Should I make the jump from PE to HF?
Hey everyone (ignore the title) but currently a PE associate at a solid fund. Got a couple of HF looks and was part of an investment club on campus in college so threw my hat in.
Got an offer at a solid single manager where a lot of the PMs etc. are ex PE VPs etc. I am up for senior associate promo in PE and needed some advice:
HF seems to be an asset class that is struggling (esp traditional SM L/S vanilla) and have been worried about this trend. One of the smartest guys I know was let go (tho he was at a MM) and this lack of stability worries me.
The reason I even interviewed because while PE is more interesting than IBD, I felt there is still a lot of transaction work e.g. coordinating lawyers etc. and sometime the tasks were even more mundane than IBD e.g. data collection. while in HF I will be able to focus more on pure investing.
Comp is also much better at the HF with huge potential for upside. Any thoughts on how to go about my decision? I am p confident of the s associate promote and also am ok with doing a MBA.
Also, not to sound offensive, but would appreciate if people who have made the transitio nor chose to stay in PE/IB type transaction roles could give insight rather than college prospects (I'm sure you all will do great but need some experienced opinions as I don't have mentors in the industry and really value this forum).
There have been a couple threads about this over the last few months. I would recommend reading them. I think you’ll find the answers to be the same. I did IBD, PE, HF and been working at a HF for several years now. I am just going to throw out some food for thought.
1) HF vs PE — at the end of the day, don’t focus on comp over next few years - just focus on what you’ll be better at. Some people are more suited for private markets and some are more suited for public markets. Some are better at private markets and some are better at public markets. The skill sets, personalities and interests are not the same. Yes at the junior level, maybe it’s similar in some respects but at the senior level it is not the same. Figure that out first.
2) If you are the HF type, you will likely enjoy the job. Most people that work in public markets like the job. It is really intellectually stimulating and there is always something going on. In many ways you are paid to learn
3) The HF job is inherently less stable than the PE job. Over the long term PE is probably a better career field / asset class to be in, but there will always be HFs. People in public market jobs know this but at some point in your life, you will stop caring about 2+2+2 and care more about what you actually are passionate about and what type of job you want to do. Many people stay in public markets because they love the game and are willing to make that trade off with a less favorable career backdrop.
4) When you’re in PE there are layers. As an associate, your job is X, as a VP your job is Y. Someone who is good at building decks and models is not necessarily someone who is good at sourcing and closing deals. At a HF you can’t really hide after a certain point. You either can make money or you can’t. If you stay in the HF industry, you are making an implicit bet that you can put up numbers. You have to go in with the mentality that you are going to succeed and put your best foot forward.
5) Seat matters a lot. Luck matters a lot too, but the importance of seat is often under appreciated. This is also very important in PE but there are fewer “good” seats in HF than in PE. I only realized this as I became more experienced, but if you can lead a good HF seat, that is an enviable position to be in. Seat matters because it helps maximize your chance for success. You work at a well regarded firm, with relatively more stable AUM, learn from experienced / good investors that teach you to do things the “right” way, you have more resources to invest, etc.
6) At the end of the day, if you’re good, the upside at a HF can be tremendous in a short period of time and you will likely enjoy your job quite a bit. If you’re not good, it can be very stressful. PE gives you a longer duration to hide on a risk adjusted basis (I.e. you can grind it out from associate - VP, so call it maybe 6-8 years depending on the firms and if you move around, making low to eventually high hundreds of thousands of comp. per year without really having to demonstrate investment prowess in a real way). At a HF, you won’t have a 6-8 year leash to make that level of compensation without taking risk. But if you perform and are at the right firm, you can do very well for yourself in a significantly shorter period of time.
7) There is no right answer, just depends on who you are and what you like and what matters to you
Is there anyway I can DM you? Would love to hear your thoughts on a decision I am making.
Thanks.
I appreciate it, what do you think is the primary difference between PE senior level people and HF senior level people? Is it simply that Pe level senior people generally need to be more outgoing, relationship based etc. while in HF space it's more pure investing knowledge? thanks.
Yeah more or less but it’s more nuanced in real life than just being simply outgoing. Can you negotiate deals? Can you convince a board and/or a founder/executive, who likely knows the business better than you, to implement your changes or sell their business to you? There’s a lot of interpersonal skills required to be highly effective, it’s not just being someone fun to grab a beer with. For good companies capital is often commoditized. Public market investors don’t need to have that skill but you still need to be able to communicate effectively within your organization.
Just wanted to follow up on the below question - thanks man!
May I ask if you are able to elaborate a little more on point 5 - where you mentioned that "seat matters a lot". Do you mean the branding of the opportunities that are offered to you or something else?
Would you be willing to do a post about navigating this? I have just reached this point as an Associate 1 in PE and it is causing a great deal of cognitive dissonance.
People don't understand this outside of this little myopic finance career hoop jumping shtick we've got going on. I'm at a big fund but after 6 months being here and stopping to look around, it dawned on me, what do I actually want to do with my life? I no longer feel motivated by the idea of getting a carry check as a large cap partner and now I am not sure what I'm left with.
It sounds like you've been down this road so I could use the advice if you're willing to post. Thank you.
Very similar situation here - so also keen to hear related stories.
Don’t
Curious to hear your thoughts on this.
If you want a volatile, uncertain career that's shrinking in size and the number of opportunities, HF is the way
Hate to be blunt, but please don't listen to someone's advice who works at a tiny HF and who was complaining on here about his comp being too low.. I can see why he is as negative as he is abt the HF industry.
I'd say the biggest difference from a career standpoint (setting aside day to day) is two fold - both negative to HF and I've done both. First, HF (or even L/O AM) is way more volatile. Typically, capital isn't locked up. You can blow up etc. It's all about daily market swings and daily/monthly P/L. You can be directionally right, have a couple bad quarters and lose a bunch, even though long term you were right. PE removes all the vol and has locked up capital. Second, PE is easier to transition out to more corporate role or other roles if needed as the skill set is more diverse and transferable. HF is less so because you're basically just a stock picker. Less doors open if want to / are forced to leave. None of this is to say do not do the HF, just pointing out the reality that its way more volatile and less versatile career. I'm kinda too late to switch at this point but the older I get the more stability I'd prefer and I'm not sure this is the best path for that...but is what it is now. Cleary there are many benefits of the HF side - own your own investments, way less if any bs tasks, often time better hours and less fire drills, etc. No right or wrong answer just providing some context.
I'd also point out that people are just as pessimistic on the PE forum of this site as they are in the HF forum lol
Posters above basically broke it down. You are at the stage in your career where the "track" disappears and there is no right or wrong answer. In fact, there never was a right or wrong answer for anything about careers but the "track" is a nice marketing mechanism to give young college graduates psychological comfort in their choices and provide the relevant industries (IB, PE/VC, HF) a continual source of fresh labor at relatively low cost
Not having done PE, my impression was that for someone that doesn't particularly enjoy deal sourcing, transaction work, and politicking, the preference probably goes: excellent HF/LO is preferable to excellent PE, but average PE is preferable to average HF/LO. Reason is for an average HF/LO, you frequently have to worry about whether you'll have a job at all. Which is arguably worse than wanting to blow your brains out doing PE work.
For those who find public markets work more interesting than Pe work, do you think you'd enjoy doing 1-2 years of public investing, then potentially 1-2 years of unemployment and looking for a new job?
That's my take from the public side. I don't know, maybe PE is just as dire and it's all a greener grass type situation.
How do you sniff out what is "Excellent HF"?
Non competes though? And you could always go to a fund of funds.
I'll approach this from a different angle.
The people I know who have been successful in HF over their careers tend to be fairly entrepreneurial. They are comfortable with risk, operate better without structure, and want the ability to paint their own picture. Ultimately, they have a lot of confidence in their own abilities and are happy to forgo the safety of working in a large, successful institution like KKR for the chance to bet on themselves. You are either attracted to this or not.
I also think this job is terrible for people who are uncomfortable with risk, uncertainty, and are in general anxious. Are you the guy who will bet big on something you think is a good idea and stand behind it? Or will all of your investments be perpetually undersized because you are afraid to jeopardize your career and the fund?
I believe 90% of how comfortable you are with risk is inherent to your personality. It is hard to change that at this point in your life. This is why having experience investing in the market prior to joining the industry is important because it is helpful in informing how comfortable you are with risk (that said, I am a lot more reckless when it comes to my own money vs. LPs). If you like it, that's a great sign. But if not, maybe you should not build a career around something that makes you inherently uncomfortable.
Given that you don't invest, if I were you, I would go to bschool, do a summer at a HF, and then decide if you want to do it for the rest of your career or go back to PE.
You want to work in an industry that is growing, now shrinking. The HF world is getting smaller and smaller every year, and more and more people are struggling. Unless you are really extremely good at whatever HF strategy you are going to do, I don't think you should make the jump.
I think some others have voiced similar sentiments as me but I'll add my own take. PE to HF only worth it in a few scenarios: 1) large-scale prestigious HF. 2) ???
Pedigree/prestige will be the dominant factor until you're a PM at a MM. Large-scale SM means you're downside is cushioned to a few hundred k while upside can be in millions (especially if you're covering tech or whatever ends up being the hot sector of tomorrow).
If you start out at a subscale fund, you might learn a lot and while that's cute, if there's a tech bust, your fund might get killed and you'll be left bouncing around small funds for the rest of your career since large funds will weigh lack of prestige against you.
If you start out at pedigreed fund, the MM option will literally always be open for you - as an analyst for a few years and even PM roles after a few years. It still surprises me that MMs (esp Citadel ones) will hire Tiger analysts as PMs to run 2-4bn pods with no experience managing factor-neutral strategies while they'll often have several analysts with multiyear experiences in factor/market-neutral models.
If you're trying to picture financial success at the age of 40/45 in the HF model, it looks like this: 1) partner-level economics at large-scale SM (Davidson, Eminence, Tiger cub, etc), 2) PM at your own sizable fund (which you launched after leaving your own pedigreed gig), 3) PM at MM (I've been at an MM and anecdotally feel like I see more PM seats awarded to Tiger analysts than from within MM ranks).
I've been in the industry for 5+ years and definitely do not feel optimistic about it. But I have friends covering tech at large-scale funds and they think they're investing gods.
A few questions:
1) What is large scale or sizable in your view?
2) I have seen some of the same situations in terms of hiring Tiger analysts as PM’s instead of promoting other analysts? Why do you think this is the case? Doesn’t really seem to make sense logically?
3) Why are you not optimistic after being in the industry 5+ years?
1) There's no way of answering this without generalizing so feel free to critique or improve my answer: no hard or strict definition but a few bn AUM with ~10 IPs is good scale. 10+bn with higher number of IPs is amazing economics. I don't want to be definitive because you can still find the right seat which might be a $900mm fund which grows to $2.5bn over 4 years while you grow up the ranks - but it just doesn't happen that often these days. I don't know if there's a real definition of prestige but excluding tiger lineage, AUM is probably a good indicator of prestige (Eminence, Select, etc). That said, plenty of great seats in 1-3bn but I don't know how/when they open up.
2) I'm not too sure why that's the case, tbh so if anyone else has more color, I'd love to hear it. My guess would be that Citadel will pull the plug on a crappy PM regardless of background so not a lot of cost in trying out tigeresque analyst? From my perspective, if I were an allocator, I'd rather give a book to a seasoned MM analyst with a carveout than a SM analyst who has been long-biased and might not know that you have to play every quarter. MM BD doesn't really care about fairness to their own analysts, lol.
3) Unfortunately, I wasn't focused on prestige when I entered the industry. I was at a smaller fund (non-tech focused) and then at an MM pod (non-tech focused) so never got paid from returns or scale (Maverick can pay their analysts 400k even if they're down -10% but a $100mm fund won't). I had consecutive blow-ups at my MM pods in years 1 and 2. Yes, everyone enters the MM game knowing that the career can be very volatile but no one expects it to happen to themselves but it happened twice to me. So my own experience is responsible for my lack of optimism about the industry. My outlook would likely be different had I been able to get a job at Select or Third Point, etc so if you want optimism about the industry, wait for those analysts/PMs to chime in.
Yes, of course I could land a winning pod team for the next 3-4 years and maybe I'll be happier next time I post. But if someone is switching from PE to HF, I would only advise them to do it for prestigious, safe seat - otherwise the earnings NPV is dismal. If you really enjoy watching stock prices move, play your own PA on the weekends - no need to jump into a declining business.
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