L/S vs LO from a non-monetary perspective
What does a career in long-only equities look like vs SM long/short from a lifestyle/work/general vibes perspective?
Is there the same level of management access? What about alt data? Expert calls? Which is more likely to go to industry events? Which is more likely to give a guest lecture at a business school? Which is more likely to be head-down in front of a computer? How do the culture/investment philosophies compare? Does one tend to be more industry-specialized? Which is more likely to take a 3-week vacation in the summer? What do people tend to do when they retire?
Compensation (and trend and variance thereof) is fairly well covered on this forum so I'm trying to get a handle on all the other stuff.
Apples vs oranges from a non taste perspective?
True apples v oranges but I’ll take a bite and see if this question can add value.
I think of working at gigantic LO as basically providing a service. Your function as an analyst is more likely to be that of a subject matter expert internally and a firm liaison externally than investing money to make returns (although that is the ostensible purpose of the job). I think you are more likely to have “relationships” in the industry if you play your cards right and can be potentially personally rewarding if this is your type of thing. More likely to hobnob at industry events, text jokes to CEOs, and write thought pieces about “what’s going on in XYZ industry”.
HF analyst is more likely to be a generalist or at least cover a broad swath of sectors, just by virtue of leaner headcount/AUM ratio. So you’re more likely to be hunkered down wrestling with a model or thesis because every idea matters whether it makes money or not. In LO world realistically it doesn’t work this way. You cover everything in the sector and own a little bit of everything, regardless of risk/reward. Your job is more like a reporter. As an investor though, you’re much more likely to be highly respected for your acumen and skillet as a HF guy in my opinion because you simply think about the mechanics of making money a lot more than a LO guy who is just trying his best to look like a sector expert (but no clue how to pick stocks/ make money).
First part of this was great, second part whiffs.
LO analysts at big shops manage huge sums of $ and are mostly comped on performance, and idc how good your “reporting” is you will not be successful if your performance is crappy. You are conflating access to management and trying to generate sector calls with non-differentiated research. I’d argue it’s the exact opposite. You are right that there is some service aspect as the sector expert, but that’s supporting PMs and talking to clients just like you would at a HF. Fair enough that it can be distracting at times and take you away from pure alpha gen. So maybe 90% of your job is picking stocks and making money in LO land vs 100% in HF land
Sure, I fully admit it will not be possible to generalize these populations in broad brushes, it seems more like a thought exercise for the OP.
I know what you mean by "generate sector calls" but from what I've seen the degree of risk-taking is just different. So you might be a Auto analyst at a Fidelity and you might say "go OW suppliers vs. UW dealers" because you've done extensive channel checks and research that says suppliers are poised to outperform and are cheap. In reality, your PM might add another 50-150 bps to suppliers and call it a day. Just look at any of these LO benchmark mutual funds - they are basically index funds with some small marginal bets. So your view might be differentiated and important, but you will generally not make so much money as a LO analyst by "being right" but by "being visible and diligent".
At a HF "making a call" could mean literally you are putting on the trade the next day and size it 5% of the book while dynamically hedging out risks as you navigate the event path. On a $3B book, getting 25% upside right on this 5% position can literally generate personal earnings that meaningfully changes your life overnight (then hopefully try to compound this over a whole career). Or you will be fired if this goes wrong. So the stakes are just higher and incentives stronger to get it right.
Again, good discussion but still think misses mark.
The average tenure for an analyst at the mega LOs is 15+ years, vs the your average hedge fund analyst at a pod might be what, a few years? And the LO analyst has probably been a sector PM for 10yrs while many HF analysts will never actually manage money. You can’t tell me these kids have a better sense of how these companies make money and are better stock pickers. Of course exceptions- but I think your generalizations are off.
Now for sure you’re right about LO funds hugging the benchmark and trying to generate a couple hundred bps of alpha every year. That’s the name of the game when you manage $1Tn+. But the way you get comped switches from being visible/diligent in your early years (isn’t that same for a HF?) to being right as you transition to PM / partner / senior analyst.
The skin in the game conversation is an interesting one. You’re probably not going to get fired for a bad year because they think longer term, ~5yr comp is usually biggest driver. You’re also probably not going to make game changing money for a good year. Does that make you by definition a worse investor than someone at a pod with the opposite profile? I’m not sure I agree with that
OK, I think we're both entitled to own opinion and I don't take huge issue with what you're saying. Individual variations (top vs. worst investor in each setting) are likely much wider than inter-sectional (LO vs. HF investor).
But I have to wholly disagree that somehow if you've been at the same seat looking at the same names for 20 years, you magically become an amazing investor. If anything, you get calcified into thinking in a certain way that just doesn't generate performance. Do you really think some lifer at Fidelity/TROW that's covered Consumer for 20 years making +/-50 bps OW/UW calls is a better investor than the 35 y/o guy that has run the top 5 ideas at Pershing Square/Third Point? I think very, very unlikely. The lifer LO guy knows the industry details really well, sure - he has notes going way back, knows all the history, the nitty-gritty about this and that product and what happened in this and that cycle. This is just like being a sell side research guy. So what? What's the call? What's the angle? That is what the LO shops don't teach you - they just teach you to master details about a company.
He has the thing that matters most in life: incentives. HF punish bad performance ruthlessly, while at most LOs you can hide behind excuses and "we are long term" bullsht.
The amount of alignment that brings drives a ton more engagement on the good side, and a lot more stress on the bad side.
While the original post asks tons of questions, will take a stab at some of the "lifestyle" details + comp + investment strategy & style questions. Lifestyle varies drastically across the entire public mkts industry but traditionally pods/MM HF tend to be a bit harsher on lifestyle, > 60 hr workweeks typically while there are LO guys and potentially SM HF people working in the ~40 hour range. Personally I work ~60 hours per week in a SM generalist HF a few years in + closer to ~80 hours during earnings (predictable).
Comp varies again, very widely. LO comp tends to be a touch lower given someone's point above on AUM/headcount + returns generally are lower on lower fees. The economics are likely going to be different across the board but there's likely some sort of equation at a pod shop where analysts/associates get paid a % of the PnL that their book makes +/- any individual returns, completely dictated by the PM. I am fortunate to have equity in the GP & LP (very small amt in GP), so I roughly know what I'm owed + any added cash bonus above what my equity is worth. Imagine LO is sort of akin to banking comp structure of base + % of base as bonus with +/- cash bonus kicker on performance, but this likely all depends on seniority.
The more interesting part of this is strategy and variation. HF L/S vary DRASTICALLY on strategy and I've been so many different focuses and approaches that it's very tough to try and blanket all of it together, but will try. I've seen L/S HF guys who are value, some who are slightly longer duration neutral shops, sector specialists, generalists, etc. LO guys typically employ some sort of sector/factor based strategy that they're wholly focused on. Pod guys are sub-vertical/sector EXPERTS in 30-50 names and are trading those and only those.
The pod guys care about alt data (again varies by sector) and will trade this stuff pretty religiously. I think all of these investors are going to industry events, but likely with different goals in mind and vastly different questions they need answered. For example, a pod guy might go in and ask how the month of November trended versus October while a LO might be asking about moat or competitive strategy while a SM L/S HF guy might have some question about unit economics math. The "alpha" these guys are all aiming at tends to be different and that's reflected in their respective strategies.. think it's tough to argue what's "best" but LO guys tend to just be sleepier because they can be, pod guys tend to overfocus on the small stuff, and the in between SM L/S guys tend to be more "tourist-y," or for lack of better word just less knowledgeable about sector/companies than the first two.
There's no right answer because all can work in their own respective ways and all have massive advantages to them. Would say best part about pod (Citadel/P72) philosophy is both access to data real-time + neutral positioning forces you to extract & harvest alpha across a limited universe of names. You're the smartest guy in the room likely on every last detail. The con is not every detail matters. On the LO side you tend to have a very good understanding of high-level, big picture type trends.. you likely understand the sector well, you know the players, and you're owning a stock because you think it 1) is the "best" or "highest quality" name in your coverage and 2) you have to own it because you work for a XYZ insert sector/value/growth factor fund here. The "in between" or where I sit (think Holocene/Interval or even sector focused like D1/Viking) are guys trying to figure out the next several quarters on a name and find something differentiated about why that stock may o/p or u/p. Can take directional bets and structure the portfolio in a way that expresses/reflects top-down views but the focus is both in the details but trying to narrow a thesis down to 2-3 main drivers over a fixed period of time (3-24 months, probably).
Cultures are entirely PM-specific, have heard of nightmare PMs at LO shops that operate with pod-like intensity, and the exact inverse at pods. LO guys can probably take more vacation (they aren't trading daily). Management access boils down to AUM/budget for trading commissions.
Hope this helped.