The SM/tiger cub model is broken. It's not the promised land
I’m an analyst at a large tiger cub fund and finally admit that the model is broken (I’m leaving). TLDR: bankers, PE guys, and college kids should stop the craze for tiger cubs and switch to 1. Platforms, 2. Mid-sized and tactical single managers, 3. Big Multi-Strategy Funds. You’ve been told a huge lie and dreams of 7 figure paydays. This is a turning point (10 years ago, someone in college would've said "the best funds are York, Greenlight etc", where are those funds today?" Think of this as one of those turning points).
Most of these views are (I don't have strong views on other sectors). Full disclaimer: maybe 1-2 years ago I was the kind of guy that would make fun of the platforms. I was so wrong. I basically set up my entire pre-HF career around getting a spot at a large SM/tiger cub, and I’ve been here for >4 yrs now. After Q3, I officially have zero conviction that any large (over $5bn) single manager can compete with the big platforms, not a single one. Please name one if you think they can produce more rel alpha $s than a big 4 platform. There aren't any. Any excuse that SM analysts give is just that, an excuse. Let's start with why I chose my fund/this SMHF path: I really loved stock picking, wanted to learn from a famous/successful pm and (probably more importantly at the time of decision) I wanted to make a ton of money, so I chose a fund with "great economics" (incorrectly per person) as many of you think about funds around here. There is a severe misunderstanding of SM analyst comp on this site. I should've picked a platform.
I think most of you know that the 2-3 year/LT SM theses don’t cut it so let's not talk about that, so ok, most SMs have adapted to this so-called medium term 12-24 month thing right? That should work, right, that can be my sweet spot and I can pretend the medium term is my new edge! Yeah no. I thought that was maybe the one distinction point for a SM over platform (SM able to play in the "medium term" space). Nope. If your PM tells you this he's just lying to you. Every single pod has these same theses and just overlays them with tactical, NT trades. Pods and quants dictate NT flows. You need to shrink your horizon to compete today (and have ability to flip) otherwise this medium term golden bid down to peanuts. It's that simple. Big SMs structurally (having ICs, too much $ under mgmt, need to deploy massive amounts of $ in every sector) can't flip and can't trade. More on size later. Good analysts are aware of the NT narrative, which always changes. And if you understand that, you can turn a bunch of small moves into a big IRR and still make money on the medium term trade. Bottom line is in reality, you just can't be tactical in a large SM. At all. Which is a massive issue (on top of all the other structural problems with SMs) and a huge frustration point for SM analysts.
You’ll never be the real PM at a SM. You'll never have the same infrastructure, data access, newsflow, and yes, edge, as the pods. No SM is speaking to mgmt 6x a quarter. Edge is everything and it's what creates o/p, big bonuses follow that. That coupled with the large SM model being completely inferior to platforms from LP POV (why would I give big tiger cub 2 & 20 to be net long and not factor-neutral yet still u/p platforms? I can buy any and recreate that, or, I can just buy easy stories, hold them for 2 yrs, and recreate 85% of the rel perf).
"Haha the pods only care about Yip and trade it” (yet they make money on it…meanwhile I pray the name comes around in 15 months?)
"Haha the pods only cares about beating #s” (yet they make money on it…meanwhile I pray for a beat and say "we'll get em next time" if they miss?)
"Aw man my names are down big, a pod must have blown up. I’ll never know why they’re down today, but that’s okay, I have duration”
These are all coping mechanisms. The truth is this is what markets have become. I'm not saying it's a good thing, it's probably not, but time horizons need to shrink to compete and adapt.
And the money? You guys have been told a huge lie with regards to analyst comp at these funds. I'll leave it at that. It’s not “oh I work for XYZ tiger cub, and since the AUM/person ratio is so good, I deserve to be paid millions regardless of my performance”. The economics are controlled by 1-3 people. If you want to make lots of money at a young age work for the platforms and get a big sleeve. There are TONS of misperceptions about seat stability at pods (news flash, seat stability is pretty much the exact same for pod vs single manger)
I posted this on another thread:
What are the best HF seats (assuming better is defined by: performance, comp, promotion potential/ability to be in risk taking seat, and culture/training)?
1. Good MM seats (maybe there are 30-50 great L/S pods across the top platforms)
2. More tactical $2-5bn single managers (maybe there are 10-15 of em’)
3. Large multi-strategy vehicles with near permanent capital and true duration (maybe there are 5 of these. I’m NOT talking mega-size SMs or tiger cubs). The ones that have been around for decades and will never die
Those 3 groups are way better than any mega size SM, today. This has changed in the last few years. I wouldn’t take a single large SM tiger cub over these. And anyone that’s not coping and is a real analyst would agree. Also, ex-HFs, the private LOs are among the best seats one can get, it’s up there.
Where could I be wrong? I am wrong if you think there is risk that the platforms will cease to exist. If that happens, sure, giant SMs can exist and LPs can give up a dream of having a pure alpha uncorrelated return stream. But that's not going to happen...
Sentiment per my friends at similar funds is the same across the board. Many are in late stages with platforms and will be leaving soon. Or hop to LO. The SM trade no longer makes sense and if long (unless you want to have less edge and make less money), you should exit. Take your chips while you can and try to get to one of the above (or exit the industry), it just doesn't make sense and the promised tiger mafia bonus $s are no more. To the young people obsessed with tiger cubs, it's just not it. Don't be the guy at insert top PE that exits to some tiger cub like me.