific investment mandate, and has outperformed its index each year so far.
There isn’t a standard definition of what a “unit” is in the HF space so no one here will be able to give you a good answer. It sounds like it is a share of profits or similar. I’d ask for clarification (is it equity? Share of profits? Do you keep it as long as you are employed? Do you get more as you continue working there? Is there a vesting schedule? How does the payout work?). Depending on what it is, then you can figure out how good of a deal it is (also clarify if it’s % of profits or performance fees and try and get a sense of what fees they charge). A $300mm fund is not big, so also try to understand why they haven’t scaled, what their plans are for this, etc as that’ll also impact the value of these “units”.
Thanks for the response. Definitely going to get more specifics on what a "unit" is after the next interview round. What I was more trying to get at was, would any other funds even be including units in an offer to a person with my background?
The fund is relatively new and sector-focused and from what I've heard it's hard to raise money without a longer track record. They have said they plan get more assets coming in during '23 following good performance in '22.
No it isn’t common, although smaller (and generally newer) funds will do it as a way to compensate for the risk you are taking. Basically, come help build this fund, if it works out you’ll have a lot of money.
It is a bit surprising with your background though (no offense), in that it just doesn’t seem like a background that would add value right away (without training, etc).
Sounds like the are being fair and reasonable. Just discount the hell out of any expected fundraising. Promises of capital are not capital until the hit the feeder.
But sounds like a good opportunity to learn and see this side of the business. Think hard about to adjust - it’s a very hard thing to transition successfully to this job
As a warning, fund units are usually just GP allocations transferred at the end of the year. That is, getting your bonus invested into the fund, not a GP stake. It is usually worth the same as the cash value of the bonus when subject to the fund's most liquid gate (sometimes it is subject to a deferral, where it is worth cents on the dollar, especially if you are taxed up front), unless you think getting the opportunity to invest in the fund is special.
Usually equity in the GP will be advertised as a "GP stake" or "points in the GP".
If 300m is total AuM and there is more than 2 partners already, very risk undertaking. Check the LP structure, too.
Two things, one other responder probably touched on the "unit" thing as well but mind you "units" assuming it's in performance-based or PnL driven metrics only matter if the fund is up, not relatively outperforming. Outperforming an index can mean the PM could/should/perhaps would pay you out additional discretionary $ bonus, but "units" as far as I understand broadly mean share in PnL (in this example it doesn't matter if it's profits or performance fees). Just something to be wary of given 2022 was a difficult environment and tons of SMs were down even while o/p. Can't speak to scaling as the capital raise environment is a bit of a sh*tshow in my opinion.
From an outright job perspective, if you had gone to ER with the intention of one day becoming an investor I think this offer is too good to pass up. You're a bit further down the road in your career and I think the core time for "learning the most" is years 1-5. You clearly know how to analyze stocks if you've been in an ER seat for 12 months and PM's are already trying to hire you. It's more a function of if you want to - the buyside gigs will largely always be there in differing capacities. I think this opportunity sounds quite unique and a great launchpad should you want to become an investor. The learning curve will be inherently steeper (and therefore better) at this shop as you're part of a team that's risking capital/making investment decisions, whereas ER will solely teach you the basics of fundamental analysis and sector coverage. You get all the perks of what you'd likely continue to learn in ER but now put to the test in what's likely to be a pretty flat environment.
Do you have to move again for the job?
Thank you for your input. I moved from one coast to another to take the ER job. I would not have to move from my current location to take the new opportunity. My mentality when taking the ER job was to get my foot in the door in the investing business (broadly speaking). I do have an interest in the buy-side, but imagined it would take me longer to get there. I thought I could take ~2 years to evaluate if the city is somewhere I want to be, learn a bit more about the markets, and then start plotting a more defined approach to my career (and life). After being in the role for a little less than a year, I do feel torn on if this city is where I want to be long term. So the struggle is do I go with:
A) Commit to this buy-side offer, which seems like it would get me up the buy-side ladder pretty quickly and is where I ultimately was envisioning myself career-wise, but also means I'm committing to living in this city for the long-term.
or
B) Pass on the opportunity, stay in ER for another year or two, and then plot my buy-side search more deliberately (knowing the offers will likely be structured differently).
Consequatur quia perspiciatis porro inventore vel. Aut et excepturi consequuntur maiores omnis non quia.
Eius iusto unde perferendis magni hic. Non aut nobis laboriosam ea dolor et. Repellendus debitis accusamus laboriosam quia. Sit voluptas excepturi quia ea. Sunt ipsum harum expedita dolore modi eveniet. Laudantium est beatae soluta eum.
Alias vitae voluptatem ea sunt illum. Qui omnis accusamus ut aut expedita perferendis. Eos delectus qui exercitationem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...