Hi, Looking at opp with SM fund. Good LT record in strategy I know / like, but tough 2022. They run high net as part of strategy (i.e., not so hedged).
How would you evaluate this? Have any of you done it? Is there a threshold in your mind for attainable comeback vs pipe dream (e.g., down 10 / 20 / 30 etc). Mid level prospective hire here (think 4-7 years experience).
Anything else you’d consider regarding comp expectations? Know a couple hitters (partner / cio level) at other funds who speak highly of them. Just want to make sure I’m looking at this clearly in re: career risk / reward. Thank you!
Look at their incentive fee allocation structure. Some funds have a 10% incentive allocation after losses up to prior high watermark and previous loss. So if 100 went to 80, would have a HWM up to 120. Might also be a chance to get partner economics.
Ok, how would you frame that if you're talking to the partners? thinking about how to (1) get the info and (2) negotiate a package
Ok, how would you frame that if you’re talking to the partners? thinking about how to (1) get the info and (2) negotiate a package
Don't even worry about the high water mark, it doesn't have to come up at all. You'll know your answer by how large their offer is. If they make you a good offer, then it shows they're wiling to invest in people to get back to high-water again, so take the offer. Or if they give you a speech about "well it's below-average pay now, but think of the long-term potential" then that tells you all you need to know.
Sometimes when a fund is underwater, they still pay everyone out of the founder's pocket. I was at Citadel in 2008 when we lost 50% and didn't get back to highwater for four or five years, but Ken still paid everyone pretty well during those years.
sorry what do you mean by ken paid well - was it not formulaic? while yes the money ultimately came out of ken's pockets as opposed to gains/LPs, the actual amount was "fixed"/known based on your (pod's) PnL, no? so its not like he can just renege on it without people defecting immediately
Senior PMs might be on a formula, but lots of junior/mid-level analysts, support people, and very highly paid technology people are paid at the firm's discretion rather than a fixed formula.
And even the senior PMs on formula still might still expect something extra. EG, in a year like 2008 where stocks were down 30% or whatever, if your desk was flat or even slightly down, that still shows talent that you outperformed and they'd want to pay you enough to not jump ship, even if your formula officially says you get 0. At the time, the firm was down enough that there seemed a real risk the firm might go under, so people were looking for exits. (Not a lot of other firms were hiring at the time, but a few were looking to poach talent cheaply so you have to pay your people enough to avoid that).
You should also work to understand the Fund's fundraising momentum.
Remember that high water marks are applied on the investor/tranche level, so to the extent new investors are coming into the fund or existing investors are adding new money not subject to the high water mark, the Fund still might be capable of earning some carry.
Curious to hear more on this topic especially from analysts currently facing a steep hole to climb out of- how have you thought about whether to jump ship or stay
I'm assuming this is a "normal" fund and not some Tiger Cub or equivalent. If so, the biggest risk is that the fund shuts down. To assess that, I would look at:
1. How has the fund done in 2021, 2022, and ytd? If it were me, I would only go to the fund if ytd performance has been very good. Otherwise, 2-3 years of bad-to-middling performance is going to lead to more redemptions and put the fund in a do-or-die situation next year -- i.e., the fund has to have a blowout 2024 and follow that up with good performance in 2025. That's not a good situation to be in.
2. Based on your YOE, I assume that you will not be sharing in fund's incentive fee just yet. If your fund is like mine, your position as a mid-level analyst is likely getting paid out of the management fees. So, from a comp perspective, it probably doesn't matter too much right now that the fund is below it's high watermark. You just want to ensure that, in a couple of years, when you start getting points in the fund that performance is above its high watermark then. Many funds also have modified high watermarks which is even better for you.
3. The other consideration is if it's just a massive step up for you from a branding perspective. If you are going from a no-name HF to something that is widely recognized and respected, then it might not matter as much if the fund has greater than normal risk of shutting down because the branding will be a net positive to you (i.e., nobody is going to fault you for the fund going under).
That's how I would look at it. But take it with a grain of salt though. In the end, everyone has different risk tolerances and considerations.
IDW lady said on a latest podcast the major hurdle our industry still faces is “netting risk”. Would say this falls under that, as explained above there is scenarios you will not get netted but it is a constant risk, even at the largest funds. Would say brand for sure plays a big role as even going there for 2 years or so and then leaving everyone will understand if the risk exists still.
Who hosted this podcast?
Ea optio voluptatum voluptatem porro. Laudantium enim est ut.
Illo tempore voluptas ut qui aliquam occaecati. Et voluptas modi cumque vel facere. Nihil non delectus minima quisquam aspernatur nihil. Ex molestiae harum dolorem voluptatibus qui voluptas ullam.
Vero molestiae dolores consequatur. Voluptatem a neque facilis impedit odit optio.
Molestiae qui voluptatum voluptatem nulla magnam officia. Enim et natus assumenda quas. Omnis accusantium quis autem maiores fugit omnis.
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...