Small Hedge Fund Bonus - What to expect?
I started working at a small hedge fund($75M AUM) earlier this year. They had $200M AUM last year but lost 23% in 2018 so a bunch of clients left. I was hired to bring a new perspective to the entire operation. They used to be a Long/Short Equities Hedge Fund with the typical 70% long 30% Short structure which hasn't worked well for years. They gave little regard to market timing, risk management, backtesting strategies and etc... that's where I came in and with the implementation of some of my strategies we achieved a 24% return this year trading small-cap stocks while being 30% short.
As a start, they are paying me $100k base + bonus. The AUM is 50% the owner's capital and 50% client money. The team is only composed of 3 people (owner, minority partner and me) two people left last year.
My strategies contributed to about $10M of the $14M we made so far this year. We are slightly above last year's high-water-mark so i wouldn't expect much of a client performance fee. However, given the fact that the owner made over $7M personally what should I expect a fair bonus to be?
Thank you.
Hey bbrrnnsafa, what a lonely thread. I'm here since nobody responded ...so maybe one of these discussions will help:
Fingers crossed that one of those helps you.
You had a great year. Congrats.
Yes, you made the owner $7mm - are you also going to reimburse him if you have a down year?
Isn’t the S&P up 27%? I don’t usually think in terms of relative returns but a rising tide lifts all boats. What was your alpha?
What do you think you could earn at another firm? What does your boss think you could make at another firm? I’m guessing you took a job at a tiny, shrinking fund, with only $100k base, for a reason...
What is the mechanism through which he’d pay you? Put more money into the management co and pay you that way?
Lots of questions. I don’t even know where to start. But since this is the internet I’ll throw out some #s. I’d probably say $200k is too low and $1mm is too high. My gut tells me something like $300-500k would be a very acceptable bonus.
i was going to say 400k is what i'd expect in this situation...and if the performance repeats again next year...then a little higher.
Think about it this way..on that 7mm...20% should goto performance fee...that's 1.4mm As an analyst, you making ~1/3rd the pie is a big %.
If you goto a multi manager and run your own book (which you might be able to do within 1-2 years), then you would get 15% of your PnL, rather than ~ 6%.
I hope I'm wrong but I'm afraid you are setting yourself up for disappointment. I know how small fund managers think. The reality is that half of your aum is non-fee paying and the other half is barely over the high water mark. I also assume that you don't have a fixed percentage of the incentive. I would peg total comp at $200k....which for a $37.5mm fund (effectively what you are) is pretty damn good. And that's how he will look at it.
This. Net or the watermark, the fund was up only 1% for the year. You probably won’t be getting much in the way of a bonus.
So essentially mostly made money on the market being up. 100k bonus seems fair.
And comparing to a multimanager makes no sense as they don’t have the factor exposures I’m guessing you are taking. Hence the returns are pure alpha.
You get paid on the performance past the water mark. Down 23 last year, up 24 this year means the partners are paid on the net 1% performance , so it’s not going to be great
That’s not how math works
A dollar in your pocket is a dollar out of his. Also, that means he lost quit a bit of money last year so the 7mm is him recouping his personal loss.
With small funds, especially those with a lot of PM money, the range can be massive. It's hard to look at a shop like this in terms of what is street. I can see a potential range - 75-150k. Unless your background is really good and you were making a ton before this and he knows this and wants to keep you. If that is the case maybe 200-400k, but I'd guess this is unlikely, because if you were in that bucket you'd have never accepted such a job to begin with.
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