The reality of HFs
Been reading this forum a lot, and while all the advice and stuff here is great, I felt the need to give people a more realistic depiction of what the HF world is like. For some background, i worked at an EB before moving to MFPE. After 2 years there, I moved to a well-known SM for ~5-7 years, and I’m now going to a large wealth management firm to hopefully stay until I retire. I’m about 2ish weeks away from leaving the SM, so I decided to take the time to reflect and wanted to let everyone know my thoughts about the whole industry. Any questions/comments/monkey shits are welcome, I’m sure I’ll be controversial when I distort your beautiful dreams about the buy side.
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Hours are better and more predictable, but with much higher intensity. Compared to the 80 hour weeks of IB and the 75 hour weeks of PE, I’m definitely working much less these days, averaging around 12 hours on weekdays and <5 hours over the weekend. Another thing much understated is that my hours are much more regular. No more keeping my phone on ring while on dates or sleeping, no more 2am email threads. It’s nice to be able to sleep at 11 and wake up at 6:30 consistently and it’s great to be able to plan weekend getaways or nights outs with the boys without pulling out at the last second. At the same time, there was a lot more chill time in IB/PE, with probably 20-30%+ of my day just sitting around, grabbing coffee, doing not much at all. In HFs, it’s very intense. The moment you sit down at your desk with a coffee, your brain is on 100% and it stays that way until the market closes. Even then, you start to find yourself stuck to a “stock trading mindset.” I’ve literally had nightmares where my picks went down, and it’s not pretty. You’ve got much more responsibility at an HF, and it’s much much more intense. I bet if you you calculate a weighted “time spent working x intensity” variable, it’s tougher at an HF.
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Work is more meaningful and interesting by far, but you’ve gotta love it to do it. Let’s face it, IB sounds sexy to people who don’t know what it is, but we all know that pre-VP IB work is just running processes. If you were to grab anyone with an above-average IQ and a good work ethic, they could make it in IB for 6-7 years and produce decent results even at a top bank. PE is maybe a bit more strategy-driven, but it’s still just plugging in numbers into excel, rearranging logos, forwarding emails, and ultimately not doing much non-fungible work. HFs are different——you’re going to get responsibility that basically directly influences whether or not the fund makes money. Of course, this responsibility gets larger as you mature in the fund, but from basically day one, your job is to create alpha. It’s a good thing imo, but only if you really love the work. If you’re not 100% sure about public markets, don’t come. It’s very hard to hide, especially at an SM. In IB/PE, you can (to some extent) murk around and still be fine, but if you try to do that here, you’re expected to produce results like everyone else
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High turnover and toxicity with unpredictability. HF managers all expect their analysts to be the smartest of the smartest, and so any issues are infinitely magnified. It’s true that the HF space probably has a higher intellect requirement than IB/PE just because you’re not doing a “process-driven” job, and instead requires you do genuinely analyze. But that doesn’t mean people don’t make mistakes, and this lack of forgiveness is shocking at times. I’ve seen people who’ve been at the firm for 5+ years, make probably tens if not hundreds of millions of alpha, fired over maybe 2 bad quarters. Citadel isn’t called the revolving door without reason. Even if we weren’t to go to the extreme end of getting laid off, the overall culture (even at SMs) is toxic as f*ck. The worst part of it all is when you literally did all you could, and the stock still goes down 20% because some CNN guy found that the CEO does cocaine, and you’re getting heat from your PM. To survive in a world like this, you can’t just love the work, you need confidence in yourself, and conviction in your analysis. No one expects a 25% return, but you have to believe you’re capable of doing it. You have to believe that you are the best, because otherwise you’ll spend every day worrying if you weren’t good enough.
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Comp is higher but it’s hard to manage volatile finances. MFPE comp was obviously pretty nice as a 25yo, but HFs showed me a new world. Got my first million-dollar paycheck, and thought I was living the life. A few years later, shit hit the fan and we were down double digits for a quarter before ending the year down mid-single-digits. Got a bonus of 10k and a pat on the back from my PM saying “we’ll get ‘em next year.” We did not get ‘em next year and I ended up with an 30k bonus and I was starting to doubt the job. Sounds pretentious, but it’s genuinely very hard to transition from an 1mn+ /year average to suddenly 250k, especially when I had just decided to put money down for a mortgage for my parents. We’ve bounced back in the past two years, with me earning similar to what I had before, but the fear that I could lose it all if the fund (not me, the fund) doesn’t do well doesn’t go away. Big disclaimer here: my fund is definitely on the very high end of comp. All the stories you’ll hear on WSO (and somewhat including mine) are probably by people who have nice things to share. You won’t really see people talk about slaving away at an MM for 3 consecutive years with virtually no bonus before they’re kicked out with a 1-year non-compete that effectively shuts them down. You’ll hear that it’s “eat what you kill,” but it’s hard to truly understand that you can’t control what you kill all the time, but you’ll still have to take what’s left for you anyways.
Looking back at my career thus far, I’ve had one hell of a ride, and the highest highs and the lowest lows have all taken place in the past few years. The world of hedge funds is one of a man-eat-man world where talent comes to either rise or die. Don’t get caught up on the promises of 7-digit bonuses or the dream of making PM by the time you’re 30. Aim high, of course, but prepare for the lows and, above all, know what you’re getting into
I feel like a PM reading this: "just give it to me straight, 5min tops".
This is one of the most important skills (if not the most) you will need to be successful. Everyone is smart. Everyone is busy. If you are a master/expert on the subject, you should be able to explain it in 5min in a comprehensible manner to the listener (be it a 5 year old or an expert too). You could be the greatest stock picker in history, but if you can't communicate, you ain't reaching that ceiling
Can i pm you?
Please tell us more about the move to wealth management. Will you be focusing on investments or directly managing client relationships (or both)?
interested as well. what prompted this transition?
Still focusing on investments. Public equities has always been a big passion of mine, and I’m hoping to make PM eventually.
As for why I made the move, it’s a combination of 1) Id developed some reservations about my SM, particularly around the extreme volatility and 2) culture. To be transparent, I’d been hoping to leave the firm for a while now, but have hesitated over issues regarding comp and, to an extent, prestige (lol). Finally landed a spot that offers only a slight pay discount while allowing more WLB and hopefully a better culture
Are you working for a team in a large Wealth Management firm or a independently own wealth manager?
As for your role, is this typical that wealth managers have investment professionals that are picking stocks? I was under the impression that it was more just indexed funds on a client specific basis.
I am looking to do wealth management and I am a rising junior in college. Do you mind me asking if your strategy is something you learned while in the HF or if you read a book? If yes, which ones?
Thank you!
Could you elaborate on how you’ve managed your finances throughout your career? The industry is incredibly volatile, but you also are squarely in the top income bracket for your age range compared to more standard jobs (e.g., accounting, tech, etc.). How did you think about what home you could realistically afford? There are some posts on WSO that suggest you need at least 1x your home value in liquidity, but that seems incredibly conservative (i.e., need $1.5M in the bank to afford a $1.5M home which is basically a nice 1-2 bedroom in NYC). Any advice / suggestions?
OP comments on HF compensation are bang on: there is a deep anxiety that washes over during the down years and it can impact your performance. In general, my approach has been to live off of salary + a portion of cash bonus (20-30% of expectation) and pocket 100% of the carry + remaining 70-80% of bonus. You do not need to match liquidity against the home value, but it isn't a bad idea to hive off a good chunk of the mortgage in low-risk savings products just in case. I know plenty of analysts who levered up to the gills for a $4mm+ place on adjustable 10-year IO, but it becomes a ticking time bomb (esp. with recent moves in base rate) and you're essentially house poor absent routinely large payouts (which seems likely in the good years and impossible when performance turns). These pressures become more acute as you build a family and expenses escalate rapidly (e.g., preschool, nanny, home maintenance, etc.).
Gonna first say that it’s good you’re thinking about this early—I only started actually managing finances 3-4 years into my career. Here’s what I did.
When you quote the $500-$700K by 27-28, is that including 401K / IRA?
Are you moving to LO AM? Seems like a common path. 2+2+2 GS/MS to BX/KKR/APO to HBS to cub-equivalent SM to LO AM.
the rigidity of that path is aids lmao. WSO seems to get so bent out of shape over the cookie cutter path. How many people total in the United States have done the following:
One of GS/MS/JPM -> One of APO/KKR/BX -> One of Stanford/Harvard -> Tiger Cub -> LO AM
This path likely represents under 5% of the people who make it to the top of LO AM (given that’s the settling point here). Literally so many different paths can lead you to that point I feel like it’s ludicurous to be such a prestige-mongerer.
This also could be a joke idk
Thank you Intern in IB, you must be incredibly wise from your 7 weeks on the job
Jokes aside though, you're probably right to some extent that a rigid mindset isnt a good thing, but it's a common path for a reason. It's just true that SMs recruit mainly from PE roles and/or post-PE MBA roles, and it's also true that people like to leave HF for LO AMs because it's much more chill, greater stability, and still decent money. Not saying everyone needs to do this or that it's the best path, but try to think for a moment why people choose it before talking with your 2 months of real work experience
"seems like a common path"
Ignore my title - this cookie cutter path is stupid as hell. I think people from LO AM come from a variety of paths and it's not just IB/PE/ > HBS / GSB etc.
Can you define LO AM by using examples of firms that fit this definition? When people talk about LO AM as the promise land I'm just not sure exactly what that looks like. Does that fit more squarely underneath private wealth management leading a portfolio/equity strategy?
Thanks for this, really appreciate it. I’m sure many others will find it useful.
What would you do differently if you had your time over?
Appreciate the insight. Thanks.
Thank you for doing this, did you do an MBA?
At your level, from what I gather, the MBA is not as important, but hard to say that HBS/GSB/Wharton kids are at a disadvantage for having that pedigree under their belt. What do you think about MBA's in HF industry. is it a must have or no longer key.
Definitely not a must have. MBA is used mainly for 1) career reset, 2) networking, or 3) to just have a good time if you’ve got money to burn. HFs mostly hire from PE and competitors (occasionally from IB), so not much need for 1) unless you’re in a non-finance role. HFs, unlike PE/IB, are also much less network-dependent, we don’t need to win deals or kiss client asses, for example.
Super helpful - 2 follow up questions:
1) How much does the high turnover / toxicity lessen at HFs with a longer investment horizon?
2) Understand the availability of data and where the data comes from is very different in HF vs. PE. Can you talk about how the diligence approach / focus in HF compares to that in PE?
I'm not sure how much the investment horizon will dictate culture differences, but there might be an ever-so-slight decrease in turnover. Not significant though--even the worst places have probably 2+ years average tenures. I'd say the PE job in terms of diligence is much easier because of information access. HF work as I've experienced it is trying to pick apart all the different details and sides to a story, but you're given the same info as everyone else has, so it truly is a game of doing your diligence and analytical thinking. I think the PE mentality of thinking is not completely applicable to HFs just because 1) investment horizon is so different, 2) as an an/asso, you're really not doing the ideation work, but you will be at an HF, and 3) the amount of time you have for each investment. It's a more intense process at HFs where you're poring through Ks, Qs, calls, presentations, industry reports, ER reports, etc. and trying to see things that literally no one else can see.
I'm a first year analyst at a MMHF and I feel like I miss a real training.
From your experience, what would you do to have solid skills at the beginning of your career?
I'm assuming you're not at Pt72 because I've heard quite a few good things about their program. To be honest, I'd say my modelling skills were definitely a result of IB and PE. In terms of developing investment acumen, I think the most important thing to do is to listen to what the people around you are saying about everything. In PE, I always took notes on morning investment meetings to see how the seniors at the firm thought about approaching investments/the economy. In the early days of HF, it was the exact same thing--listen in on the conversations of people smarter and better than you.
Very interesting. Effectively I'm not at P72 and I wish I had this kind of Academy training.
Since I joined my team right after school, I didn't have the modelling training of IBD/PE.
I feel like I had to self teach myself a lot of things + mimic what others analysts do but it's not ideal.
This was awesome and refreshing - thank you for sharing.
Could you briefly detail your salary & hierarchy of progress within the MF/PE & SM during your time there?
Interested in learning your expected bonuses/reality bonuses too. Given the climate of the recent years, it would be super helpful to learn what the highs and lows can be like 7 what a base may be like (in HF especially).
Thank you.
Do you think PE is necessary to transition from IB to a hedge fund? I’m currently an intern in IB and know I want to work at a HF as soon as possible, so I’m curious if the “PE stepping stone” is truly necessary.
Any help/input would be greatly appreciated!
Nowadays I’m not actually too sure. Most SMs still dont really hire that much from IB, PE is just more commonly used to screen for people because people already have some investing experience after buy-side. We also don’t reach out to banks just because there are too many and we only hire irregularly when there’s turnover. That being said, we don’t toss a resume out because of no PE exp, and I know that MMs are also hiring from even UG, so IB is probably ok for that
Citadel hires straight out of IB (first hand experience speaking with BD)
still didn't hear the cons
p.s. 1mm -> 30k // move to Dominican Republic and wait markets to get back on track, then go for 'notha milli king
Great information and reflection. Some thoughts maybe people will stop asking silly questions.
First, very likely if OP had stuck in banking would be sr-VP possibly MD path. If they had stuck to PE, would be VP possibly partner track. They had the option to switch to another SM or MMHF. So I do not think this was written as a secret path to a AM job. Cause very likely all those other roles have higher comp vs the next role to start out.
Also possibly starting out in AM does not mean OP would be closer to AM PM job today.
This seems more the real reflection of someone who has had a distinguished lengthy career so far who ultimately has pinpointed what is important to them. The key theme is not so much comp, wlb, “chill job” but rather “toxicity”. Toxicity here is defined solely by the constant pressure that HFs put on you and this notion that you may be one of the best in the world at what you do, but can be replaced tomorrow.
AM comp may be more stable, but the market has cycles and many AM get humbled annually. But everyone in that world understands that vs HFs where management believes majority of the time the issue is not the market conditions but more the talent. Truly knowing most AM dudes their job is far from “chill” as people on here like to believe but it does not have the environment OP describes either, which is of most importance to OP.
Spot on. When I wrote this, I didn’t even consider that people would think this was about how to land in LO AM. If anything, my goal was always to land a Tiger-cub/top SM role, which is like 90% why i chose IB -> PE first. Over the years I’ve realized that while it was a good run, I’d rather spend the rest of my good years in a different environment.
This is a very good description of the job - kudos for offering it public here!
What are the folks from your PE class & former colleagues from your SM up to now?
I’ve got friends doing everything now——one went to B school and then went back into banking and is now on track to becoming an MD at a BB. A few of my good buddies are still in PE, both at the director-ish level. Some (myself included) took the HF route, and I know for a fact at least one of them got an 8-digit payday as one of the youngest PMs in their firm. Others took the pay cut and went into corp dev and have families now. I also have a friend who basically retired last year (in their early 30s, yes) after making some big bucks and is now just traveling.
Can you talk about what comp packages were available for you in other investing exits after deciding you wanted to leave the SM? Doesn’t have to be specific to your next job. But would be really helpful to understand what comp could look like if you leave SM HF for whatever reason. Did 2+2 now MBA and want to go public route but haven’t been able to track down a good answer to this Q and I think it’s really important
Trying one bump here
Surprised by the bonus in a down MSD year...They must not really emphasize/care all that much about retention? Obviously it will be a lower bonus, but from 1mm+ to $30k is unreal in my experience (not to say you're being disingenuous)*
The industry is similar to professional sports. Many amateurs, few professionals and even fewer who make it big. Risk adjusted one of the toughest industries to be in, which is rarely and surprisingly spoken about.
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Do you wish you started in the LO AM world?
Haha no way. Saw a mini thread above with someone sh*tting about how we go the IB -> PE -> HF -> LO “route” instead of just doing WM to begin with, and I’ll respond to that here as well.
1) the number of legitimately good LOs that recruit undergrads are super few. You can’t compare bank WM/AM divisions to Wellington—frankly I thought that was just a dumb comment and shockingly so. It’s incredibly incredibly difficult to land one of these positions, and even more difficult to rise through the ranks if you’re lacking the experience that someone with a stronger background has.
2) IB was a torture, and PE somewhat so as well, but they taught me things I wouldn’t have learned if I’d started in an HF. Whether that’s modeling skills or even just how to deal with shitty bosses, that process I feel was absolutely crucial to my success at the SM. I guess I would’ve been fine with skipping 2 years of IB, but I liked my PE group. I can see a very good case for starting out at an HF (probably one of those lean, $10bn+ AUM firms as opposed to MMs) just in terms of how interesting the work is and how much you learn, but I enjoyed my pre-HF experiences.
3) I definitely 1000% do not regret joining HF before going to LO. The intensity and payout is incredible, and I’ve definitely learned the most in these past years. IMO, your late 20s and even early 30s should be spent maximizing your own potential, because this is the time of your life where you can do the most, where you have nothing to lose except time. Starting at an LO would be a chill time, but I wouldn’t have learned as much or grown as much.
Hey, currently Asso at a Mf thinking about hedge fund here. Thank you for this. I did skip IB and pick consulting instead. I like HF given it’s more actionable and differentiated view - Q for you is how much advanced modeling do I need to prep. Have a few interview coming up with MM, but also SM in the future.
What is the level of modeling I should prepare? In addition, would you say as someone who may lack the technical knowledge but more on business understanding, is it possible to succeed at HF?
This is such an interesting thread! Seems LOAM is highly rated here?
I'm currently in one of the big LO (Fid/Cap/T.R) as analyst but desperately wanted to get out to boutique LO or SM HF. Since I'm based in Europe, I was thinking about spending $200k on MBA to move to the states where they are a lot more boutique LO or SMHF.
Am I crazy to do so? or should I keep progressing in LOAM?
The reason I don't like LOAM is because the work is too boring (i.e. covering 20 stocks, no growth, no hunting of ideas which is my passion). I've had 10yrs + work exp, if I stay at my shop, I'll be able to manage a small fund in c. 3 yrs' time, but since I'm based in Europe, the pay is no where close to the US, maybe even half... as I become more senior.
IMO, LO AM isn’t just 100% good. It’s just a better spot for me given my ~10ish years of experience in IB, PE, and at a SM HF. Something slower, less volatile, more stable, with a higher regard for culture and tolerance for fuck-ups. Ultimately, my job is no longer my priority at this point in my life, so that’s why I’m making the change. I think everyone needs to have grinded at some point in their 20s so they know what their limit is. Would not have wanted to start out in LO AM fs.
Thanks. That makes complete sense. I also started in IB, then AM, so skipped the HF part and was quite curious / frustrated about lack of alpha focus at LO. Maybe if I had experienced the brutal culture at HF, I'd appreciate AM more...
May I ask if you are a generalist at HF or sector analyst?
Do you feel there is more value in terms of generating alpha as a sector analyst / with deep sector expertise or not necessarily? I used to believe generalist is better at generating alpha because you can see interconnection of things, but recently started to question my own belief a bit after experiencing the model of covering only c. 20 -30 stocks for a while. So just curious what your thoughts are on this topic.
Amazing view - thanks so much for sharing, OP. In PE right now and have had a tough time really getting to know what life might look like at next steps.
Extremely insightful post, thanks for the write up! A quick question, how much of your experience do you feel is anecdotal / specific to your firm vs just being industry standard.
The reason I ask being I’ve read a few stories at other SMs where the turnover was quite low.
Thanks again!
Just treat it as anecdotal. Never thought that the “SM” categorization was generalizable as there are a million types of SM HFs out there. Turnover isn’t super high here, but if you severely fuck up, the firm can be quite unforgiving. Average tenure is probably north of 5-7 years.
Amazing post. Thanks for sharing.
What did life during earnings season look like at your fund? Much different than ordinary course?
What is management access like for SM HFs these days? Do you get 1v1s?
How frequently did you travel?
How much of your time was spent on shorts v longs?
What’s the expectation for idea generation and diligence timeline? Do you spend 2 weeks on an idea, 2 months? Are the ideas you chase coming from PM most of the time or yourself?
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