PE vs HF in London, pros & cons
Most of WSO articles about the topic are America-centric, so I'm looking for London answers.
Is the job security in HF inferior to Banking & PE? How frequent is it to get fired due to poor earnings by the HF or it's shutting down (compared to PE & banking)?
Is the comp ceiling in HF significantly higher than PE? What is the probability of getting to that peak of the HF career associated with the ceiling (as compared to PE partner and banking MD). How does the most common long-term comp NPV for HF compare to the career NPV of PE comp
How commonly do the owners of a HF get generous enough to significantly share the spoils of a good year with mid-level staff? How frequent are the good years?
Good Qs. Bump
Not a lot of HFs in london anyway tbh. Interning at one of the MMs (citadel/Point72) so can try take a stab at it.
HF comp ceiling is higher but unless you live and breathe markets (ie comp is somewhat an afterthought) you’re probs not getting to that level so average risk adjusted career earnings is higher in PE & banking.
job security sucks, as I said not many big HFs hiring in London and small ones closedown all the time. At the Podshops, churn is notoriously bad; career tenure is like 1-3 years on average.
Can I ask, how do you know this about churn? Is it anecdotal or just from what you’ve read online? Only asking as have also read the MM churn reputation in London is overstated and it’s not as bad as it used to be, nor as bad as in US
Yeah this is a decent comment, especially re living and breath markets. I think most people at Hedge Funds, myself included, don't really view a lot of the work as work. I literally have nothing to do all day but play around with data, read/create research, and monitor the markets I trade. I'd do 50% of this stuff anyway if I was unemployed, so it's not much of a burden. If you're not passionate about markets though, forget about it.
I'd also add that while career tenure is pretty brutal (1-3 years), the ability to bounce around is high. The HF game is very mercantile and lots of PMs will be at 2-3 shops over a decade horizon. It's not as black and white as if you fail at fund 1, your career is over. Go on linkedin and look at any established PM, their job history will include a lot more firms than you're average banker. There's also decent exit opportunities back at banks, insurers, and asset managers. Most people won't hold giving the HF job a swing (even if you blow up spectactularly) against you.
Also re comp unless your at a single manager almost all PMs have direct payouts, so there's no need for founder generosity. You eat what you kill. Compared to banking/PE comp the median is lower but the average is higher
Would jumping around so many firms in such a short timespan ever limit your growth as an investor as you don't get to see your positions thru full cycles? At least for long term value investors. Isn't it hard to find funds that align with your philosophy, let alone so many funds to jump around?
I'm not getting enough clarity. What precisely do you mean about chances of "getting to that level" (do you mean passion for markets research)?
Market research isn't the only thing tbh, you have to actually identify mispriced stock meaning you're seeing something the rest of the market isn't. Its not like sellside research where you just model current assumptions or w/e the market is thinking, you need to go beyond and realise something new and identify what will make the market align with your view. In essence, you have to be correct. Not everyone has what it takes to do this since you need to absolutely love looking at equities (I'm doing L/S so I'll use this example), be materially better than most other market participants, and have a good amount of luck.
Its performance-based and you need edge. If you don't have edge and you're just doing w/e everyone else is then you're not making money. PE and IBD are a lot more lenient in this regard. If you're not top x% of talent in the HF world you're not making more than your PE/IBD counterparts.
Fwiw, most good analysts and PMs I've spoken to know for a fact they want to work at a hedge fund, even if they're making less than PE on average, the question "PE vs HF" doesn't come up for people that have what it takes to do well at a HF apparently.
He means if you don't live and breath markets then your passion isn't high enough to allow you to be good enough to reach the higher ceiling of comp he's talking about.
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