HF Distribution of outcomes - by mid-30s
Posting bc trying to think through the risk/reward of a HF career (specifically L/S) vs BB/EB IB and PE/private credit
For someone who is an IB analyst entering a $bn+ SM or traditional MM platform, what is the range of outcomes you have seen in their career by mid-30s or early 40s? It seems like there are huge variations and way more than PE.
Asking because you hear stories of people like Dan Sundheim becoming CIO of Viking by the early 30s, but way more stories of people moving from firm to firm, getting fired after 1-2 bad calls and never having a real career/skills by 30s, after which they are pushed out of the industry into a corporate or IR role when they could have been a VP/SVP at that corporate had they just gone there direct out of banking. Obviously the former case is a 0.00001% scenario, but does anyone have a range of success vs. non-success stories in HF and how that risk/reward compares to traditional IB/PE?
Range is as you mentioned - Unemployed to Billionaire. The modal outcome in your 30s (10 years in) is likely being a Senior Analyst at a SM with AUM in the $500M-$1B range making $1-2M in a good year and $200-400k in a down year. You’ve likely had a couple really good years, a couple of down years and years in between grinding over high water marks and are probably on your second or third HF by now. Not much upward mobility from this level and are contemplating staying or leaving to take a swing at a MM PM role.
On the MM side you likely will have gone through 2-4 MM seats at various levels of seniority and seen multiple blowups as an analyst while making $150-$700K and are at the PM level. You are probably on your second attempt after having two good years ($2-3M) as a PM at your first shop before hitting a drawdown limit and now are on a first year guarantee at your second (and final?) shot at being a PM.
If this all sounds scary to you, don’t worry! The perceived stability of PE is nothing but longer lockups on capital that was placed during an era of declining interest rates and rising equity values and future returns/stability/carry payouts will look nothing like the last decade. Asset classes are cyclical, HFs were amazing at the turn of the century and horrible for the last decade. PE/VC has been a free money tree for the last decade. Go with where you think you can make money because you will see both sides of it over the next 20 years.
I mostly agree with this, but I think your "modal outcome" is more like the 80th percentile - most people I know who started at a SM or MM are either out of buy side entirely or are hanging on by the skin of their teeth. 7 figure senior analyst is the dream job, not what you fail into
Feel like people mention this a lot. I think the previous consensus was top SM like a tiger cub > MF PE as team runs lean, higher comp for lesser experience, don’t need to wait around for carry as much, good returns. This this view is obviously stale and the HF model is less attractive for someone coming out of MF PE now imo. I’m not sure I’d give my left nut to work for some of these cubs anymore. Also not sure I’d give up all my brand equity from IB+MF to go to a dumb pod. It’s just a weird time in the HF industry.
Yeah making 1mm/yr is not the modal outcome lol, it’s probably making 200-300 in a VERY wide range of things:
take an asset owner role (endowment/pension etc)
move into HF/long only sales
move into service provider sales
move into FOF
move into Corp dev in an industry you covered
move into data science/programming
move into risk management
The job is a call option, it’s a all a moot point, cause you have to love it to do it well AND if you don’t overweight the bull case on yourself, why are you trying to beat the market?
On the flip side if you love it and can handle lifestyle volatility, don’t be discouraged. A lot of the people who leave really didn’t ‘get it’ in the first place and shouldn’t have been there in there first place or were just following “the path”. A larger bunch were ok, made fine money on average but just didn’t like it enough for the lack of visibility. It’s also possible to be totally capable and engaged and just step on successive landmines with where or who you work for, but a lot of the short career peers I know were either just following “the path” or didn’t really enjoy it or had no business being there. That said it will be interesting to see how the mkt shakeout progresses.
As for avoiding the sad times:
- Do your diligence on your PM and their LPs and the stability of such
- Avoid subscale funds. every fund says they’re raising. Ask about hurdle rate and fee structure
- Avoid “consultant role leading to full time” unless the fund is great enough and ex-consultants actually become full time or gone elsewhere great, without exceptions
- Discretionary bonus structure = disappointment and conflict, with very few exceptions. Work for a PM who is already rich and doesn’t have to choose between paying you and finally getting their vacation house or a fund that has a passthrough fees for bonus
- If you get netted, you’re not getting it back next year
- Don’t linger on sinking ship (unless the loyalty is really truly earned and rewarded with addl upside)
- Always be interviewing
Haven't logged in or posted for years, but this one is particularly salient. I started at a single manager fund at 22 and have been at the same fund for 12 years.
-Of my 10-15 friends that started in banking, only 2 are still investment bankers. They generally hated their lives in their 20s, but work/life balance is better now. They have rolodexes and are making $800K - $2M a year based on firm/individual performance.
-5-6 guys are at PE firms that are not MM, but not megafunds. They are starting to get sizable carry checks and have visibility to really good, recurring carry checks. Honestly, PE has a very high comp ceiling with a fraction of the comp variability in the HF world.
-3-4 guys are "out the game", ie corporate development, consulting, or completely left the industry.
-The guys that did HFs had a mixed bag. To be candid, the distribution of outcomes is only going to get more bimodal. 15 years ago a lot of funds got 1/20, could raise capital, and they overhead wasn't brutal. Today, the very best firms charge 2/20 or have passthroughs (Millenium, Citadel), while other firms do goofy consultant driven fee schemes in a hope to draw assets (ie 0 and 30, 1 or 30, etc).
For all of the banking analysts on here, I'd highly recommend going to the best PE firm possible. The asset class has so many structural advantages over the HF space. Sticky capital, no mark to market, and long duration leverage are cumulatively worth so much more than even the best fundamental analysis.
For people that are wholeheartedly set on being public market equity investors, I think there are only two really good options.
-Be the cliche kids that goes top banking group -> MF PE -> Top fund
-Find a really talented, niche manager that is committed to keeping capital small and focused on performance. You'll make a lot less money the first 3-5 years, but long-term it can be really rewarding.