LO Economics - How good is this
I would really appreciate advice. I am about to be a second year IB analyst at a very strong bank but have been approached with an interesting opportunity to leave early. I am considering joining a LO fund that has roughly ~2.5Bn aum and i would be the third IP. They claim they are looking to double or triple and size and they hope this hire becomes an equity owner in the fund one day. They have a very strong track record of returns. They cover an industry I find interesting. What do people think - should I take it?
Based on the most helpful WSO content, this opportunity seems promising but requires careful consideration. Here are some key factors to weigh:
Track Record and Growth Potential:
Role and Responsibilities:
Compensation and Equity:
Exit Opportunities:
Personal Fit:
Final Thoughts:
This opportunity seems like a strong contender, especially if you're passionate about the industry and comfortable with the risks of joining a smaller fund. Before making a decision, conduct thorough due diligence: - Speak with current and former employees to understand the culture and growth trajectory. - Review the fund's historical performance and strategy. - Clarify the equity ownership structure and your role in the firm's growth.
If everything checks out, this could be a unique chance to transition into a high-potential role with significant upside.
Sources: Help! Full Offer decision between Credit Suisse IB and Allianz Global Investors Graduate Programme, Quit Today, Would you rather hire a junior out of IB or LO AM?, https://www.wallstreetoasis.com/forum/investment-banking/how-soon-can-i-leave-1st-year-ib-analyst?customgpt=1
typical WSO poster... ask a question about economics and provide no details about the fund structure... do you want us to assume fund structure/benchmark outperformance, etc.? how are we supposed to help you when you can't provide details
more seriously, look at those factors... I can claim that I'll be a great PM one day but that doesn't make me one... similarly these guys can talk their book up but that doesn't necessarily make it achievable. So ask about their track record, LPs, fundraising efforts, etc. -- these are all table stakes questions during an interview process. An interview process is a two way process always.
~90bps mgmt fee. they dont have a benchmark they try and beat. not sure about what % of profits they keep. i will make sure to ask. the coverage would be energy. the two IPS have 20+ year track record of ~20% returns annualized. Appreciate the thoughts
Dude… there’s no shot these guys have 20+ years of 20% IRR doing LO… that would make them literally some of the greatest investors of all time unless they were at micro funds for those 20 years. You should really do your homework here and suss out the things they’re embellishing
how about... details on the fund? sector coverage? how do they think they're going to 2-3x? That's hard for performing funds to do in such a short time frame but LO overwhelmingly tends to under perform...
Energy / natural resources / commods. Long only mutual fund , no incentive fees, 90bps mgmt fees. They keep mentioning path to partnership and I’m 3rd IP. They say they would like to get to 10bn AUM . Any thoughts?
Bro this sounds sick take it. Ignore my title I am at one of the Big LOs so not super comparable to this idea but 2.5B spread between 3 IPs is awesome. Go for it as long as they so not seem like con artists lol
Appreciate the comment and noted. I am leaning towards taking it
Yeah no problem. Looks obviously there will be a huge amount of uncertainty but that’s some real money and what you said makes it seem like they are legit.
Keep us updated w what you choose
Would be interesting to know how much of that money is their own, the higher the % the better as it would make it more stable.
If it does well you could make a ton of money and if it doesn’t you have a cool story. Lots of ppl at my firm have random stories like this and my firm is actively trying to find more than just the standard cookie cutter 2+2 background.
Opportunities to join a $2.5b fund with three investment professionals rarely if ever come about, there could hardly be a better opportunity. The lack of performance fee doesn't matter, 90bps is fine if investment team is small and the fund is good size. But 20+ years at 20% annualized... there is still a bit of background homework for you to do.
16.5% over 10 years. Their previous fund at other firm was 18% over 10 years as well. You think this is an opportunity I have to jump on?
What is the source of $2.5B? How sticky is the capital? This is the biggest risk. Even if performance is good, if the investors do a rug pull, you are in a bad spot.
A lot of LO AUM is now in SMA vehicles with daily liquidity. Is there a contractual lock up? Do the founders have a personal tie to the anchor investors?
About half is in Mutual Fund money so not sticky at all. But I’m early in my career and their returns are awesome and they keep mentioning path to Partner. What do you think
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