Stable SM analyst to MM PM
Is it a wise choice to move from a senior analyst in a SM fund to a PM in Citadel/P72/Millennium?
context: I have spent 4-5 years in a SM, very successful hedge fund and have a seat in the healthcare team. I am very respected and in a good year net 1-1.5m and in a bad year net 300k.
I have now two offers from very well respected HC MM funds to come start my own book. With a team of 3-4 analysts covering a few different sub-sectors.
complication: I am really good in stock picking but relatively new to risk management. All my work has been net 50ish so far and now I have to do net -10 to 10. I of course can construct such a portfolio, that is how I got these jobs but I have plenty of things to learn on the PM seat. I really enjoy team building and talent cultivation and like the business side of MM, which is none existent in SM fund that I am part of.
potential result: in the SM fund I have a path to partnership but it is a long, but relatively safe path. Think 4-5 more years and I will net 2-3m each year on avg to get there.
MM fund is investing 5m year one to help build my team and launch the effort. Then it is full risk full reward with an opportunity to go anywhere between 0 and 5x of my SM earnings.
Thoughts from the group here? Am I crazy to leave my stable SM role and run towards this PM opportunity? Or taking risk in my early to mid 30s is the way to go?
How much weight age can I give to the fact that not one but two of these MM platforms want me even though I seem to have doubt on my capabilities?
would love any and all help! Thanks fam
Bump
Is that $5M just your guarantee + guarantees to your analysts?
$5m is investment as guarantees for the analysts, not for me
Given these facts:
I would stay where you are. A PM seat at a MM is great, but most PMs don't earn more than you currently do. Statistically, you are unlikely to be a superlative PM. Even if you ultimately are, the transition itself is risky, between rebuilding social/political capital and learning an entirely new risk framework.
On a risk adjusted basis, your current seat is better. You can get a PM seat again. Revisit it in your mid 30s when you're sitting on close to $10M liquid and can withstand blowing up your pod. And with a better/longer track record, you'll probably get a better starter book and terms.
Echo a lot of this. I am in a similar seat to OP but at a smaller, leaner fund where I'm currently a partner - implying my comp is > 75% bonus/equity stake driven.
I think what's worth adding and a necessary question you have to ask yourself is what your LT aspirations are. I think I've written this elsewhere on other posts, but there are senior analysts / partners out there that are very comfortable being the #2 or #3 guy at a SM, and over the LT their comp continues to increase over time with larger % stakes and likely more responsibility while never managing the book fully in its entirety. There are guys who thrive under that model who never want to be the end all be all as it pertains to risk mgmt, and the economics are still strong.
Then there are guys who want to be a PM at an MM from day 1 who are aiming to garner as much knowledge and experience early on to eventually make that leap when ready (early-mid 30's range age-wise typically). They either a) want to be a PM within that structure over the LT, potentially moving fund to fund should either performance is strong and other MM willing to buy them out/offer more AUM vs. blow out a quarter on bad performance... or b) are attempting to build a track record in a seat to eventually cultivate their own launch. If it's A for you, then make the MM jump and do the PM gig, manage the risk and build the team with that AUM sleeve. If it's B, then I think there's more ways to get there.
Think the larger question if you eventually want to run your own fund entirely begs the question do you think your current PM at the SM would be willing to seed you / give you the reigns eventually when you're ready? Those dynamics you'd have to sort out, but arguably the SM role can be perfect if you're being groomed to essentially be the next PM over the medium/long term. I think the MM model makes more sense for you only if you 1) want to launch your own fund one day and 2) don't see a pathway to being able to successfully do that remaining at current SM seat. I'm probably not wording this very well but it boils down to LT aspirations. If you are hellbent on launching a fund and don't see a way to do that at your current SM, then I'd ONLY leave for a PM seat at a multi as this is the only positive career move you can make towards that LT goal. If you are unsure, I think you stick around the SM longer, attempt to try and manage more risk individually where possible and see if you enjoy the increased responsibility.
Don't change what isn't broken!
I am curious what the next step for a newbie PM at MM fails at 1st or 2nd year after moving from a SM. Will he/she be able to find another PM job at another MM or move back to the SM world as a senior analyst? What are the typical precedents?
Meh, depends. Depends on reputation/connections and any other indicators around track record. Guys can get seats for a whole host of reasons across MM, least of which are "failing." I mean if you have a down ~5% quarter with the entire fund up > 5%, maybe the newbie PM needs to re-evaluate their ability altogether...
Right, but when they got fired, what types of firms would they typically go to?
Rinse and repeat
How big is the current fund? And I was under the impression that good, non-new (you said 4-5 yrs) analysts in good years at great funds are making $3mm+ (these funds have had their fair share of
30%+ years over the last 4-5 years). Would love some more color on your current comp situation (thinking about leaving for HF myself).
Also at the partner level, what do you think comp scales to in a great year (25%+). That seat seems really stable so I would role with that
Classic PE guy
This guy is one drawdown away from ending up in corporate.
Dudes been spewing the same non sense in a lot of threads here lately if he is who I think is
I would guide you towards the back office vs. a hedge fund if you want a long-term career.
OP, mentions he makes 1-1.5mm in a good year. People respond with what is comp, and when you are 10mm liquid hahah.
Seems like great options just depends on career timing and risk appetite at this time. Being given that much resources at a MM is putting a lot of faith in you succeeding.
I said $10M liquid because he's expecting to make $2M - $3M until he makes partner. It's not exactly a stretch if his assessment of his trajectory is accurate.
In general, analysts are way too eager to abandon a steady seven figure role they're comfortable in for an opportunity at eight figures for which they have a vanishingly low likelihood of success.
OP here, let me add more context that answers few of the topics above.
Age: I am already in my mid-30s! I spent quite a few years in academia (since I am in HC) and spent a few years in management consulting/corporate/banking. Both of these lens have been incredibly helpful in developing an edge but age wise has added up.
Current shop: multi strategy single manager long standing hedge fund (40b+) with an amazing track record on stability and performance. This is what makes this decision extremely hard. On one side I know I am not going to blow up any time soon, so it is an extremely stable gig. But on the other side I also know my independence and responsibility is not going to grow quickly either.
Current role: even though majority of my current role is in public market investing, I also do privates (growth equity). The fund managers see a path for me to get more independent on the privates but don’t believe I am there on the public front. But this goes again what I am hearing from the MMs. This is what makes this decision difficult again. On one side I am hearing dude you are awesome, come and start your business here and on the other side my current bosses are telling me you are not there, be patient and you might get there.
Learning: I feel like there is a lot to learn in my current seat - macro, option overlay for risk mgmt, converts and how to trade them, etc. so I am sure staying around I will learn a lot. But where is an end to that? I am sure 5 more years here, I will have more to learn then as well.
Eventual goal: eventually I want to have my own business and build my own team. I feel like (and I have heard from enough folks) I enjoy mentorship and team building. My current gig does not give me too much options there in the short term. MMs are telling me business building is what this is all about. Grow tentacles and spawn new PMs and build your business. That makes it quite attractive.
How has fund performance been? If it’s the hc/biotech focused megafund I’m thinking of, and it’s the first time under high water mark, will you still get paid $2-3M?
Performance has been relatively good. I think we will be one of the best performing non market neutral healthcare fund.
That is why i said 2-3m in a good year. This year would be the lower end for sure, somewhere in the 400-500k range. My best guess.
Super helpful color. All I'd add to the above response that I gave is that I think "business building" sold in the MM model is fine as long as you're OK running at their strict parameters for both market/factor neutral, performance bar, even % comp in your own returns, etc. The reason guys leave the MM PM seat to start their own fund entirely is because they believe they've developed an edge or process that can exist and drive extraordinary returns beyond a fully neutral model, and they believe they can do so at scale with their own economics. The BIGGEST challenge in this is: how can you know for sure if you've only ever been in a MM PM model?
You do get a sliver of "running a business" and creating or managing a team within the MM model so I don't mean to completely write it off as something unattractive from what you're looking for. I just come from a position where my PM was a partner at a SM that shut down, ran a book for 2-3 years at an MM against his will basically, took that experience to learn how to appropriately and effectively manage risk but with the sole intention of eventually launching his own fund that has much wider risk parameters, less strict need for neutrality, etc.
And then I think beyond that it's sector and style. Do you prefer having pretty wide bandwidth? Do you like being able to invest across every sort of deal and security? Do you enjoy the private side? At an MM, you're a sector guy. It's not a bad thing, it just means you now trim what I'm guessing is a pretty wide coverage and you're getting ultra-focused, building a business in a very narrow setting. MM's don't run concentrated but they run their respective pods as such. Are you OK being one of several tech PMs? You also have to bear in mind and this is PARTIALLY speculative, but you are essentially competing against other books within the same MM. The trading style and duration is drastically different from what I expect you're currently doing. Do you want to trade more?
All questions worth pondering but I lean towards stay.
no brainer, stay
Why is this such a no brainer? Can you please expand?
I wouldn’t say it’s a no brainer. I empathize with you for thinking this is a hard choice. There comes a point in this industry when you feel you are no longer satisfied in a support / side kick role and desire to be in the driver’s seat.
I think it’s such a personal preference / self confidence choice. If I were in your shoes, I would ask the following questions:
The last question has a lot of baggage. Because as I think you alluded to, making the jump from being a stock picker to a business builder / PM is not easy. And from my observation, the older / longer tenured the PM that jumps, the lower the chance of success. That’s because the SM guy that makes a jump to be a MM PM late (let’s say in 40s) in general is 1) less willing to put in the work, 2) less willing to re-learn / change how he does the job, and 3) less likely to be satisfied with comp (assuming you’re a senior partner at a successful fund).
Anyway, both seem like great options and hope you make the decision that’s right for you!
OP here, you have asked all the right questions. Thanks for helping frame it this way.
OP; 1) can we understand your background better- are you 4-5 YoE on buyside? or longer total YoE across shops? 2) how would you rate your relationship, work flow and interaction w/ founder/PM? 2) you said your earnings right now range from 300K to $1-1.5M. How do you figure $2-3M avg next 4-5 y (before even factoring in ability to make partner)? Seems super high and is a pretty massive ramp (why would the founder pay you this? assuming same lvl of perf as prior yrs. 4) on the MM role, obviously super crucial Q, - how much assets would you be starting with and what economics are you getting? On $300M * a good 5% yr * 15% PM take = $2.25M which sounds good but your failure rate may be 50% y1 (you noted being "new to risk mgmt") so your risk adjusted take would be ~$1M/yr. Tell me what I'm missing here.. but under these assumptions I don't see why you would take the MM role unless you absolutely wanted to be in a PM/drivers seat and were extremely confident enough that you think you could hit the higher ceiling otherwise you are giving up higher risk adjusted comp
OP here
Experience: so far a total of 4-5 years in buy side. I have been in one shop and the shop (and me) has been extremely successful. The reason for this I believe is healthcare funds come in 2 shapes - therapeutics focused large hedge funds/pods with little sub-sector diversification or non-therapeutics shops/pods with limited exposure to drugs. Our team (and my personal experience) is a good mix of all sub-sectors without restrictions on sub-sector, geography, and instrument.
Earning range: I have had 3-4 earnings so far and like all SM folks here my experience during these YE earnings has been extremely qualitative. No quantitative metric on how the fund landed on my actual bonus. I have only asked if I "feel" like I was paid appropriately and by now I have a good understanding of how the partners think. The reason why I feel confident that on average it will be $2-3m range is the team structure (only a few members for a $3-5b fund) and the fact that we follow the 2-20 model, which means in a terrible year we can still use the management fee to pay out bonus. Plus, all the LPs are long term oriented, not to say they will rework the high watermark, but wont be against paying out folks with management fees. Also, all said, given how shitty the HC market is, as I said before, we have done relatively well.
Payout in MM fund: your calculation is relatively spot on. The question is not what the payout will be next year, given the macro fragility, I expect the change of next year being better than $1m as relatively small, but if I do survive year 2, year 3, year 4, and year 5, then you are talking about economics that just cant hold water vs the fund I am currently in.
Year 1: $300M * a good 5% yr * 15% PM take = $2.25M; probability of success (50%); probability adjusted payout: ~$1m
Year 2: $600M * 3% yr * 15% = $2.7M; probability of success (50%); probability adjusted payout: ~$1.35m
Year 3: $750M * 3% yr * 18% (increasing economics better performance) = $4M; probability of success (60%); probability adjusted payout: ~$2.5m
Year 4: $1B * 3% yr * 20% (increasing economics; sub-teams start contributing) = $6M; probability of success (70%); probability adjusted payout: ~$4m
Year 5: $1.5B * 3% yr * 20% = $9M; probability of success (70%); probability adjusted payout: ~$6m
These numbers might even be a bit naive. If I survive in MM for 5 years, I should be doing even better than these numbers.
Current fund:
2022: $400-500k (crazy year down side)
2023: $1-2M (better year, my guess)
2024-2026: $2-4M
So, this entire debate is not if I should take the 2-3m on average in the current fund for the next 5 years but more if I should aim for that non-linear payout growth over the next 5 years in MM.
Don't forget about your analyst payouts too and your potential netting risk.
as an internet random who knows nothing about you, i think your MM projections are -extremely optimistic-, candidly speaking. being able to do 3 % year in year out is extremely rare.
but maybe you can kill it in which case go for it.
may I ask the following size number, like "300M", means GMV?
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Year 1: $300M * a good 5% yr * 15% PM take = $2.25M; probability of success (50%); probability adjusted payout: ~$1m
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I'm sure you know this already, but I think that it's important to recognize that you are at a really critical inflection point in your career. Based on my own experience and what I have observed, you are at the point in your career where people either level up and make the transition to PM or not. While it sounds like there is an upward path at your current fund, it also sounds like it will take some time. As we have seen in just the past 6 months, there are so many idiosyncratic things that can happen that can put what you consider today as a "safe" path in jeopardy. The advice that I was given when I first started out in the industry was to stay as close to the capital as possible (unless you are at some large branded HF, the last thing you want to be is a 40+ yo senior analyst with no PnL and formal track record to market). So if you have an opportunity to manage capital today, my inclination is to take it. To me, that is most important factor that should be driving your decision.
This is spot on. OP, I know a lot of people responding are junior and never been given a business with resources possibly you have. Doing a “expected earnings” for a decision this late in your career is truly a worthless exercise you are not 2-3 years out of school looking at exit opportunities. You are choosing the next 5-10 years and very very likely “prime time in your career” decision.
Also the sense I get you think your sector is about to take off in next 2 years and the last 3 was just the appetizer. If you really think that, having the best team/resources/access-to-capital/faith-in-management is way more important than “expected earnings”.
As we all know in this racket, money gets made and comes its all the other stuff that defines your career.
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