Curious what the board’s position is on the following: I have said all my careerr that Analysts/Juniors are short the same put as founders/PMs but at a fraction of the premium.
1) non-competes and other soft terms have gotten worse for analysts over the past 15 years.
2) employers have made non-solicit terms for PMs stronger to avoid entire teams being lifted which primarily imposed soft costs on analysts. This is especially problematic as PM / investment team turnover has increased.
3) overall industry comp has come down, which has reduced all analyst comp generally.
Take Melvin for example - the people who are hurt most are young analysts who haven’t had duration to save / build skills and learn sufficiently. Obviously in this case, Melvin may remain a going concern, but in cases with bigger impairment or going under, the cost is borne primary by them.
So the question is, how attractive is the risk/reward of entering the HF industry as an analyst today? How do those of you who recently joined the industry think of it?
Hi HFPM, any of these discussions helpful:
More suggestions...
If those topics were completely useless, don't blame me, blame my programmers...
I joined the industry 3 years ago and I also agree that it’s pretty fucked. Not to mention that risk of working for unscrupulous PM’s who don’t give a f about your career and will actively work to lower your career prospects.
that said - I’m still passionate about the business and believe I can be a consistent revenue generator long-term. The goal is to try to get a starter PM seat at some MM fund in 2-3 years if I’m lucky. 4 years if not.
I do believe that the skills from the industry are valuable. The ability to compound personal capital if you are patient and long-term greedy is substantial. I’ve been investing since I was 16 and I’m just super passionate about the business.
the other question is: what are the alternatives? What industry offers better expected value? PE is arguable because it seems to be just as structurally screwed as the HF industry. Tech is overrated.
Care to explain your thoughts on each of these
Which points specifically?
Thank you. This is helpful. I love to teach and believe I’ve always been more than fair but I’ve also watched my firms jam people on my teams and not let me do anything about it (I.e., I said to take money from me and reallocate it and I was refused).
PM at MM in 3-4 years seems aggressive but given the way most of them work, you could have a carve out for a subsector possibly.
So I agree about being long term greedy. I’m just not sure that many analysts are learning the right skills to do that anymore.
I have no idea where else smart people should go. But I think junior folks have as much risk and a fraction of the upside which is unfortunate.
It is difficult for me to really get a true gauge of where the people I worked with fell on the spectrum of fair to shitty personalities relative to others in the industry. The coverage I was given was shitty and actively hindered my career prospects, there was no training whatsoever provided, and the tasks I was given were not helpful to my development in any way. But at certain point, I just accepted the shittiness and trained myself to be a better analyst and proactively worked to get feedback and meaningful data points.
My comp was average with industry although the firm was a significant outperformer. I actually don't really complain about comp as I was by no means a meaningful revenue generator. I think being long-term greedy in this industry is important and there are too many of my peers that are looking for the quick buck. I think my team and PM expected me to complain about comp however.
The really shitty part occurred with my firm using external headhunters to purposefully botch my ability to recruit, firing me, and then controlling my recruiting process through those headhunters. Apparently there are ways in this industry to screw people over outside of legal documents.
EDIT: I'm not entirely sure if the first 2 paragraphs are too different from many other people in the industry. I'm curious to hear your thoughts. I would also love to hear more about what you are referring to when you say the "right skills" to be long-term greedy
What do you mean by PMs actively working to lower your career prospects? How do they do this? Any why?
Can I PM you? I'm aligned on a lot of the points you laid out above.
I'm an IB analyst split between the HF and AM world. My passion lies within public markets and I've been investing since my 18th birthday. I'd love to pick your brain on the industry to help me think about a career. Thanks in advance if you can spare the time.
Sure, feel free to PM
Analysts really aren't short the same put, when a book blows up it is much harder for a PM to explain and find a new seat. You only get a handful of real shots running money, and if performance is bad the fallback options aren't great. As an analyst, on the other hand, you get to learn and make mistakes while someone else's ass is on the line, which is an incredible premium to be paid at the right stage of your career. As for whether it has gotten worse for analysts, there is no question that it has, but it is the same for PMs - in the past you would make multiples for succeeding with the same level of risk.
To answer whether the risk/reward is worth it, it is important to know what "Plan B" is, because the odds of anyone starting out in this industry and making it past year 10 is very low. I work at a quant shop and most people here have FAANG as a fallback, so I think they have a solid deal. The people who make it by either climbing our ladder or performing in a PM role at a platform both have great careers. Those who don't basically "retire" in a cushy job at Google or join a startup they are excited about. For L/S analysts (which many of my close friends are), I think the upside is better, but the risk is much more real than in quant. I've seen a number get fired without a Plan B and can tell you the risk / reward for them was certainly not worth it - they didn't realize how volatile the industry was until they were fired, and now think the upside would need to be multiples of what it is to compensate for what they are going through now.
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Yes, other areas of finance are common landing spots (asset management, sell side, etc.), the question is how much someone would enjoy spending the rest of their careers in one of these roles. Many don't like the change in the nature of work and compensation, but for those who were deciding between a HF and one of these options in the first place might find the risk/reward of a HF much more appealing.
I think quant is different than discretionary strategies.
Secondly, what you describe is probably true for a 23 year old out of banking or someone at a MM who is just going to get bounced from team to team across sectors, but anywhere else it’s hard. Seats are shrinking. If 5 good Melvin analysts start looking tomorrow, it could be 6-9-22 months before they all land. That’s hard as an analyst. in a bad year, analysts make little/ no money or get fired and in good years they make a fraction of what the PM does. I obviously get why, but it’s hard nonetheless.
Thirdly, being a PM and having a track record helps immensely in marketing. We all make mistakes and demonstrating we learned from those is critical, but having a long track record helps.
You didn’t address my soft point on non solicits. Those rightly protect the fund and it’s investors, but a large portion of the cost is borne by analysts.
i agree with you on backup plans.
Yes agreed that being an analyst is much better earlier on when you are younger (lots to learn, have flexibility to move around) vs. later on, especially when one has overstayed the analyst role. For most people there is some point where they would rather be a PM than an analyst, but that is certainly not day one.
The non-solicit is just one of a many anti-competitive terms that the industry is using, and it isn't just analysts who are facing the costs of this. It is a zero sum gain for employers over employees, and it is not just happening in finance. Fwiw I don't think they "rightly protect the fund and its investors", they just prevent competition and let incumbents maintain their oligopolies.
This varies a bit with the structure of the fund as well. In MM pods the analysts and PMs share the same risk, while in many quant SM funds analysts take on both more risk with less upside than the PM/manager. If the PM screws up, the analysts get fired. If analysts get promoted then they are in a good spot, but getting a senior role in a SM fund is quite rare from what I've seen, much harder than a tech firm because there are very few such roles and the existing people never leave.
I had this same discussion for a while a couple years ago- I was a senior in college and was sitting on offers from IB, ER, and an analyst program at an MM HF. I looked at the risk rewards for each, and the HF was by far the most appealing. This is how I thought about it:
Granted I got quite lucky that I met a lot of people during my first year, and even was told that I'd be put into other teams if my pod blew up. Not all junior analysts have that safety net, so I understand why it's daunting.
That being said, all of the MMs are hiring out of undergrad now. And these programs are always highly oversubscribed- the risk/reward is clearly there for a lot of these smart kids who most likely have other offers but fancy their chances here.
I think you’re missing the point of the non-solicit.
Another fund will take a chance on a PM without his/her team. For the analyst, when a PM leaves, they’re jammed because they made a bet on that specific PM at that firm. So my point is that PM non-solicits hurt analysts more than PMs.
Yeah fair point- I don't have a lot to say on it other than from my experience analysts that build a network early on are able to move to a different team pretty quickly and the non solicit isn't a huge issue for them. Again, probably not par for the course. I guess my response was to the last part of your question:
"how attractive is the risk/reward of entering the HF industry as an analyst today? How do those of you who recently joined the industry think of it?"
I mentor students looking to break into HFs, and none of them have asked about non-solicits. Either they don't know or they don't care, and I'd put my money on the former.
Picking a job, to me, is like making an ultra concentrated (50%+ of your portfolio) investment in an IPO that you have to hold for 2 or more years. You would have to do an extreme level of DD to justify that kind of concentration, but because you're scrambling against other candidates to get an "allocation", the company doesn't have any incentive to help with your required level of DD. If you can execute that analysis properly and find that gem among the trash, risk/reward is fantastic.
But your question is on entering the HF industry in general. If you couldn't do the DD above and had to randomly (or close to it) pick an investment, subject to the same constraints, that would be an unwise process in my view, and not a bet I would take. Of course, seeing as this is a job that you presumably need to feed yourself, the hurdle rate may be lower (i.e. what is your next best alternative? might be crappy as well).
Curious why you are asking the question? Sounds like you are a PM.
I am a PM.
Melvin made me think about it. A friend of a friend is an analyst there. When he took the job, virtually every analyst he knew would have traded jobs with him. Now, a mere 1-2 years later, he’s jammed and having to deal with this.
i guess I think about it because I have a conscience. Most times I’ve hired an analyst, I try to get an exception for my non solicit so I can take them with me if I leave. Not to make it easier to leave, but so I don’t strand them.
How is your friend at Melvin doing? Has the culture become toxic there now because of the draw-down?
IMO, hedge funds are great because of the opportunity to learn and fewer hours than IB. However, non-competes make it difficult to escape a toxic culture, and there’s an age where you‘re too old to be an analyst and you're either a PM or in a rough spot.
At what age do you think that is?
In my experience, not MM, it’s around 27-32. I see people extend this by becoming the senior analyst managing the other analysts. However, at some point, you're just tired of being an analyst and too expensive.
In my view, the risk-reward of the industry as a whole is substantially less attractive than private equity or investment banking. Having worked in private equity prior to joining a hedge fund a couple of years ago, I can now see how incredibly overpaid many private equity professionals are. They may work long hours, but many of the things they do are related to process and are just paper pushing - not the kind of process that actually creates a ton of value. A friend of mine who works at a well-known PE shop put it well "we are all hard-working and highly paid bureaucrats, but not athletes". This is where I think pound for pound the hedge fund job is much tougher - from day one you are exposed. Even if your firm says "we are not driven by day to day PNL swings", they will care a lot if your name draws down. Especially in the early days of working for a shop you are under a microscope. Working at a hedge fund is more like being an athlete in a team sport. Your individual performance is so much more visible from day one. I've seen very talented people fail miserably, and it was not always their fault.
Having said that, the tails are much fatter in hedge funds, and that's what we all play for. I'm preaching to the choir here, but the operating leverage in a hedge fund is phenomenal. There are far more qualified persons here to talk about MMs, but on the SM side, I can comment. It should be a goal in itself to work for a HF with high aum/capita. Typically speaking these are highly revered institutions with a vetted process and a strong historical track record. If turnover is low, there is a good chance you will be taught some of their secret sauce. When you are a junior analyst, it's great to learn some real value-added skills at that age/experience level. Think about it for a second, what does the 2nd year associate in PE or IB really know? They have learned how to make pretty slides, some process stuff, and nice trading/transaction multiples. That's it. If you spent 2-3 years grinding at a top HF, there's a good chance you have picked up some real edge, process, risk management skills. Knowledge and skills that LPs pay 2 & 20 for because it would be very difficult and expensive to replicate them internally.
I don't share much personally here, but as you can see from my posting history I started my career roughly 5-6 years ago. Most of my peers are at the senior associate level, with some having made an early jump to VP. Because this is such a flat industry and performance is transparent, I've been able to land a senior analyst / primary coverage seat where I am building out a strategy for a fund and have visibility to partnership in a few years. As you can imagine the immediate rewards are more attractive, and the potential rewards are of a different magnitude. The other thing is that I used to work for a big, brand-name blue-chip HF (it gets thrown around a lot on this forum), and now work for a fund that wouldn't ring any bells here. Yet, because of the operating leverage and aum per capita, people at this "no-name" fund make substantially more and are a lot happier, to the point there is virtually no turnover. It's very hard to figure out what the good places are. I would agree with the view that the firm and people you choose to work for are the most important investment you make.
Interesting point on how a no-name fund can be a better opportunity. How would you evaluate if an under the radar HF job is a good opportunity?
I would be willing to argue that the bulk of the best HF seats are at "no name" funds.
Interesting what was your performance on the last few years?.I have heard Renaissance technologies used massive leverage to boost the 10% base returns.. Admittably their Sharpe is above 3.
I wonder how your found them and if you are based on Switzerland? They are low key and have lots of aum
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