LO to MM HF?
Hi, I would appreciate some advice from the members of this forum please.
I am a senior analyst at large LO. I have good performance and am on a good track.
I have a question - would you leave this role to work in a top MM HF as an analyst with a carve-out book? A few things on my mind -
- Is comp high enough at MM to justify the move?
- Path to PM. PM at MM HF seems like a great job as you can effectively run your own business that you cannot do in a LO. But I am not sure how long it would take to get to this position, and what MM HF PMs typically make.
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This was a pure flex post
High quality post in my opinion. I'd be interested in a AMA or a separate post of how you got to where you are and any advice to juniors (research associate) on moving up the ranks at a LO. Quality LO posts are few and far between but I think there'd be quite a few people interested, including myself.
Would love to pick your brain as it sounds like we’re at similar firms and I want to be in your position in a few years.
I'll play the devil's advocate a bit given the comments are overwhelmingly pro-stay:
There are two path: 1) you start as a PM at MM HF or 2) you work for a team as an analyst. In the second case, senior PM matters the most. A good PM will give you room to grow, and if you perform well in stock picking, they will carve out their book and let you run as a sub-PM where you can get most of the incentives (it can take 1 year, 2 year, or more depending on your experience, performance and PM), but this depends on the personality and character of the PM, hence PM is important. In the first scenario, you will need to have a well articulated strategy and the first year will be really stressful because you need to prove yourself while not blow up. Majority of the turnovers in MM HF are in the first year. It is a reward vs. risk thing.
The Pros are
1. More meritocracy - taking with a grain of salt because as long as you are not a PM or your pay is not programmatically determined in the contract, it is still a discretionary bonus. However, your contribution is very clear here, and the PM has little reason to underpay and lose a great analyst if performance warrants. If you are the PM, then it is pure formula driven and you "eat what you kill", which is as close to meritocracy as possible in this industry I think. Depending on the cut, in a good year, 10+mm possible. ( this is determined by two factors: your "aum", and your return), MM HF will allocate you more risk or "aum" as you prove yourself.
2. Less bureaucracy - despite some mention compliance, risk stuff, MM HF tries to let PM/analysts focus on making money, it is in their best interest. There are some annoying tasks, but minimal.
3. Flexibility - which can be good or bad depending on how rigid you are about your investment philosophy. You can buy and sell anything (not on restricted list or something but), you can hold onto them for any timeframe, and you don't need to answer to anyone questioning your decision.
4. Industry - MM HF offers very good risk-adjusted returns, they are providing fixed income like volatility with equity like returns, I think there is always a place in asset allocator's portfolio for some MM exposure. Hard to argue the same for mutual funds, unless very very good ones. The risk management capabilities at MM HF is admirable and core competitive advantage, it is a great product for clients, though can be brutal work life style for employees.
Cons
1. Short-ism - this can be pro and con depending on investment style. Risk limit is tight but varies by places. No.1 rule of the game is don't lose money. Therefore, you need to care a lot more than just the fundamentals of a business and you need to think about overall portfolio positioning and risks. Not every PM/analysts makes their alpha on calling quarters just to be clear, I find that hard to generate alpha sustainably. However, you still need to care about near term "noise" and "second derivatives", are things getting better or worse on the margin. Depending on your investment philosophy and style, this type of short term thinking can deprive an investor of the joy of deep research and learning. It can be stimulating for the trader type though.
2. Management access- a lot worse than large LOs, you only get to speak with IRs mostly for self-initiated calls, unless it is smaller cap stocks. It makes sense, MM HF are traders of the stock, not long term investors, it makes sense not to allocate C level's time. Plus the question MM HF asks are very short-term, it really doesn't need the management to be there either. So if you want to be more like a partner of the company you invested in, MM HF is not the place to be.
3. People - I think in large LOs you generally get nicer people, but this comes with downside, being too nice makes it less efficient to run a business, harder to make buy and sell decisions different than consensus etc. MM HF depends on the team. If you hire people, then you have more control. There are many nice people in MM HF by the way, so this point really depends.
At the end of the day, I suggest finding what are the three-four things that are most important to you career-wise, from there, decide which fits your values. Make sure you understand how portfolios are run in MM HF, and if that fits your style. It is rarely about taking a big bet on a sector, but more a balanced portfolio that tilt one way or the other.