Need help sizing up new offer as 1st year analyst at L/S HF
Joined a startup L/S fund (<50M AUM) with large institutional backing (backed by founder’s former bosses who run a top 10 fund) out of college just 3 months ago during Covid making roughly 60-80k. It’s just me, PM and operations guy. I do really like my boss, he’s a nice guy, the institutional backing is a great safety net, and the location is great – a large city like SF,LA,NYC, which is where I want to live in my 20s. It’s also a pretty lax job – I work 9-6, no weekends. He also seems to be really connected – he knows a lot of people at larger funds, and I think he would go to bat for me in his network if the fund shut down.
Downsides are performance has been mediocre, +10% since inception 1 year ago. I am not entirely confident in my PM’s ability, his focus on some less desirable legacy sectors (industrials, financials, energy) is a negative. Overlap in investing style is maybe 60%. Not learning as much as I’d like either. To be frank, only extreme outcomes are good – I’m either #2 at a 200M shop or I’m out of a job as the fund closes and my boss goes to bat for me in his network of large funds. Doesn’t seem like either is going to happen currently in the next 2 years.
I received a new offer from another startup fund around half the size of my current fund. I’d be making 110-120k all in, he has had an exceptional track record the past 3 years – up 30% annually net, the overlap in investing style is 70%. He has said outright there’s a long term path for me if it all works out, and I get the sense I will get more upward mobility here. Also just me, PM, and operations guy.
Downsides are the lack of institutional backing – it’s just F&F money and new PM came from a relatively small fund, unknown network of the new PM (career stability), it’s in a smaller city I do not want to relocate to. I also don’t want to burn bridges with my current boss. Also seems like I will be worked harder, which I suppose is neutral and not really a downside as I will be learning more. New PM has said I can work remote, but he was skeptical and may want me to move eventually. I also may not get along with the guy, and I think I get along with my current boss pretty decently.
What I’m trying to optimize for – career stability, long term earnings, style fit, and learning. Also thinking heavily about business school.
My probation period with my current boss is coming up and indications are I’ll be brought on full time.
How should I think about these? What should I be optimizing for? How quickly can good returns scale AUM?
I could also take my offer and leverage it with my current boss – how do I ask for more respectfully? If I were to, I’d really want more money, a clear path to equity, and an understanding that if the fund goes under, he’d go to bat for me. I’d like more responsibility, but not sure if I can credibly ask for that.
Other considerations - I have warmish interest from like 3-5 funds in the $200M-2B range that are just not hiring right now - they've indicated they like my work, just don't have space currently, but that may open up in the next 6 months. How should this factor into consideration? (hopping 3 times in short period of time)
both are "start-up" HF, how much money you make doesn't matter in my opinion, which one can survive is the key.
Are either your current or new fund willing to give you give carry if you perform well? That's the most important thing, in my opinion. Carry/Equity is how you make real money long-term in this business, so you really need to know this from both PMs. You need to sit down with them, and ask this question, or else you're going to be screwed over in the future.
True. I'll bring this up in my conversation with them. Actually - new fund said he'd pay me phantom equity if we do well. Not sure why phantom but not real.
What's phantom equity? Make sure you understand what the means with your PM. Carry is a % of performance fees/profits. Make sure "phantom equity" means the same thing.
I value the backing of the large fund way more than FoF money - that money can disappear on a dime. You can be crushing it as a fund and the FoF gets redeemed and then you get redeemed as a bi-product. Also, PM from lower comp fund seems better pedigree and network. Basically other than comp, which is short term, you're current seat seems better. No PM is really going to spend a ton of time mentoring you but just being there over time you'll adsorb. Plus you don't want to bounce around too much too early, especially when its from one no name to another, makes for too many explanations on your resume vs doing a good job and being promoted - would be different if it was a major step up in brand. Overall, if you do well personally and/or the fund, seems like you're going to have better opps at your current fund.
It's friends and family money I think.
You're right. The issue is - I don't know new PM all that well, but I am a fair bit more comfortable with new PM's ability to do well - not just his performance, but also my conversations with him. Old PM - I've picked on little things like he seems to talk himself into positions a bit, not always necessarily the most sophisticated mental models, huge bias in the book towards his old sector which is not doing us any favors, etc. I don't want to sell Old PM short, but I think new PM may have less of that? Agreed though, Old PM network and pedigree can't be beat, and I'm getting grass is greener syndrome to new PM. Old PM says if we deliver performance, we'd have a short path to $100M+ from his investors. Question is - can we? I'm not as confident as I'd like looking at our book.
This may also be availability heuristic, but I have spoken with more than a couple of funds that scaled from 0 to several hundred mil in AUM on backs of great performance.
Lastly - what do you think I should be prioritizing then? If my risk tolerance is a 6, and possibly thinking of b-school, also still being kept on backburner at bigger brand name funds - the $200M-$2B ones. Do you think I can leverage this offer for bigger commitment - clearer path to promotion/equity or short term comp at Old PM?
I my experience, fund raising is incredibly hard, like really really hard. I think its the rare exception not the rule to scale on the back of good performance. I could be wrong, but this is my experience and that of people I know.
Like you said the devil you know is better than the devil you don't. Who knows what this actual PM is like to work for. Also, while you're probably bright you're super young and green. You don't know what you don't know - this isn't a knock just reality. I'd be happy to just be learning at this stage if I was you. Clearly fund with a good reputation thought your PM was good enough to back so there is something there. I have no idea what seems better and more leveragable but if I had a resume from a junior person that went from one tiny fund to another and then was applying to another job I'd give pause. I'd rather see someone be stable at a place, take on more responsibility and grow and have a better story on why they were now looking to move up stream to a larger fund - but that is me and others might differ.
I'm not sure trying to leverage one job offer from another would be a good idea. I'd probably be like who the fuck does this kid think he is and tell you to walk. There is also reputation risk of starting a job and essentially quitting after 3 months. Going upstream would make more sense but not lateral. I suppose you could just get the new job and not even include this one on your resume going forward as its really only 3 months which gets ride of some of the jumping issues. I'm not really sure what funds "like the work" of someone 3 months out of college so something doesn't pass the smell test on your post here but if you can get it get it.
You're right. I'm probably being naive by thinking that performance = AUM. You also make good points on upstream - good, lateral - semi-meaningless. And there is something there to this fund. I'm being too grass is greener.
I think honestly with all the feedback, I'm leaning towards not leaving. It does really suck to know that I could be making 50-80% better money though, and not being able to even ask for more at my current job. Is there no way to leverage it at all? I actually do think that he values my opinion more than you'd expect, but I should probably be repaying that with more loyalty and more good observations/analysis... I guess I could just tell him I received another offer paying that turned it down to stay with him - not asking for anything.
I guess the good part with working with someone nice is the risks of waiting and just delivering good performance are lower than industry average - I think eventually he'll comp me in line just fine - I'll just have to be patient and pay off the debt of him taking a chance on me first.
On the fund liking the work - larger funds did like the work samples that I sent out while networking, but just didn't have anything for immediate college grad or weren't hiring just yet cuz of covid. It is genuinely good - it's what got my current job and new offer. It's more just sort of my network staying interested I guess, and it's just a throwaway line.
I think if you want 6 months to a year you can ask for higher comp but I'd be hesitant to do it 3 months into the job. Prove yourself then get a raise.
Stay at your current fund and try to gain more responsibility over time. It makes a big difference to your sanity by staying in a city you like, and your PM can introduce you to new funds later.
How arrogant. How can a kid 3 months out of college critique a PM with a track record who has been seeded by a reputable fund? A 30% return vs. a 10% return doesn't mean anything without understanding the risks taken to achieve those returns. There are plenty of guys on Robinhood doing 30% and more but it doesn't mean they are any good. You are a kid with no experience (overlap with investing style 60%.....give me a break, please do tell us what your style is and present your audited track record) getting paid to learn from a guy who has survived long enough in this business to launch his own shop. Stay put and learn as much as you can and check your ego at the door.
There's no need to be rude. Others have managed to give their perspectives without being rude and I've thoughtfully considered them without being defensive.
Stay at current fund. I’m actually struggling to understand why you’re even interested in the 2nd fund. Worse city, smaller fund, less “name” - seems to be worse on almost all the factors that you say you care about and the factors that you think are better is just the pm selling you
This, plus don't undersell work/life balance
The real question to me is that $60-$80 seems low, should he try to get that bumped up after a 6-12 month review, using the other offer?
I don't really think he's underpaid given the job description. Start-up fund with =< $50mn, great work life balance (9-6 and no weekends), and opportunity to learn from an investor with strong backing. Frankly, despite what OP says about them "liking his work" (which I'd also like more color on as others have pointed out), he still has a negative NPV and is being paid to learn. I think $60-80k is fair value for a set up like this for someone right out of school. He's not as well paid as a first year banking analyst, but he is also not working near the same hours and arguably will come out smarter than his peer cohort at the end of a 1-2 year stint. Plus, OP has significant option value. Either his fund hits it big and his comp will scale dramatically, or it doesn't work out and he gets placed at a larger fund that can pay him in-line with what someone out of banking would make with the help of his firm's founder. Either way, I think given the opportunity, and at his level of experience, the only appropriate attitude towards comp is "thank you".
You're right. He is selling me, and it does feel nice to be wanted. I guess honestly the main reasons I'm considering it are that the performance is good and I may have a naive view on performance = AUM, and the comp - it's hard to say no to an 50-80% increase in pay. I also like the portfolio better. I'm leaning fairly heavily towards staying now.
But is there really no way I can use the offer to help me? It's a shame...
BAML strategist put out a report that allocation to Financials and industrial is at all time low and TMT is at dotcom bubble level high. So expertise / focus in legacy sectors should be viewed as super positive IMO, because a lot of the financials / industrial / energy still generate real cash and sitting on optionality of historically low commodity price / rates.
One year return means nothing when half of that time period you can just blindly buy a COVID theme stock and watch it go up 10x when the business generates no profit. I need to understand why you think you are not learning. What are you hoping to learn? What is your style?
I assume returns and AUM are a feedback loop, but returns need to come first. You are making decent money, with direct access to a powerful person who has had success managing big amount of money. It took me some time to hustle to your seat, be patient and grateful.
Of course, if you are into doing multi-manager fast money, ignore everything I have just said and I wish you the best.
True.
I'm not sure people got the returns for new PM correct - it's 30% annualized over 3 1/2 years. It's still not a long time but still, solid.
I think when I reflect on it, my reasons for thinking I'm not learning are misplaced - I am, I am just dissatisfied that it's not in the sector of my liking. Lots of legacy industries, and one of his big industries is one I have no background in. I'm making strides on it though.
I think the overall sense is that I should just stick it out - it's really safe, solid upside, low pay but sigh I guess I gotta deal with it.
Not to be corny (but I am gonna be): you are getting paid in knowledge too, think in total comp term. You can always monetize the knowledge elsewhere, but my sense is if you offer value (I am a value investor), you will be taken of. I'd bet your current PM is a fair person, he is probably not taking a salary because its a start up and he has net worth already, so if things work out, you will be taken of in terms of carry, if things don't (which I don't hope for you) work out, you know you will be placed elsewhere decent.
so glad to hear that, I work in a cyclical sector, it has been very tough in the last several years, hope things will get better
Sit sapiente atque error omnis tempora itaque officiis excepturi. Nostrum voluptatem voluptas temporibus dolorem asperiores qui cumque. Molestiae laborum omnis accusamus officiis minus labore aut quasi. Nulla quis nulla sit modi dolor. Et possimus velit quo aut maxime sapiente. Cum velit ut debitis deserunt sit fuga dolor harum.
Est et voluptates ipsa velit impedit non ipsum. Libero corrupti eaque sequi magni.
Laudantium tempore et deserunt itaque qui iste dolor consectetur. Est velit doloremque voluptas sit quia quia. Vel modi ut hic quaerat consequatur provident possimus. Rerum saepe ut tempore rerum voluptas quos. Quaerat quia consequuntur et reprehenderit incidunt. Est sit ratione consequatur quod hic et.
Non laudantium quia cum quidem quia. Dolorem omnis natus dolor id cumque. Cum voluptatem tempore et commodi accusantium delectus. Aliquid fugit perspiciatis repellendus debitis quae iure vero. Molestias vel eos dolorem est tenetur accusamus est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Consequatur mollitia voluptatum sit pariatur. Ut mollitia rerum est a non commodi quae. Eum beatae aliquid reprehenderit natus voluptatum omnis possimus. Pariatur praesentium nemo et est voluptatibus quia itaque. Quibusdam excepturi sint modi magnam officiis aut.