Market guarantees - PM/Sr Analyst for top MMs
For top MMs, what is market for a guarantee for Sr analyst (with carve) or 1st time PM? Over what # of years, and is there deferral/clawback if fired?
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Based on the highest ranked content on WSO, the market for guarantees for a Senior Analyst with a carve or a first-time PM at top multi-managers (MMs) can vary significantly based on the firm, the individual's track record, and the specific terms of the deal negotiated. However, the context provided doesn't specify exact figures for guarantees, but we can infer some general practices within the industry:
Guarantee Structure: Guarantees for Senior Analysts and first-time PMs often come in the form of a base salary plus a potential bonus. The bonus can sometimes be guaranteed for the first year or a specified period as part of the hiring incentive. This is especially true for individuals with a strong track record moving to a new firm.
Duration and Deferral: The duration over which guarantees are spread can vary. It's not uncommon for bonuses or certain compensation components to be vested or deferred over a period, typically 3 years, as seen in practices at firms like Citadel. This deferral period helps align the interests of the PM/Senior Analyst with the long-term success of their strategies and the firm.
Clawback Provisions: Clawback provisions are often part of the compensation agreement, especially for guaranteed bonuses. If a PM or Senior Analyst is fired for performance reasons or breaches the contract, the firm may have the right to reclaim a portion of the guaranteed compensation. This is a risk management tool for the firm to ensure that the incentives are aligned with performance and ethical conduct.
Performance and Capital Allocation: For a first-time PM, the ability to attract more capital and hence, earn more, is highly dependent on performance. Even with low initial allocations, there's a meaningful opportunity to manage more capital quickly if the performance is good. This performance-based scaling can significantly impact total compensation beyond the initial guarantee.
Market Variability: The market for guarantees can be highly variable and is influenced by the overall performance of the hedge fund industry, the specific MM's fund performance, and the demand for talent in specialized sectors or strategies.
Remember, these insights are drawn from the context provided and general industry practices. Specific terms can vary widely based on negotiations and the unique value an individual brings to a firm.
Sources: https://www.wallstreetoasis.com/forums/mm-analyst-comp?customgpt=1, Life decisions...buy-side equity analyst, LO to MM HF?, Longevity of Hedge fund career: how long do people last in this industry?, How often do seats open up at multi-managers?
Why would a 1st time PM deserve or ask for a guarantee?
Isn't the very promotion to PM enough of a reward?
Plus, what message does it send that the first time in your life you get to own and manage a P&L, you insist on being paid a fixed amount?
Maybe I'm getting old but I don't understand what world you guys live in.
Seems like it is a thing in practice though - at least from speaking to bizdev I have heard of multiple instances of LSD guarantees for senior analysts moving platforms to become a PM, and even higher for senior folks at SMs taking up their first platform seat as a PM. Interested if your experience/knowledge is different, e.g. maybe these are outlier cases?
Truly, I think MMPM a lot of times asks open ended questions and is not wrong about the process. The reality is though in practice now guarantees are apart of the business and most of the top MMs know this so let's breakout why they exist/would-be-needed.
MMs are mainly long capital (the last 5 years or so) and are being told by LPs to continue to expand. Most of these organizations are not built to groom tons of new PMs so most of the time "expansion" means poaching each other's talents. The poaching game has really slowed down cause a top decile PM is going to get the same offer from everyone and just decides on cultural fit most of the time. Therefore they need to seek out SM Sr Analyst types or carve-out sub-PM or so type from other MMs. Both of these categories candidates are in a pretty high-earning seat with not a ton of downside, but limited upside as well. So now let's play funny money #s;
-MM A and bd identify a new strategy they want to grow into. They poach MM B PM in such strategy and pay that person a $5mm guarantee over 2 years, as they made $4mm prior year for MM A.
-MM C and their bd team, see MM A move and say damn we need to moveee quick. Since they lost out on MM B PM above, they find a Sr Analyst who can become a PM or have a carve on a very strong PM team. This person has made $1.5mm, $2.5mm, $1mm last 3 years and wants to move. MM C is not paying what MM B did, but they think $2.5mm over 2 years is fair # for a true first time MM PM.
-MM B is now annoyed having lost their PM, lost out on the Sr Analyst type. So they decide best option is to go and poach the top analyst with carve that MM A has established in the last year. This analyst came from MM C before (I know wild), and last 2 years has made $750k (working for MM C) and $2mm last year his boss as MM A. This analyst who is now on their third MM is finally getting a chance at the big seat so after back and forth, they end up paying $3mm over 2 years.
If the sector does well over the next 2 years, all 3 MMs will succeed and all 3 new PMs, should be able to make $5mm/year (again this just funny #s to show a point). MM A will give the largest risk and resource/plan since they have the most seasoned PM, but MM B may ramp up risk for the upcoming new talent faster than any of the three. MM C may just be happy having got someone to focus on the sector and grow slowly.
So short answer, no one is going to give a first time PM a guarantee that they would offer a seasoned PM. But end result is all three individuals will be running substantial risk so asking for what is your current income potential the last 2 years or next 2 years (if you stay in your current seat) is usually a reasonable place. Since MMs are very set in their ways in how costs/book% etc works now it is really hard for them to compete on anything that is not guarantees or culture.
I have offered guarantees to analysts I wanted to poach from elsewhere.
I can also understand offering a guarantee for a moneymaker PM that doesn't need to move. But to offer a guarantee to a new Jr PM with no track record that would work under me and whose risk I would bear? Never in a million years. Fact anyone would ask for it would be a red flag.
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