Next Step: Should it be L/S HF or Growth Equity?
Looking to crowdsource some opinions on the right next step for my investing career. As quick context I spent the first three years of my career in MBB consulting and have spent the last almost two in UMM PE. As I come to the end of my Associate program, I’m thinking hard about what the right next step is for me. I know I want to stay in investing, and I know PE isn’t the right long-term fit for reasons I’ll get into below, but I can’t decide between Growth vs. L/S HF. In order to help frame the discussion, here’s a little more about me and the main reservations I have about either path:
My general investing outlook / what I want out of an investing job:
• Fundamentally, I really enjoy competitive / market diligence. I love digging deep on customer calls, analyzing survey data, and talking with industry experts to develop a deep understanding of a business and (ideally) form a differentiated POV on its long-term competitive advantage and right to win.
• Outside of diligence, I think my key strength is communication. Given my consulting background I’m good at developing a very clear story / investment thesis and walking through the logic that supports it. Along the same lines, I think I’ve done well answering IC questions on-the-spot and generally have enjoyed presenting my whole life.
• I get energy out of working on a team and enjoy going into the office as a form of socialization (COVID was brutal for me). I think this comes from playing a lot of team sports growing up. That said, I’m probably a bit less social outside of work than your average guy.
• I do my best work when I initially talk through my approach with someone else, then have time to go heads down and think deeply alone before coming up again to bat around ideas / refine my thinking.
• I think models are important insofar as they’re tools an investor uses to understand the main drivers of a businesses and get comfortable with “what you’d have to believe” in order for an investment to perform well / poorly. However, I have found the models we build in PE to be WAY too detailed and an exercise in false precision / mental masturbation.
• I really get a lot of enjoyment out of work / investing, but that incremental enjoyment really starts to wane after the ~70hr per week mark. I’d love to find a seat where I can work deeply for 65hrs per week with the occasional spike vs. the consistent ~80 I’ve found in PE.
• I’ve done a little bit of sourcing during my Associate program and while I enjoy getting to talk to Management, I also sort of feel like a fraud on sourcing calls when I barely know the business / industry deeply.
• As much as I hate to admit it, I do think I would enjoy looking at “sexier” businesses (e.g., DoorDash, Toast, Snowflake, etc.). Across Consulting and PE I’ve looked at a lot of “ERP for medium-sized outpatient clinics” type software companies, which are great businesses, but I’m not sure I can spend the next 20 years with my head in that space.
• At the end of the day, I believe a business really is ultimately worth the discounted value of its future cash flows.
Growth reservations:
• Given my cashflow orientation, and the recent growth-stock market correction, I do worry about the viability of venture-growth type investing as a sustainable investment strategy.
• If we focus on growth-buyout, then it starts to a feel a lot like PE where the businesses are less exciting, the models are unnecessarily complicated, etc.
• I’m not sure I will love the sourcing aspect of the job given my comment about feeling like a fraud when sourcing above.
L/S HF reservations:
• Given my affinity for working on a team I’m a bit worried about the solo nature of a public markets investing role.
• I would also be lying if I said job security isn’t at least somewhat of a concern. As I’ve saved money I’ve gotten more comfortable with risk in general, but the thought of being let go within the first year does test my risk appetite.
• Related to risk appetite, going the HF feels like a “one way door” and if it turns out I’m wrong in thinking I can make money in the public markets its harder to pivot to a different flavor of investing after.
I know this was a lot so thank you for reading this far. Given all of the above, which path would you advise I pursue and why?
I could relate to a lot of this and personally transitioned from IB -> PE -> HF. It was important to go to a firm with a concentrated bottoms-up fundamental strategy and long term time horizon to avoid significant turnover in the portfolio (i.e., reasonable lifestyle), have some autonomy over my schedule, and optimize my career earnings trajectory. The couple downsides are the limited number of seats with significant AUM and recent underperformance relative to the MM platforms. That being said, i feel like I always have the option the switch to the latter if this doesn’t work out, but probably not likely given it’s a pretty rough lifestyle and different style of making money.
This is helpful - thank you. How have you found the limited team aspect of the job compared to IB / PE? Similarly, how have you managed the stress of being marked to market each day?
The benefit of being at an established long term hedge fund helps with the mark to market stress. It’s still tough, but as long you’re aligned from a philosophical point of view with your team, you should be good. That said, you are also not 100% liable for the positions that go into the portfolio as it’s typically voted on by the PM / rest of the firm (some responsibility if it’s a name you pitched, but lower burden than having “direct” P&L responsibility and making independent trades akin to pod life). I would venture to say that it’s actually less stressful than constantly working with a portfolio company that’s under distress / underperforming.
The team aspect is something that was a big consideration. I enjoyed working together on a team in IB / PE, but ultimately, the junior investment professionals in PE do all the work and the seniors really just opine with different points of view. Yes, it’s team oriented, but it never sat well with me that when a deal comes through the pipeline, the Associates basically do all the data crunching and we do several weeks of work to sit down with the partner that gives you high level guidance on assumptions / valuation multiples. I like being able to draw on others’ vast experiences and debating the business / investment more often than just before the bud deadline. I feel that the public markets are more conducive to active debate and everyone doing the work. It’s also easier to prove out theses and people can’t hide illiquidity / subjective carrying values.
I obviously have a bias since I decided to leave PE, but the biggest issues with hedge funds and public markets is the secular decline of the industry over the past decade. The capital is clearly less sticky than PE and it’s harder to find the right seat. That said, I think PE has a lot more headwinds to it’s business than what people talk about, but it’s such a consensus trade now that I think it could be a good move to be contrarian and venture to say that the next 10-20 years won’t be nearly as good as it has been.
Personally, I think it's very hard to be a great GE investors without any industry work experience/entrepreneurship experience. You said it yourself: when you are on sourcing calls, you feel like a fraud. It's not something you can get by reading industry reports.
Bump - additional thoughts?
Go growth, you’d be perfect for it
In a very similar situation, though end of my senior associate program at UMM. Trying to figure out if L/S or late stage growth is a better fit. Would love to get some perspectives on moving to growth, particularly at a smaller fund (<$1bn)
What did you decide in the end?
I made the IB > PE > HF transition as well and agree with what’s been posted so far. To more directly address your point on your desire to work on a team vs the solo nature of public markets investing, I’ll admit I’ve found myself a lot more lonely at work than I’ve ever been. Despite not always loving the work I had to do in banking or PE, I loved my “class” and was always super close with the juniors. I loved coming into work every day because I was hanging out with my best friends. It probably (definitely lol) made me less productive, but I was happy to just work longer hours to make up for it. The public markets experience has been super different. My coworkers are awesome and intelligent and I love being able to draw upon their vast reserves of knowledge and experience earlier on in the diligence process than I would in PE like the other poster described, but the day-to-day is just not “team oriented” like in banking or PE. Ultimately though it’s a trade off I’ve been happy to make. The hours are better so I’ve just used my extra free time to cultivate stronger relationships and hobbies outside of the office.
Similar position - curious to hear what you ended up choosing / how it panned out?
+1 curious to hear too
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