I really don't see how MM PM's could possibly make 30m in a year
Disclaimer: I do not and have not ever worked in the HF industry so I am aware that I probably don't know what I am talking about but I am hoping someone will educate me.
Recently went down a google wormhole on MM comp structure and would appreciate it if someone could explain these stories of MM PM's bringing in 30m in a single year. I cannot seem to figure out how a PM could make that much given the market neutral + tight risk parameter nature of the pods.
I read that the average size of most pods is around ~250m, but for all intents and purposes, let's imagine a 4 person pod (one PM, one senior analyst, and two junior analysts) with $1.8 billion (which is how much Gabe Plotkin ran when he was at S.A.C.)
Assuming this pod makes 5% in a given year (I know pods generally aim for that 3-5% range, so I am assuming this would be an excellent year for the pod), that means $90m of P&L for this pod. Deduct expenses for salaries, bloomberg terminals, data, etc which for simplicity reasons, I'll just say totals $1.5m. Therefore, net P&L before bonuses is $88.5m.
I have read that on average, bonus compensation is ~15% of P&L. So using that 15%, that would leave $13,275,000 to be allocated to the team. I would imagine the team's comp would be something like:
- two junior analysts each get a $350k bonus
- Senior analyst gets a $750k bonus
- PM would then take home the remaining $11,825,000
I know this is an absurd amount of money, but I am questioning the stories we all hear about the 30m+ paydays for MM PM's. It seems as if the conditions for a PM to make that much are simply unrealistic. Then again, maybe my math is so far off and I have no clue what I am talking about. Nonetheless, can anyone explain how a MM PM could ever make that much?
Bump
$2.5b gross x 6% return (4% vol at 1.5 Sharpe) = $150m PnL x 20% payout = $30m
Yea theres above the line costs and analyst bonuses etc so probably more like high-20s rounding to 30 - but the top 10 most profitable pods in a given year would be generating $100+ of PnL which translates to a $20-30+ payout for the team (sometimes this is more like $1.5b, 4% vol, 2+ Sharpe but you get the idea)
Awesome thank you for this. Are these most profitable pods (the ones doing 100m+ in PnL) all quant focused? Or are these numbers still seen in the fundamental L/S space?
fwiw the most profitable pods i know of are macro pods
Probably a stupid question, but how does Sharpe and vol play into that calculation?
Some pods payout % are tied to sharpe I believe. For example, 15% if you hit 2 sharpe, 13% if you only have 1.5 sharpe ..
at the bigger platforms, the average pod (not carve-out/pbg) is not 250m
happens more often than you think (in equities). highest ive heard in 20 yrs for non-head is 60m, but was a snr guy with big % payout, big book, big year
basically if u do 150, u (the pm) can prob take around 18-20 after paying everyone/deducting xyz
that’s not very hard on a bigger book. know someone that did this level of #s for 4 yrs straight
not saying it’s the norm bc it’s absolutely not. just saying it happens, definitely happens :)
Question is how many PMs at platforms get to run big books ( 1.5 bn+) and how many years does it take for these PMs to get there ?
Most pods at MLP/P72 are $1bn+ atleast
At C, I would imagine all pods are atleast $1bn and a lot of them are $2-3bn+
How fast you reach PM is entirely a function of how good you are. Have seen it happen as quickly as 3-4 years (after 2+2 IB & PE), so by 28/29 (can appreciate that this much money before you turn 30 is pretty absurd)
Two things
- If you are really a star PM the payout ratio goes to 25% or even 30% (for new pod shops to hire established PMs they need to offer higher payout). Most pod shops now use pass-through fee structure, and the netting risk goes to the investors, that's why the payout ratio has gone up in the industry.
- Some funds use peak to trough drawdowns but some funds do not care as long as you don't hit the stop in that year - in the latter setting, if you make money in first half and you don't mind risking the money you earned, your distance to stop loss increases which enables you to scale up your portfolio risk in the second half of the year. Many macro PMs made huge PNL in 2022 because you had a strong trend over the year, and people who had the guts to keep scaling up got paid handsomely.
OP - questions like this are great and what I think this board is (or should be) all about. No shame in asking. Rather, thank you for doing so.
Great replies in this thread
Friend is a PM at citadel / millenium. He runs his own c. 200m book (common from what I hear for sleeves etc., not sure how common it is for a "Pm"), no analysts. He is a hybrid trader/analyst himself. Sector focused sector pod.
Not sure what formula he is on, but he mentioned comp tops out at roughly 600k in a good year given the market neutral strategy.
10% payout on 3%?
Seems reasonable for a sub-PM. If his title is "Portfolio Manager" not a full PM at MLP
Must be millennium. This is a horrible outcome not even worth working in public markets at that point. Advice to anyone reading: make sure you join a large pod.
You can bitch and moan, or you can focus on taking your performance from 3% to 5% for a couple of years, which will open you the doors to earning 20% of P&L on a $500m+ book.
Yeah your friend is a junior PM / snr analyst with sleeve type level. The guys running bigger books will have people working for them - associates / jr analysts
At the bigger pods, you can easily see Analysts / PMs running multiple bn. Know a couple analysts managing over 1bn carves at Citadel alone and so off of that, you can only imagine what the whole team runs / what PMs are taking home.
what kind of strategy？macro？
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
Any strat where you can put on size, depends on how good
I thought I was having a stroke for a second scrolling through all that lol
Thanks for the insight, do you mind posting that one more time just to be sure
I can confirm this from personal exp
Confirming this, know an analyst running a $1bn carve at Citadel
Can confirm Analysts can run $1B+ carves at Citadel
GMV and Leverage doesn't really matter. Well, these are all baked into the top-line costs (financing, capital charges, etc.) so I will ignore these.
Assume you have $100m Trading P&L (Total P&L - all Financing, Market Charges, Comms etc).
Now you have Top-Line Costs to remove. It generally includes
- Data Costs
- Infra Costs
- Access Costs
Say you are a fundamental PM and pays $5m in Corp Access (not true, but just as an example)
Now your P&L in the pool is $100m - $5m = $95m.
From here, you get your payout. On average this is 20% if you are in a Senior PM Seat.
Now, your total comp pool = $95m x 0.2 = $19m.
At $19m, here comes your bottom line costs.
Bottom line costs are:
- Your Salary / Your Team member's salary (depending on the negotiation - you can actually pass first n people's cost into the top line)
- Medical Insurance per head
Say you have 5 Analysts, all with $200k base. You are on $300k base.
And each person requires $50k medical insurance
Then you are left with $19m - ((0.2 x 5) + 0.3) = 19m - 1.3m = $17.7m.
Now you subtract the medical insurance, ~$300k. So your net distributable Compensation is $17.4m
Depending on the PM, people on average get 50% to their pocket, and reallocate the remainder to the analysts/traders.
My guess is that if PM is nice, he'll give $1m each to the analysts, so $5m comp goes to the analysts, and the PM will keep remaining $12.4m to his pocket.
So yeah, your $100m P&L is now $12.4m (+your salary of $300k, then makes circa $13m). Not too bad, but to make $30m P&L, you can reverse the calculation and figure out. My guess? You'd need to make $200m to get ~$30m Paycheck home.
This guy is on a subpar deal - at major platforms all salaries and associated benefits are top line costs. Only bonuses are bottom line
I was under impression that salaries for your juniors are top line or firm costs but your own 200k - 300k whatever salary is a bottom line cost. Is this not true?
I have never heard of benefits like insurance being borne by pods bottom line either, that seems weird
Medical insurance below the line had me LOL'ing. Either ignorant or getting robbed.
super helpful. tnx for sharing
Know of a guy that ran a natural gas desk at a big firm. He made $70M one year (2022 I think). Desk was large and had a wildly profitable year.
I'm assuming this was a quant team?
My PM made something around $30m last year, high 20s at a minimum (we did around 220 of PnL)
L/S equity?
Yes
how much did you make? :)
So at the time, I was a senior associate and didn’t have a carve-out or anything, but $1.5m bonus + early analyst promote (with good payout terms for me). So around 1.7ish all in
I made a lot of good calls and meaningfully improved our carve’s hit rate from 1H to 2H, so I think my comp was deserved. My PM told me he had a rule of not paying anyone under 27 over $1m, but he made an exception - I also work for very generous people lol. He is right, someone that’s not in a risk taking seat / primarily just doing typical analyst work probably (especially someone young) probably shouldn’t make over $1m, but I think this was a different situation. I was starting to become bigger contributor + we had a huge year + I showed I was ready to take some gross. In my current seat I can make a lot more than that, depending on how things shake out in 2H. I haven’t fully scaled my carve-out yet and I just hired a junior person to help me, but I had a great 1H.
Think my comp last year was very fair and I have no complaints. My (former) analyst and I are very close, so I know his comp as well. He splits the payout attributable to the PnL on his carve-out with our PM + gets a cut of the center book PnL. He made $6-7m last year and had a pretty big year PnL wise. He’s gotten PM offers from a few other funds but think he wants to stay here / eventually be a PM here. I have the same comp structure currently, though my % of PnL is a little lower and he obviously manages more gross.
Based on my 1H PnL, I’d make around what I made last year, so just need to repeat in 2H.
Congrats. Great numbers all around. Would you say this pod is top decile at the fund? Or closer to top quartile. 220m is an amazing amount of PNL
220 was definitely a top decile outcome that year, but we’re a larger team and my PM has been in the game for like 15+ years. I’d think maybe the median team that makes money is making between 50-100 of PnL maybe 75-100? Then the bottom decile is losing $ or flat? I’m not sure would have to get details from BD. But just based on the stats I’ve heard for total PnL and # of teams, I’d think that’s a fair range.
How big is your team's book size? Thanks
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