Hi all,
I am coming from PE background (associate now after 5 years experience) and am considering my options to continue with PE or move into HF L/S (2-3 years long holding period and ~1 year short selling positions)
I like investing and breaking business models apart and understand what makes them tick. My experience has been all in private market side and I am thinking whether to move in public market.
I'd like to get opinions from people who have made the transition, whether it's harder to make money and be a star investment professional in a fund in private vs public market? My sense is that it's harder to make money in public market because everyone has the same access to the same public company info vs in private market you have the advantage of access to insider company info that you invest in. HF seems to pay more if you do well (bonus tied to your P&L) but it doesn't seem easy to pick a stock either.
Another reason why I am considering HF is because I don't see myself making it to a senior role in a PE fund (tier 1). It seems that either you reach associate level and then move out or you move up. Whereas in public market, the hierarchy seems less and structure seems flatter so I guess if you do well you have more room to progress/earn more?
Feel free to comment, happy to swap ideas. I haven't been in the public market so obviously my opinions may be skewed and not in depth.
I've only done public markets but my 2c:
Honestly, I'd choose whichever one you think you'd enjoy more. Its easier to have a stable career in PE but you're more likely to get really lucky and strike it big early in HF.
PE has higher barrier to entry. You can't just get $25M and do P/E. You need to be able to do deals (involves finance but also legal, etc) and have access (to businesses, etc). Scale also matters more - a $50M PE fund is simply not doing the same things a $5B one is.
HF is low barrier to entry - get $25M and you can do essentially the same thing a $5B fund is doing, albeit with fewer resources. All you need to excel is obsessive passion and a little bit of creativity.
These simple facts lead to the industry and career progressions being completely different.
IN a sense its easier to excel at junior levels in PE because you just need to do the work - build the models, etc. Other ppl make the decisions and there is less luck involved. Plenty of people are fired/ funds close down b/c positions blew up for reasons they couldn't have anticipated.
If you are skilled/lucky enough to make it in HF its easier to get to a decision making role (i.e. be managing money and making a portion of PnL) and potentially make bank. However, at this point the competition does not let up at all - and the competition is EVERYONE (remember, there is no segregation b/w $100M middle-market funds and $2B large cap funds - anyone can do essentially anything). Once you are mid/high level you are also still competing against much less experienced ppl that can still do essentiallyt he same thing your'e doing (you don't get to take advantage of 'special relationships' to source/ complete deals unlike in PE). This means you have very little job security period.
Why did you choose AM/ HF over PE?
Would this also apply to SM hedge funds?
Just to add on to Dazedmonk, because of this eternal competitive nature of HF, another big difference you will experience coming from PE/banking is the individualism culture of HF, which could be especially notorious in a bigger multi-PM platform.
100% agree with this. As someone who has done both PE and long/short HF, I would lean towards PE given the moats and barrier to entry. My bartender can buy tesla stock and think he's a genius when it goes up, which is indistinguishable from the shares owned by Citadel.
But the top partners in megafund PE firms get first looks and sweetheart deals (CEOs reach out before an auction process to gauge if we're interested and want to do a fast track deal first), etc. It's completely unfair and supposed to be that way. It's why Sequoia does so well and will continue to do well, everyone else is getting the scraps from the top firms who already passed on the deal. That isn't the case in the HF world, in fact I would argue the opposite is happening here.
I agree with dazedmonk. He gave a great answer. I've been in the public markets only. My observations are that public markets are just much more stressful than private markets. I worry about my PnL every day, and I get a lot of pressure from the top. The market does not stop and the pressure to perform is pretty relentless. In PE, there is an ebb and flow which is better. I think you really have to have a passion for this to do this well over the long run. The other aspect is that there is a lot more job stability in PE. There is actually a career path. There is less hierarchy in HF and you can move up faster but then what. You have two bad years and then you are out of a job. You have to ask yourself...what makes you think you can do a better job at this than me or the next person? It's a zero sum game. On one name, I later found out Einhorn was on the other side buying as we were selling. Only one of us can be right. The other aspect of all of this is that the job can be pretty isolating. If you enjoy meeting people, working on teams, this is not for you. Lastly, there aren't a lot of useful skills as a failed hf analyst or pm. That's kind of scary in my opinion. In PE, at least you can go work in corporate or at a portfolio company because you have more useful skills as a deal maker.
The lack of 'useful' skills thing is brutal and underappreciated. If you try to leave the industry you are just a smart guy who knows financial/business analysis (and hopefully has some money in the bank). Lots more competition for potential jobs than if you had specific legal skills or knew how to make CIMs and close M&A deals (M&A banker/PE stuff).
Basically, the job is high risk/high reward and the reward side is constantly being competed down. I would honestly leave the industry if I didn't really really enjoy doing it - I cannot overstate enough how important that is, especially when things move against you.
What jobs/careers do you see offering useful skills?
Lawyers? Doctors? Accountants?
It seems like these days, all "skills" are commodified
What does this mean, how to close M&A deals? What is involved? I am trying to find a description of this, play by play, as detailed as possible in terms of scenarios that do/can occur, if you are either willing to provide or can point to a description somewhere. I did not do sell side investment banking so I am playing a bit of catch up. Thank you.
HF folks tend to be smart, driven and scrappy. On numerous occasions I’ve seen people “fail” at HF and then do something awesome and absolutely kill it “off the beaten path” of PE / whatever. If you love the public markets I wouldn’t avoid HF because of the safety net factor or whatever
Would this analysis on hedge funds not apply to activist fund? You learn management etc like at a PE fund
I only have public market experience but to me the attractive aspect of PE or VC investing is you have more control over your investments. With the public markets you can invest in what appears to be a great company but once you buy in you're at the mercy of both the public's perception and sentiment as well as management's skill and abilities. When you take a private equity stake, you can bring in your own guys who share your vision for the company and you have more control over the direction of the investment. Your private market stakes also aren't gonna get blown up by a public panic over a bad quarter or Amazon entering your company's market. I still love the public markets but if I go back and get an MBA I fully intend on exploring private market investment opportunities for the reasons I listed.
Hi guys! Thanks for the comments, very helpful here. I agree that the skillset in PE is much broader/transferable than in HF. Potentially helpful if you were to quit PE & start your own business/invest your own money in private businesses. Let's say I have 5 years of experience in PE and if I were to move to HF L/S for 2-3 years, how hard/easy is it to move back to PE after?
bump
Hey, can I ask how did you conclude your decision and if there were any further data points / anecdotes which helped you to make a decision?
I will keep it really short: you will excel in whichever you are passionate about. Doesn't limit to just HF/PE. Passion drives voluntary actions to become better.
Why are you passionate about investing/ Hedge fund? Looking through company’s financial statements? Knowing where the market is at any minute of the day? Were do you draw the line? What is it that drives your passion for investing ?
How did you figure out that you wanted to work in HF?
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