Megafund vs SM Hedge Fund
I feel like this topic has been debated a couple times but I want this thread to settle the overall debate. When considering a career at a megafund such as KKR, APO, BX, etc., why is it that associates leave to go to the SMs such as Tiger Global, D1 Cap, Lone Pine, Pershing, etc. Pretty sure if you stay at a megafund your whole career, you can net 300mm+ in lifetime earnings, particularly at the PE shops that are known to be the highest paying in the industry such as APO. Is the compensation ceiling at these elite SMs that much higher than the top MFs that young talented associates are dipping to them? Sure, just saw a partner at Tiger Global buy a 30mm crib in FL at 35 but pretty sure MF partners are doing that as well and with more career stability. Curious to hear this forum’s thoughts.
There’s very little chance any non-founding partner at KKR/APO/BX is making anywhere near $300mm over a lifetime… more like $50mm. Maybe at the still private players like H&F or Warburg. The economics of the big public names are distilled into public market already.
As to why the associates leave for SMs; they are impatient and think themselves better at stockpicking than closed-end capital business analysis (buying and levered holding). Results (bonus) paid every year rather than having to waste for fund harvest and wind-down which can take 7+ years to realize.
If you adjusted PE returns to SPY-level leverage you’d find the performance worse vs. public hedge fund stockpicking.
This is just false lol partners at MFs are definitely making more than 50mm. 50mm over a lifetime is more commensurate with a lifetime investment banker
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There’s probably a double digit # of non-founder billionaires at Blackstone.
But your point holds up, that’s not happening anymore.
The pitch I got from several MF PE firms was that you’ll make $150m across your career.
$300m is a tail outcome in MF PE and an even slimmer tail outcome in HF land. Maybe Scott Kleinman and Joe Berrata did it…. Maybe there’s a handful of stars out there at CD&R and Veritas getting there.
The 2 stdv outcome in MF PE is you’ll likely make it to Partner if all the stars align. Once you’re a seasoned partner in prime earning years you’ll pull $5-8m a year all in. The trick is to extend that duration as long as possible.
The 2 stdv outcome at a HF is that you had a handful of years making $500-1000k. Maybe it was punctuated by a big $1-3m year and also by 1-2 zero years where you blew up/were unemployed. Then you washed out and became a traveling salesman.
MF PE is like Harvard/Princeton. It’s an ivory tower and the hardest part is getting in (on a partner track). Once you’re there, it’s all mahogany and Persian rugs.
HF is a knife fight in a phone booth. There’s 45 year old unremarkable sell side research Analysts that get decent HF jobs late in their careers.
The SM funds you named Tiger, Lone Pine etc are in a class of their own. You can literally make $25-50 in a single year before you sprout a grey chest hair, that’s a possible outcome.
If the above HFs only hire from MF PE, and the hardest part about MF PE is getting in… that should tell you how hard it is to break into one of those HFs.
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Did anyone see the new 2022 heidrick struggles pe comp report? Seeing above average / 2 Std dev MDs / Partners at MFs with carry DAW > $80mm. Guess this would equate to $8-10mm annualized + whatever cash comp, so $150mm career earnings makes sense, where you net 70-75% of that w/ LTCG tax.
https://www.heidrick.com/en/insights/compensation-trends/2022_north_ame…
This is so inaccurate on so many levels and clearly shows you are a PE dude (which is totally fine) but your comparisons are off. Comparing a +2std year at a MF as partner with a +2std year as a random HF analyst is not right. And the way you put the tiger funds on such a pedestal is also laughable. I don’t blame you though - I would have thought the same if I never moved to public markets either. For what it’s worth - you do make bank at the big tiger cubs even as a mid level analyst. In a good year of course.
Very insightful. Thank you. Do you know how bonus actually works at these funds (LP, TGM, PS)? Is it as simple as you make 50m in pnl. Assuming a 20 percent fee thats 10m in perf fees and you get 20-25 percent of that which is 2-2.5m? Or are they looking at the performance of your names vs the performance of your sector and deciding based on that. Just trying to understand the rationale behind the numbers here.
$50m for MFPE is drastically off the mark. Personal knowledge of MF partner that was lateraled in with a $75m comp package. That’s moment one time, as in buying him out of unvested carry previously granted at his prior firm plus new carry grant to be earned over the next few years in his new role. So $100m+ lifetime earning is in the ballpark. This was a fairly young mid-to-senior level partner.
wow...how young?
You’re nuts to think a career at MF PE will net you $300m. The simple answer why people (me and many of my peers) leave/have left is because you have to work fucking hard in MF PE. It’s not a clear “up or out” but it’s definitely in the air. And only the very best survive and can be bothered to wait.
Stock picking is way more interesting and you can get paid handsomely at a young age for literally working <60 hour weeks at some shops. Totally happy to give up the awful grind for less comp. Can only speak for late 20s-30yo but once you hit 7figs - honestly I’d give up couple hundred thousand so my weekends and weekday evenings are free. Even then, its not as if you have a ceiling either. But yeah the path is not as clear cut as PE - provided you can make your way to the top without getting nudged
Couple things missing in these discussions.
Oversimplified but: HF pay you for skill, PE pays you for labor. That means you can grind your way to a good living in PE in a way that you can’t in the HF biz. Sure you’re merely good enough, you can (and most are) be a journeyman lifetime HF analyst/sr analyst if you’re making $1m and intermittently $2m a year, but that’s a relatively pedestrian outcome in this world. Saying you can work 60 hours a week and do well in HF biz is like saying you can work 3 hours a week, 10-20 weeks a year and make good money playing pro football, and it’s more fun too. If you want to make real money in the HF biz, you need to have uncommon talent. Spoiler alert: the vast majority don’t.
PE vs HF is a completely different business. Someone that is quite good in PE may be subpar at a HF… same applies the other way around. It’s about investing style and personality. In HF, you’ll have to be okay making decisions almost always with minimally useful info, be okay being wrong along and if not effecting you, and generally be pretty scrappy in finding a differentiated angle. You’ll also have to graduate to portfolio management to make real money, and that is a completely different game. No longer picking stocks, you’re essentially picking risk types. Also need to understand the analysts that work for you, their biases/tendencies, and what unsystematic risk that introduces into your process… all while navigating macro, micro, LP demands, etc. PE much more longer cycle thinking, thematic, cooking slow and low. Tons of relationship building, active mgmt through board seats, tons of toil and grinding linearly improving through your career. But partners still on calls during plays/soccer games, etc. Its more about understanding how businesses work and how to unlock value, much less about markets. Very different personality types fit into each of those tracks.
The decision of HF vs MF PE with the presumption that a top-10% outcome will be realized in either is a bit flawed. If you’re wired for HF game, then the decision is great HF outcome that you really enjoy vs. slightly above average PE outcome that you resentfully tolerate. If you’re wired for PE, the decision is great PE outcome vs. slightly above average HF outcome that you resentfully tolerate.
It’s like saying Im in really good shape. Need some advice. Should I go win an Olympic gold medal in powerlifting or in track and field?
Listen to this dude. He gets it.
1000%. This is excellent advice. Kids reading this forum need to stop thinking in terms of averages and start thinking in terms of conditional probabilities.
Really appreciate this take and think it’s super helpful. The one thing though that worries me is just the sheer luck. I feel like yes, skill is certainly part of it, but to say that anyone can predict the future because they’re that much more Talented is folly.
I feel like there’s a sense of security in PE that isn’t there in HF and for me it’s just getting comfortable with the career risk.
How much career risk is there in hedge funds? Let’s say you were at a BX/KKR type fund and went to a tiger cub but didn’t strike it on the first go or two. What then? Feels like the risk of giving up partner track with the tainted career of having not been good enough at a tiger cub (perhaps cuz some random tail risk event) will certainly always haunt you.
Certainly curious because I am a total novice in This regard
Because I’m late 20s, make 1-5m per year in cash, and work 60 hours a week. My peers in PE earn 600k cash (and 600k carry that they hope to see in 5 years) and work 80 hours a week. They’ll start monetizing carry at 35. By then, if I continue to do well, I can retire.
Pussy, I'm early 20s and I make 0-50m per year in cash
Very impressive.
Wow… congratulations. $1-5mm cash is pretty insanely good. I’m inclined to think this is exaggerated (senior analyst is usually = $750k-1.5mm).
Would you be able to share size of fund / strategy / YoE or position at fund? I would guess PM at a top Citadel pod or Sector Head / Senior Analyst at a Tiger cub. I’d think very few places would pay that well unless a year like 2020 and you went high net exposure…
this is the life. how're you doing this year? and is this MM or SM?
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Very few are working 80 hour weeks in MF PE other than Associates in the trenches. Those that are, it’s self-inflicted. I know HF guys that are finger fucking their Bloomberg Anywhere non-stop on their phone/iPads sitting at breakfast while on vacation. Doesn’t mean that’s how it has to be.
Other than that, largely accurate. Work harder for more certainty, higher risk-adjusted/expected value earnings in PE.
At a HF, work less hard, put up with less process bullshit, more interesting work, maybe make more earlier in your career and on a cash basis. Way more career volatility and stress. There’s no career track really and you can’t see further than your hand in front of your face.
I worked at a SM before b-school, ridiculously stressful and need to do all the work, 1-2 person teams tackling an idea — 35 year olds cranking models and laying out ppt decks (as necessary). Back to MF PE now… I sleep like a fuckin baby. Have an army of Rhode Scholar runner ups happily doing all the shit work so I don’t have to get my hands dirty. Downside is, to your point net worth accumulation is a slow and illiquid grind. Tons of process, bureaucracy and politics.
What type of SM was it? Long term or more trading oriented? PM generosity? That drives a ton of lifestyle and comp trade off vs PE
What do the Rhodes Scholar winners do?
Disagree with the point that very few above Associate are working 80 hours per week. Definitely dependent on fund culture / style, but if you’re on a typical deal team of 3-4 people (1-2 analyst / associate, 1 VP / Principal, 1 partner) then there’s not enough people to outsource work to + you’re also taking a lead on portco management which eats up a ton of time / brain power. Virtually everyone on my team under the partner worked non-stop during the week outside of meal breaks (+ gym if not in live deal model) and then also worked part of both days on the weekend. You can say it is self inflicted, but if everyone else is doing it and you really want to make partner then you’re forced to do it as well.
Have you actually made $5M in your 20s, or are you saying in the right year (performanxe wise) you could?
Are you in the business of accepting PMs? I can't add you because of the hidden name, but am looking for some career advice and you seem like you have it.
I used to work in MF PE before making the switch to public markets via b school (one of the big LOs). As many in the comments noted what OP forgot to mention (on top of wildly overstating earnings) is what an f'ing soulless grind working your way up the ladder in MF PE is. In my 30s now with a family and just look at life differently. The autonomy, control over my schedule, and intellectually more stimulating day-to-day is such a better trade off (for me). Everyone is different. Maybe the prestige / extra 20% of lifetime earnings actually makes you happier. But I'd bet that's not true for 90% of us
Hold on a second- I am seeing wild numbers being thrown around, and from what I have read elsewhere, I gathered that these types of pay days are very exceptional. How many VPs to MDs are there are at megafund PE shops? Then how many partner seats? They typically pull down $150mn over their career? I assumed only partners make that kind of money over their careers, and it is a very limited set of people.
Further, you mention HF guys pulling in 10 to 20 to 30mn in a year? Aren't there very few people capable of pulling in those 8 figure paydays? I figured the average for analysts at pods was like 500-1.5, then PMs at pods are around 3-7, then you move to the top SM funds (>2bn) and I'd bet there are only like 500 investment seats max across those types of firms, and even then you'd have to get to the more senior side / larger firms to find those paydays?
Maybe I am wrong but I am shocked that there are so many seats out there in the PE world that offer 150mn cumulative earnings and likewise HF seats that offer the potential to bring in >5mn per year?
Just to follow up - I am not saying it doesn't happen, but I just always assumed the vast majority of paydays was much lower, and it seems like we are comparing lebron james and tom brady career outcomes as the standard when the vast majority will end up being an average player in the spanish basketball league.
10-30 doable at a pod. Very rare though but definitely a few guys doing it at the larger shops.
Key words, "rare" and "a few" - just want to make sure we aren't normalizing 8 figure paydays and underplaying how difficult it is to get there, and treating it like a flippant decision for young investors. Maybe I am wrong (which is why I am asking) - but there seems to be a debate over what path to take to maximize chances of getting those paydays, when at the end of the day, the most important thing is really 1) what style of investing do you resonate with the most and 2) how good will you be in that role. Then from there, if you excel, maybe you may need to weigh these decisions, but I have a feeling that the group of people who need to decide do I want to stay on partner track at MF PE or jump to lone pine is actually limited to like 20 individuals.
This seems to be a common question popping up on these forums (usually among IB analysts and PE associates): "why would someone ever leave PE? They could become a MF partner and make 200M over a career. You'd be crazy to go a hedge fund where it seems everyone blows up in 5 years and makes <2M as an analyst!" And it seems to turn into a "which is better, HF or PE?" debate.
For the record: I think the conclusion of risk-adjusted returns on a career in MF PE being higher is correct.
But you are just trading off one risk for another. With PE - as many have noted - the chances of getting a tenure track MF spot are low even after a MF associate stint. While some firms hire only enough VPs to fill the partner slots they need, my cohorts' experience of getting from VP->Partner has not been pure smooth sailing (moving to smaller firms as a lateral VP/Principal, burning out at APO). You are betting on your ability to interview, and play the politics well enough to make it into the partnership (on top of being great at the job and the firm raising bigger new funds). With one the top tier hedge funds listed above (again, small chances of getting a seat), you are betting on yourself to do well enough in a few years (maybe also your fund not blowing up) that you gain some pnl linkage and then start making outsized paydays. Now maybe you think you truly are an amazing investor, and you think this will be likely if you are given the chance, but I doubt it.
There is a long tail of great finance seats that will get you well above 1% wealth over your lifetime besides Viking PM and Blackstone partner: large LO, MM PE, senior people at random SM HFs, PMs at MM HFs. There are a lot more people hitting 20-50M+ career earnings from these seats than there are people hitting >100M net worth from the very specific paths being discussed. And the chances of success down one of these paths can be much higher, depending on the person and the firm. Focusing on getting into one of those situations will be more relevant to most people on this forum - rather than arguing about the very far tail outcomes. Some of the most lucrative outcomes I have seen (both in PE and HF) have been people finding roles in smaller firms where there was great mentorship and they grew with the firm.
One of the better answers ive seen on here in a long time. Especially the last sentence.
If PE was unquestionably superior, significant numbers of people wouldn't leave. HF clearly are a better fit for many people. Not all, not most, but many. Call me naive but I doubt people truly decide based on a percieved earnings gap. We need to focus more in this discussion on how the day to day work is fundamentally different in pe vs hf. Those differences are incredibly important when you think both about personal happiness and career success. Your personality must align to even have a chance at tail outcomes. Everyone wants money on Wall Street. But individuals need more than money. They need to enjoy the ride, not merely tolerate it. Otherwise what really sets you and all your millions apart from the countless people who trudge through work as a means of survival? Sitting at a seat I don't like for my entire career solely because I expect more lifetime earnings - whether hf or pe - is irrational.
For every 5 MF associates only 1 will get an invite to move to through the funnel to VP. The other 4 have to look for new jobs. Often the highest upside jobs are at HFs rather than going to MM PE. So yea, it looks like there are 4x as many people “leaving for HF’s” but that isn’t always by choice.
Interesting thought the ratio was higher than .2
anecdotally friend at MF said 3/7 move up to VP
from another thread
Just posted this in another thread, but I see a lot of BS here about comp so I'm reposting it here for you freshman to see. Here are the "steps".
1. Grind your ass off in highschool to get to a target & stop jerking off 8 times a day, grind harder in college, get to a top BB/EB/MF PE group, grind even harder and get looks from top HFs. Zero sex life, work 18 hour days minimum, follow the markets for fun, but try to come off as a chill dude for recruiting/interview purposes
2. Become an analyst at a $7bn+ L/S HF. You know the type, Tiger cubs + top notch non tiger cubs. Tiger Global, Lone Pine, D1, Whale Rock, Eminence, Darsana, Coatue, Viking, Altimeter type shops. This should put you at ~$300-500k base
3. Continue the grind and work the hardest here. If the fund has a monster year, you want to be a hard working analyst who put in the work and contributed to some of the monster year
4. IF you actually perform + fund has sick year + you have been there for 2+ years, you will make $2-3m. Confirmed from many sources, in some cases as high as $5 but that is by no means a proxy for how much you can make working as an analyst at one of these funds. $2-3+m in a really good fund with a phenomenal year is realistic 100%, and you could be 28-29 at this stage. NOW, notice how I said L/S. Credit/distressed guys are stingy as fuck - I know a distressed analyst who put on a trade that made ~200m for the fund (fund was like $7bn AUM), and he only got paid $900k. That's a lot, but it's fair to say he was underpaid and he left for a L/S fund.
5. Stay at this L/S fund for > 5 years, maybe you're like 32-33 now, maybe you joined when you were 26. Keep pushing and contributing to fund outperformance, and as long as the boss is not racist or discriminatory in some way, you will make PM/Partner where you can reasonably expect to make low 7 figures in a year, and higher/8 figures in blockbuster year. Do this for a few years, maybe catch the next tech wave, put your earnings back in the fund, and you could probably be worth $20-30m by the time you're 37-40, if not higher. Then you go off an start your own fund.
Now this is the story for maybe 1-3 people out of 100 in this business. Maybe. Incredibly difficult, requires the right fund at the right time + the right boss, self determination/drive, and you actually have to be good at what you do. It's the dream for many, but it's a lot easier said than done. Finito.
lol @ whale rock and altimeter on this list nowadays
Step 2 list is not accurate. For ex you would not be putting eminence on that list. It never paid analysts like a TG or Lone Pine AFAIK. Coatue and Viking for ex are also super grindy places and not smooth rides to 2-3mn.
Viking is pretty grindy no arguing on that but once u get the hang of things and start making them money sky is the limit. Their insurance pm hani sabbagh made 30m last year. So the rewards are definitely there and as long as u perform money is the last thing you'd need to worry about.
I started in MF PE, then moved to a large HF, now a senior PM at a smaller HF. Mid thirties, have been making $2M-$5M in the past few years though now with my points could hit $8M+ if we have a big year (20%+). Net worth $10M-$15M. Yes NPV may be higher if I stayed in MF PE, but I like what I'm doing, work fewer hours and get to spend more time with my family on the weekends. I do not regret my choice.
How many points do u usually get at the senior pm level?
how much of your analyst class is still on the pe/hf path vs. say corpdev or left the industry entirely
Congratulations on the successful career thus far. How is the comp structured at the senior pm level? Theres very little info on that here and so would love to know.
Super interesting story. Have a bunch of questions:
Could you talk about the dynamics / types of funds where comp like this possible? Guessing lean SMs with $3-8bn under mgmt, probably L/S or event equity, and like 10-20 IPs? For these types of funds, what how senior / how many years in do you need to be to clear mid 7 figures?
What are your thoughts on sky high HF comp post 2022 drawdowns (citing watermarks)? Are high 7 / low 8 fig payouts still possible, or not for a while? For someone looking to lateral to HF now, which type of fund would make most sense to maximize career earnings?
How do you think your comp compare to sr analysts and PMs at Tiger / Viking / Lone Pine / Pershing / XYZ $10bn+ lean SM?
Also how are your hours haha. Thank you so much
Every place is different. For me, I get 10-25% at a $2-$5B fund (using ranges to ensure anonymity). Out of my analyst class, I think the majority still does PE / HF. Maybe 25% have left the industry.
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