Small SM fund over BB IB. Please sanity check
Hey guys,
Hope everyone had a great weekend!
I'm a senior at a target and have been working in public equity shops over the last 2 summers (1 small HF, and then tier 1 LO [CapGrp/Fid/Wel] last summer). Very certain I want to do publics long term. Didn't receive return due to firm-level issues. Now choosing between small SM or BB IB. The small HF has a great track record over the last 12 years, founder has great pedigree (worked at Farallon before this) and only opened up to outside money last year, but has good fundraising momentum (from my understanding). Some of my mentors I spoke with at LO shops, insisted that I go the IB path. But obviously they're looking at this from a very different perspective (outperformance v/s Large AM coupon clipping). I'm privileged enough where if this doesn't workout I can go to b-school. I have 2 very specific questions:
- How to determine if a fund has AUM momentum. For context, this one raised from a pretry big college endowment that wants to invest more. Is this one of those inflection points where, once 1 big endowment invests others are easy to get?
- How difficult is to transition to a bigger fund at some point, provided you have the requisite skills? Would really appreciate an answer in both cases i.e. founder helps connect me with his connections or if he doesn't
Thank you very much for any help!
Based on the most helpful WSO content, here’s how to approach your decision and questions:
1. Determining AUM Momentum
Key Indicators of AUM Momentum:
Questions to Ask:
2. Transitioning to a Bigger Fund
With Founder Support:
Without Founder Support:
Considerations:
Final Thoughts:
Your decision should align with your long-term goals. If you’re certain about public equities and the small HF offers a strong learning environment with a proven track record, it could be a great opportunity. However, keep in mind that BB IB provides a broader safety net and optionality if you decide to pivot later. Given your privilege to pursue b-school if needed, the small HF seems like a calculated risk with potentially high upside, especially if the AUM momentum continues.
Sources: Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Impact Funds Oncycle Recruiting?
My advice, go do banking. It sounds like you have an offer at a BB bank. I would not recommend joining a small fund right out of undergraduate for several reasons, even if you have been buying stocks since you were 2 years old. From a BB bank, you will get interview opportunities at many SM funds given your background is already aligned interest-wise, and you will get trained / develop a network through banking peers. If you're dead set on a LO, I've seen people very easily switch after 1-2 years from banking into a RA role at a LO. My advice is to not add unnecessary career risk (i.e., if this SM isn't as generous as you thought, decides to close down, pigeon-holes you into one style of investing). On fundraising, hard to say without more information such as how structured is his business development pipeline, how sticky are clients. Newly ramped clients do not mean they will be around a year from now, especially if performance is meager and the industry sees outflows.
Thanks for the reply. Further context, if helpful:
Fund at no risk of shutting down. Chunk of money family and friends (full fee paying tho, so not traditional seed), no bizdev pipeline other than founder's personal network, as far as I know.
If anything he might be too 'generous'. Talked to a former analyst, who worked there for 8 yrs out of college. Left the industry entirely due to volatility in income i.e. significant profit sharing...
That's fine, but as a first job out of college, there is a lot of opportunity cost with that decision. Early 20s in your career should be setting up a foundation to succeed, and while moving from a smaller fund to a bigger fund is possible, having a brand on your resume (for example BB --> SM / PE) will carry more weight over the long-term.
One man SM funds can be great places to work. But there's a lot of things that need to go right and as a fresh college grad it's hard to know what you're getting yourself into. Is he going to be generous with economics? Start-up PMs tend to be stingy, if fund AUM is small ($200mm). Will he train you? What was his track record at prior fund? How repeatable is the process? Does he short? How does he treat Analysts and deal with losses? Does the fund have operational infrastructure? Or is he selling you on a promise?
As with all advice in life, take it with a grain of salt and others may have differing opinions. I almost joined a boutique LO out of undergrad and I'm glad I didn't on the advice of a mentor who was completely right, which is where my reasoning comes from, and from observing other people's careers in the HF business.
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