How much $ do you need to feel comfortable taking on a HF gig?
This is personal but curious to get inputs. Assuming you're at a mediocre long only (but can probably ride it out) and you have a family/dependents what kind of personal financial situation would you consider solid for taking a shot at a HF/MM? Assume you think you're solid but you really dont know how it will go. Specifically interest in views on all below but particularly on how much personal assets or years of annual living expenses:
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Spouse that earns solid income (obviously makes it easier)
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Paid off house (obviously makes it easier)
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X years of annual living expenses
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X amount of personal assets
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Ability to get other job (obviously makes it easier
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Any other considerations
Just want to see how others approach it
I chose a HF for the same near term cash comp as my seat at a MF but gave up the carry for higher cash comp potential in the next 3-5 years as well as better WLB. I also joined a sizable fund so it made the trade off easier to think through. I’m in my late 20s / early 30s.
Based on insights from the Wall Street Oasis discussions, making a transition to a hedge fund or a market-making (MM) role involves several financial and personal considerations, especially when you have a family or dependents. Here are some key factors that individuals often consider:
Spouse with a Stable Income: Having a partner who earns a solid income can significantly reduce financial pressure and provide a safety net, allowing you to take on a role with potentially higher volatility in income.
Paid Off House: Owning your home outright can reduce your monthly expenses, making it easier to weather periods of lower income. This can be a significant factor in feeling financially secure enough to take a riskier job.
Years of Annual Living Expenses: Many professionals recommend having savings equivalent to at least 2-3 years of living expenses. This buffer can provide peace of mind and financial stability, allowing you to focus on your new role without immediate financial pressures.
Amount of Personal Assets: The total value of your personal assets, including savings, investments, and other properties, can influence your decision. A substantial asset base can provide both a cushion for potential income variability and the confidence to take career risks.
Ability to Secure Another Job: Confidence in your ability to find alternative employment if the hedge fund/MM role doesn't work out is crucial. This includes considering your network, industry demand for your skills, and the current job market.
Other Considerations:
Ultimately, the decision to transition to a hedge fund or MM role is highly personal and depends on your risk tolerance, financial situation, career aspirations, and family considerations. Engaging in thorough financial planning and seeking advice from mentors or financial advisors can help you make an informed decision.
Sources: The Asymmetric Risk Profile: Preparing for the Hedge Fund Interview, Longevity of Hedge fund career: how long do people last in this industry?, Is IB not as attractive anymore?, Managing Your Money - Building a Personal Financial Model, How can HF analysts afford families (NYC)?
Based on the insights from the Wall Street Oasis discussions, making a transition to a hedge fund or a market-making (MM) role involves several financial and personal considerations, especially when you have a family or dependents. Here are some key factors that individuals often consider:
Spouse with a Solid Income: Having a partner who earns a stable and substantial income can significantly cushion the financial risk associated with moving to a more volatile or performance-based compensation structure typical of hedge funds.
Paid Off House: Owning your home outright reduces monthly financial obligations, providing more flexibility in managing income variability that might come with a hedge fund role.
Years of Annual Living Expenses: A common benchmark is having enough savings to cover 3-5 years of living expenses. This buffer can provide peace of mind and financial stability, allowing you to focus on performance without immediate financial pressures.
Amount of Personal Assets: The specific amount varies greatly depending on lifestyle, location, and personal financial goals. However, having a substantial cushion, often quantified as 1-2 times your annual salary in liquid assets outside of retirement accounts, is seen as a prudent measure.
Ability to Secure Another Job: Confidence in your ability to return to a more stable or traditional role if the hedge fund path doesn't pan out is crucial. This includes maintaining a strong professional network and keeping skills relevant to the broader finance industry.
Other Considerations:
Each individual's situation is unique, and these considerations can vary in importance. Engaging in thorough personal financial planning and seeking advice from mentors or financial advisors familiar with the hedge fund industry can be invaluable steps before making such a career transition.
Sources: The Asymmetric Risk Profile: Preparing for the Hedge Fund Interview, Longevity of Hedge fund career: how long do people last in this industry?, Savings from Working at a Hedge Fund, Is IB not as attractive anymore?, How can HF analysts afford families (NYC)?
Bump
If you’re single and have 6m-1yr of living expenses, that’s probably fine. I did it with less and part of succeeding in the role is being ok with that uncertainty.
If you’re married with kids, it’s a different calculation. It might make sense to take a swing at a Jr. PM position, but I wouldn’t take an analyst role (not enough upside).
I personally never worked a FT job outside the MMHF. When I started I was a fresh PhD with $25k to my name and I honestly think that was enough, because worst case scenario I go back to living like a student again. If I had a wife or kids the calculation would change.
Great insight- any married with kids folks who have made the switch?
At a pod, quite a few PMs fit the profile of early- to mid-30s (10+ YOE) starting families after receiving MSD-HSD payouts. Includes both prior MM PMs with a few years of track record who got paid to move and laterals from SMs who were paid that as a guarantee to launch books.
The longer you wait the harder it is to move over. Realistically there aren’t many people starting a new career in the hedge fund space in their 40s or 50s. Most people join in their 20s/30s. Time is not your friend, but at the same time making the jump is always a risk, but seemingly becomes a greater risk the more your family grows and depends on you. If you’re in a dual income household and your spouse is ok with you taking a shot then go for it. It ultimately depends on your spouse’s risk tolerance. The last thing you want is to take a shot, completely strike out, and your wife is on the brink of divorce because of the short term lack of financial stability.
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