Higher Median NPV: Top SS ER or MM HF?

If you were to run a simulation 1,000 times, which career path do you think would earn more when adjusting for the median outcome?

Anecdotally, it seems like (typically more junior) people will jump to the buy side to (1) widen
the distribution curve of comp outcomes (increasing both upside and downside risk) and (2) enter a "purified" investing role with less marketing/admin related tasks. Simultaneously it seems like (typically more senior) people pivot back to the sellside to increase cash flow visibility.

Obviously work quality preferences often sway people's choices more than simply comp alone, but from the rational "expected NPV" point of view, I’d be curious to hear insights between the careers?

 
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There's verified reports out there indicating that most MM HF analysts make $300k or less, with only the top decile stretching to the $1mm+ annual range (obviously top 1% is blank check numbers). Compare this to a place like JPM/BofA/MS where third year associates are confirmed making $250k all-in; with high confidence VP ranges near $400k and II-ranked MDs touching $1mm+). So given the data, it's clear that median BB ER comp rivals median MM HF comp, but BB ER likely fares better once you adjust for risk.

But, all this said, I think HF's unique lottery-like upside will always commend a "career premium". The value of obtaining that 1% blank check tail-end outcome, for many people, is far worth the trade off of incrementally lower expected NPVs. Career decisions can be far more behavioral and nuanced than positive NPV… that said, I feel like a top comped ER team with 40-50 hour week WLB and no quarterly trading risks can be one of the most underappreciated gigs.

 

One issue with this analysis is it assumes that a top 5-10% percentile outcome for SS ER (Top Bank and Strong Performer w/ Promotions to MD then II Ranking) and compares it to a mediocre to bad outcome for MM HFs. if you compared the top 5-10% of MM analysts they would make much more both as an analyst and eventually as a PM. You are probably better off as a bottom 50% ER Analyst than bottom 50% MM HF Analyst.

I do think SS ER has better exit ops than MM HF by far. Some senior SS Analysts have been joining companies straight into a CFO role at a $1-5B Market Cap Companies, with a MM PM you would probably be lucky to get a decent IR role.

Financially since ER is paying a 50%+ discount to IB these days you are probably better off at the MM HF. Given how insanely crowded PE has gotten i think comp wise the average analyst is better off in IB>>PE>>>>MM HF>>ER

 

A PM at a MM that transitioned to an IR role has never existed 

And obviously a MM HF guy has worse exit ops than in ER because BEING at a MMHF is in itself an exit  

 

One issue with this analysis is it assumes that a top 5-10% percentile outcome for SS ER (Top Bank and Strong Performer w/ Promotions to MD then II Ranking) and compares it to a mediocre to bad outcome for MM HFs. if you compared the top 5-10% of MM analysts they would make much more both as an analyst and eventually as a PM. You are probably better off as a bottom 50% ER Analyst than bottom 50% MM HF Analyst.

I do think SS ER has better exit ops than MM HF by far. Some senior SS Analysts have been joining companies straight into a CFO role at a $1-5B Market Cap Companies, with a MM PM you would probably be lucky to get a decent IR role.

Financially since ER is paying a 50%+ discount to IB these days you are probably better off at the MM HF. Given how insanely crowded PE has gotten i think comp wise the average analyst is better off in IB>>PE>>>>MM HF>>ER

“MM PM would be lucky to get an IR role.” And that’s why you have never been a PM, I suppose? I yet have to meet an IR guy that made 10mm+, I have met plenty of PMs who have.

 

Would second the above.

Most guys from SS ER or LO AM (or even PE) who switch to a MM HF are technically doing so "at the detriment of their NPV", leaving behind higher expected median comp in exchange for a wider distribution of outcomes in podland (salivating for that top decile on the bell curve) and in many cases, more cerebral and exciting work.

Think it's a fair trade for a lot of young, hungry people given that the MM HFs offer (1) higher ceilings and (2) quicker path to that said higher ceiling. But this obviously starts to get scarier and less appealing the older one gets (hence, the 2-year median tenure at Citadel, P72, MLP, Baly). It's a young man's game where forunate favors the bold. So yes, the rational answer is to stay in your SS ER, LO, or PE gig to maximize median net worth; but the entrepreneurially-charged YOLO answer is to make the switch. Only you can decide.

 

In my opinion, you are underestimating the proportion of junior ER that are not leaving for money but instead just a more challenging job.

 

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