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 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.
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?
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
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
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.
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.