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 about the economics 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 relevant for TMT (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 measured by aum 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 IRR will be 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 ETF 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.
There's a lot of ranting in this post but as someone with a similar background (top PE -> tiger cub), I actually sort of agree. It feels increasingly so that alpha has compressed to the tail (e.g., all NT alpha is being increasingly scooped up by the pods, LT alpha remains but you need duration which very little funds actually truly have) - so you either play the pod's game (and it's possible if you have looser risk controls and know how they think) or you need to go through the pain of a hazy / unclear catalyst or play in smaller companies or etc. where duration or smaller AUM is key... I've certainly soured on the opportunity and agree with a lot of what they say, even if I think it's a bit superfluous at times.
no you're right, a lot of ranting. i am very frustrated and feel like i've wasted a lot of time. I was told a big lie and was painted a very rosy SM picture back when I was recruiting. Just trying to guide people.
This is actually pretty damn depressing... really solidifies that sense of missed opportunity. I guess rumors sometimes get out of hand.
2 things. 1. the pod game is not just some month to month strategy. Like OP alluded to (and sure every pod is different), pods aren't all short term. I have a mix of NT and MT longs in my book. Plenty of pod PMs (like myself) come from single manager backgrounds. 2. I don't think a SM can beat pods at the NT game if they simply think like pods. Part of this is news-flow and resources, which the SMs can't compete with platforms. We live and die for these NT set-ups, know them inside out. If you're a SM analyst at a medium sized fund, good luck convincing your old PM to get out of your $100M long and flip short. And if we're being honest, we know the numbers better than any SM. A few of my analysts also came from single managers and I have plenty of friends at those funds...the models you see at SMs are sad compared to the typical model you'll see at a pod. Does that mean we don't have the right read on mgmt or something qualitative like that? No, we do, because we have way better corp access than any SM and have covered our names for years. Does that mean our read on the medium or LT story is worse than someone at a SM? No...
In other words, the SM cannot beat the pod at the NT game. However, the pod can do just as good if not better at the MT game than the SM: another reason why SMs are disadvantaged.
Why can't the SMs compete in terms of resources and news flow - I see this said often, and instinctively it makes sense, but can you elaborate?
Presumably the SM sell side research and data budgets could be just as big? Most pods don't have significantly bigger headcounts - but maybe its that you only cover 50 stocks instead of all stocks over $10bn? Or is it more the data-science teams that are cleaning and scraping data for you all to throw into models quickly? (even so, really only meaningful at like the largest 3-4 MMs?) Anything else?
Don't disagree that pod game isn't month to month, but largely platforms/pods run ST in nature. My argument below is more around that good SMs aren't or shouldn't be trying to beat pods at their own game. There is money to be made over a longer time horizon just by getting the direction of estimates right, or narrative shift ahead of time, or thesis-breaking shorts where LO $ flows out more meaningfully. That's not a game most platforms are willing to play, nor is it something they have the duration to play. Not saying they don't pay attention to all that stuff but it's not how they're designed to make $. If I have a bunch of med-term longs but my short book gets blown up I have to cut gross exposure on my longs, end of story. I can't even see out those longer theses.
And also, I don't think the SM analyst is going to get their PM to flip an entire position because that's not why they own it. At a maximum I'd argue that SMs (the good ones) probably just toggle the sizing up and down. Unless you think you're going to get absolutely blown up by a 10% position, you probably shouldn't be there in the first place (see Melvin).
Yes the MMs know the numbers better than any SMs - won't argue you there. The SMs I think focus on a smaller subset of those numbers and try to understand which matter more rather than know every possible data point available. This response is primarily in contrast to the idea that platform/pods can play the med-term game any better than SMs can, not due to skill or lack thereof but simply because of the risk model they exist in.
I'm currently at a SM that's closing at the end of the year. How do I shift to a MM mid-career as a generalist?
Finally someone said it
What’s your view on LOs, more specifically? Does active LOs model make sense compared to passive ETFs/market neutral pods?
I love them and think they're amazing seats. Private LOs are great careers (get to call the shots eventually, actually participate in economcis since the private ones have partnership models, make huge money, and it's not as stressful as HF life. A lot of them have great culture. Pretty difficult to get fired from one of the big ones).
I like shorting so will not be going to LO, but if I didn't, I'd probably be heading to one. Can't compare active LO and mkt neutral HF/not the right question.
Appreciate you sharing your thoughts but, with the context that I’m at an LO and to lvl the convo, is LO really that much better? Suffer from many of the same issues - can’t be tactical, need to shorten duration to compete but really can’t compete against pods etc. comp ceiling is fairly limited and progression is seniority based. Yes greater chance of becoming PM than SM HF due to having multiple funds but the economics are pretty heavily skewed towards the top/original founders/ super senior partners and you have to wait a LONG time. overall AUMs and bonus pools are compressing from shift to passive and fee compression. On positive side, yes it is more stable and have better work/life balance. Just want to test your thesis/rant a bit- do you truly have the perspective to say the grass is greener
...
Great insight
What are your views on large activist funds that actually hold for a very long time? I.e your valueacts, TCI and pershing squares of the world?would these make more great seats considering they have real duration?
See below/someone asked similar.
What are some examples of the tactical 5bn hf in ur opinion. Also would you consider funds like Holocene to be a top pod since it’s just a MM spin out.
I would love to see a game of dodgeball between a team of pod shop haters and a team of SM/ Tiger Cub haters
what is meant by NT?
Near term
Personally disagree with the take that all mega SM not great seats now. There are a still a few mega SM funds (TCI, Pershing, and a couple others) paying their analysts a ton of money and low staff turnover. Unfortunately the Tiger complex (ex Coatue) had awful performance the past two years and lost 20-50% of AUM in some cases.
Yes (“Analyst in PE” asked similar question above, answering here) I like the activist guys (ValueAct, Elliott, Icahn, Sachem head, Pershing, TCI) but they’re not fair comps vs L/S. It’s a fundamentally different product. I’m not an activist analyst and never recruited for any of those, so I don’t have great info on A. Their edge/differentiation and B. Their future
But excluding Elliott, from a comp and promotion potential POV, those funds have similar issues to your classic SMs, where all of the economics are controlled by the founder or CIO. Would appreciate thoughts from an activist analyst. Sure, of the ones you quote Pershing pays great (I have no friends there to confirm). If you can get a job and work for ackman sure take it, they hire what once every 3 years?
Wouldn’t even say Coatue is special. Pretty unimpressed with their analysts and they got caught in a few stupid trades recently
I'm an analyst at one of the funds mentioned in your comment. I'd say that comp at the analyst level is capped at the low and high-ends - you're not going to have a blow-out 7 figure comp year you might as an SM / pod analyst, but you're also not going to get below a decent threshold.
I (and other analysts at my shop) like the job because you're creating your own uncorrelated catalyst and can take somewhat of a longer-term view as the market 'adjusts' to what you've done. I'll readily admit that comp is probably worse than MF PE, especially at the analyst level. But you trade that off for a far better lifestyle and more interesting work.
Very little insight into promotion potential. Feels top heavy in the same way most funds do.
In your opinion, what do you think would make SM/tiger cubs competitive against mmhf pods? Is it a change in investment culture with more NT trades, better infrastructure, access to more and cleaner accurate data, shrinking coverage, etc? I wonder if the SM/tiger cub shops need to adapt to the changing landscape to stay competitive and if it is even possible to adapt.
Attrition and/or quantitative easing
Despite being at a large MM and overwhelmingly agreeing on the value prop for LPs, the decision making process for the employee isn't as straightforward.
One aspect of SM economics for the employee (not the LP) that does make it more like the "promised land" is the amount of risk capital you can get allocated at a young age with wide stops while still benefiting from firm economics.
You can flip a pretty big coin personally - in 2022 there were a lot of guys in their late 20s/early 30s who lost 9 or even 10 figs within their coverage universe. Even if you only get paid ~2-4% on the upside from 2017-2021, a stock up 100% that you convinced your boss to put a yard in gives you life changing money. And if you lose 200mm you probably don't get fired and can be "rehabilitated", especially if the fund is doing well. If you get it "right" you also can quickly get partnership economics that help you diversify your personal risk and get upside in the company. Good luck convincing Izzy or Ken to make you a partner at 32 after a couple big years.
At an MM there are very few guys who get allocated the risk capital to ever lose 100mm, and none of them are 28 with no meaningful track record. If you firmly believe in your own skill then a pod is the best way to monetize it. If you don't know/don't have that certainty, a SM is a good setup.
I see what you're saying, but going back to what wrote in the post, much of this is A. part of the big lie everyone has been told with regards to SM comp, and B. the word "allocation" is actually far from that. This worked in 2017-2021 but the point is these days are over, which is why I made this post.
Starting with the 2-4% of pnl. Yes this sounds like a small amount, but it never ends up being this much. Midpoint implies CIO saying in his head "should I really pay this person 15% (3% / total 20% incentive fee) of the economics that accrue to the firm that are attributable to this person?". The answer is always no. Remember greed. Ok, so lower number. Then CIO asks "who should I actually pay for performance? Sector head or analyst?". The answer is usually "a mix, they can share the upside, but I'll skew upside to SH" even if you did all the work. The problem is with the word allocation: at a SM, you don't get a sleeve or allocation with comp terms set in a contract. It's not contractual. And your so-called "allocation" is simply the GMV of your positions, which are attributable to you and your PM/sector head. It's not like you manage those positions or run a book with just those (what 3-5 MAX?) positions, trade around them manage factor exp etc. No, you simply advise your PM on whether your 5 theses are in-tact or not; he manages the positions with positions from other analysts to create a book and run his allocation, not yours. So a better way to say this is "the average good SM analyst might have sourced/oversee a few hundred M of positions".
Then the other issue is around alpha, which, in light of MM o/p and LP scrutiny on return quality, CIO approach to comp has evolved. "Should I pay this person some % of their TOTAL pnl $s, or some % of their alpha $s". Answer is always alpha $s. All of the beta pnl accrues to those who control the GP. Why should I pay you 3% of your pnl if half of it is covar? So mathematically, this ends up looking like: you oversee $500M of positions. If you have a good year, the GMV of your 5 positions is up 20%. Maybe half of that (at best. Probably more like a quarter...) is alpha. So $25-$50M of pnl. OK analyst, I'll pay you 2-4% on that. There is your $1-2M of upside SM comp...not HSD millions or 8 figures simply because WE as a firm had a great year. Most have the mindset "I set up this fund such that I control the economics. You work for me and the majority of your performance accrues to me. I will pay you on your contribution, not my/senior people contribution on gross exp/macro/calls on your sector & positions"
What's the flipside at the top platforms? I get an actual sleeve of $400-600M+ (there are analysts who have >$1B books), I call the shots, basically every $ of pnl I generate is alpha (yes, it's harder, but you're paid like this anyway at a SM) so there is no debate around beta, and then per my contract/agreement with PM, I get 5-10% of my pnl, not 2-4%, because MMs have a different fee structure.
This is how the value prop for LPs --> ability to pass everything through --> analyst comp comes full circle.
Thanks for the clarification around approaches to comp in the current cycle. I'm not in L/S equities so my biases come from my wealthiest friends being tiger cub partners as opposed to MM analysts/PMs.
Extremely well written. Totally the mindset, this is why all the SMs you naming are becoming a more “multi-strat” or whatever word we using now. CIO sees the world very differently now.
How did you come out from 1B book to 400-600m sleeve? Curious about math
How did u get 400-600m number for analyst running sleeves at MM?
This is a good comment, there is some variation is alpha vs beta comp and analyst attribution at SM and this is the most meaningful and easiest-to-address required evolution
It is downright silly to pay on PnL in an LS fund - it punishes short ideas which are already higher labor intensity and short exposure enables long pnl. Punishing bets on short positions and rewarding it on chunky long hail Mary’s is how everyone forgot how to do alpha shorts and started just doing ‘bull market shorts’ and ‘funding shorts’ creating the giant direction factor bets that imploded. The short book usually loses pnl and then once every few years it justifies the fees and ensures survival of the fund into the next cycle
Funds that don’t crash when everyone gets caught swimming naked get a halo effect that offsets weaker returns in the upcycle (it supports the value prop of risk-adj/uncorrelated returns). People don’t mention often, but despite millennium generally trailing citadel in returns, the fact millennium never imploded like Baly/citadel is very important to LPs
What's an example of "Large multi-strategy vehicles with near permanent capital and true duration (maybe there are 5 of these)"?
Appaloosa the only one I can think of... but not sure that's what you meant
Elliott Davidson K Farallon Baupost etc.
Think he mentioned it in another thread and it was basically just DK Farallon Baupost and Elliott
Could throw in the “quanty” guys like Marshall Wace and DE Shaw that are not pods but multi strategy still
There are a bunch of others that are similarly sized: goldentree, king street, etc. No insights into how they pay though.
What's your comp progression been for the 4+ years at your large cub?
Won't get into specifics, but range has been $300k - $2.2M (in a year where one could argue it should've been 3-4x that, and had I been at a platform, would have been way higher). Many lessons learned about comp and founder/CIO psychology in this business.
2.2 million? How many years of experience do you have?
Absolutely forget about becoming a PM let alone partner at an SM. That was literally 10-15y ago.
Does your view hold for someone more early in their career (eg coming out of undergrad)
No I'd say similar view if not stronger. Your goal as an undergrad should be to "how can I be the best analyst I can?". The answer is reps and training, which you won't get at a tiger cub! I'll promise you that! Ping me when Tiger creates an analyst academy like the platforms have. I think the platforms have done an excellent job attracting and developing young HF talent vs throwing bankers in the SM analyst rat race to generate ideas and create their own process. On stability, I think it's pretty difficult to get fired at a top platform (again, making assumptions here: you have to be good otherwise you'll get fired), and I'd say (in some cases) some SMs are actually worse from stability POV than platforms...if you're good they keep you. Simple as that.
In my experience, (please take with grain of salt as there is massive spectrum of MM analysts) but the MM analysts that I know (I'd say they're good) are better than the good SM analysts. They're more in the know, know the numbers better, have better processes, know their sectors better than SM analysts, and then on top of that, they're forced to think in a factor/market neutral env, position sizing, so they're developing PM skills too. Maybe SM analyst is better at making long writeups or decks. But take this lightly please, there are definitely plenty of good SM analysts, and in many cases "it's the pod/PM that makes the analyst", not the other way around, but still, I'd say IN GENERAL, MM analysts seem to get things right more than SM analysts
Super fair points. I'm at an SM, albeit a slightly smaller one than you the ones you've mentioned and it's not TMT only. I'll take the other side of the argument for parts of this debate but really just open to hearing the pushback.
I think everything you've said about edge and speed + access/news flow & information is very correct. There is no one better in the industry at collecting, harvesting, analyzing, and then trading these sorts of data points or pieces of information than the platforms. I don't think anyone would argue that. Where I would push back on slightly is that given the flow of capital to quants/platforms, it creates an unnecessary amount of volatility around these sorts of NT data points, not withstanding leverage (which I'll address later). I'm writing this today with the entire market up > 200 bps on a CPI print that we've all known was going to be squishy and inflation that's been decelerating for nearly 6 months now (or more). Platforms and quants have completely turned the market into a market of extremes on either side where you're playing the same FOMO style trading game where you have to quickly flip to catch the momentum or chase trades of your peers. People then forget that LO/passive $ still exists in a large way and that the broad market and single securities in the longer term do not move solely as a function of compounding NT moves. Eventually earnings do matter, but the noise in between quarters is obviously what you're referring to and what drives the alpha $ to be made in the NT. Totally fair but this mkt isn't just quants/platforms vs. L/S SM hedge funds. It's a ton of passively parked or sleepy active LO $ where guys are managing $bn at BlackRock and will maneuver those positions around according to their own strategies and mandates, largely which ignore the NT anyways.
Another just brief point. This forum seems to switch back and forth on a semi-annual basis to which strategy is better. If rates stayed at 0% forever and the SM was continuously up > 30% per year no one would have any clue it was all just levered beta and that'd be the strategy that everyone fawned over. So yes you saw a large normalization as a result of rates and factors but I don't think that structurally equips platforms. And here's why:
1) Leverage, I don't totally understand how levering portfolios 4-6x cannot be succumb to some interest rate impact. Negative carry isn't perfectly convex either, and frankly you've seen some platforms really struggle with their ability to scale in what should've been their best environment in 10-15 years (Schonfeld, ExodusPoint). I don't know enough about the mechanics of this I'm just shocked we haven't seen a larger blow-up.
2) Function of LPs. If all this LP AUM realizes the trend you've described and flocks to platforms, that edge too will evaporate.. much like it did for the L/S TMT SM. If every single market participant or NT flow "dictator" has access to the same data, then the entire edge becomes in understanding/analyzing it. The data then only informs your view of what, the next month or two? So then what happens is the market gets VERY efficient in pricing in the NT but far LESS efficient in pricing in the medium or long-term. You have to remember these companies exist in the context of broad capital markets with hundreds of $bns flowing in and out for a multitude of different reasons. To my earlier point the Wellington PM isn't selling a stock because the data was bad for 2 months and he frankly doesn't care. He is accepting that he's playing a different game and just because the SM TMT guys got absolutely smoked in 2022 doesn't mean that they necessarily should've capitulated on their strategy. They just need to realize that 1) they are just beta clippers and 2) they need to manage risk a whole lot better.
What you're largely describing is just the phenomenon of markets becoming more efficient in a compressed duration horizon where real alpha has revealed itself versus a cohort of the L/S industry who didn't actually generate any alpha at all. My argument then becomes that IF YOU CAN WITHSTAND THE DAY TO DAY/MONTH TO MONTH VOLATILITY, YOU CAN STILL DRAMATICALLY OUTPERFORM. It's all about knowing where you're exposed / where the risk lies in your portfolio. Tiger didn't know. Melvin didn't know. But there are tons of other L/S guys who know and actively manage the portfolio risk. Could you imagine if Tiger was running a 20-30% net once rates started going higher but was also short a handful of tech names? Probably wouldn't have been down 2x the QQQ in 2022. How do you explain Viking who barely underperformed Balyasny then in 2022 which was meant to be the platforms' best year?
I share your frustration that the market has essentially conceded to the strategy of the platform. I would also just highlight that the increase in passive investing/indexing has probably more to do with the broader difficulties in SM outperformance than does the pod trading Yipit data. I'd also argue that beyond a 2 month scope the Yipit data doesn't matter and in due time if all the $ has Yipit data then it isn't really an edge at all. Call me dated or old-fashioned or cliche but I think the true alpha exists in finding opportunities where the existing shareholders have a major thesis shift (either good or bad), very akin to credit investing or distressed where there are maybe 8-10 total holders that you're adjacent to and have to play against.
All of this sort of depends on 1) what game you're playing and 2) your view on what or why stocks do what they do over a timeframe. #1 just means what I said before: the LO $ do not care what your Citadel monkey heard in a meeting about gross margins being 7 bps lower on a seasonally-adjusted 4-year stack basis. It may move the stock for a day but anyone who's LPs aren't going to pull their $ on a month of underperformance are fine. I think the market is constantly pricing in a much longer horizon than where the pods exist. So it's just a different game being played. I think far too often you have SMs who are at risk of capital cuts or redemptions conforming to the idea that they even needed an explanation for violent moves against them intraday, and then allowing that to morph into thesis creep. I also don't think that the pods care about the MT/LT as much as they say they do - I'd argue the consensus pod view (contrary to another response you saw above) is that all the alpha is made in the first few weeks of a trade.
Open to any thoughts and I don't think we're vehemently disagreeing but just offering another view. Boils down to the notion that everyone has FOMO and price now drives narrative vs. other way around, but doesn't mean that well-run SMs don't have a place in the mkt. But I'm also not at a Tiger cub.
Just curious, what's your mental framework of existing shareholders having a thesis shift? Are you at the level of "LOs will be sellers if this happens", "growth investors will punt if this happens", "value won't step in to buy until stock plummets to this multiple"?
Or do you get more granular, like "TCI is a major holder in this name, I know how they model/think about theses and if this happens, they will punt this"? Or something like "I know TCI also owns this other very similar name, and if something bad industry-wide happens, they'll be more likely to punt the first name than the second so let me short the first to position around that"
Just wondering at what "level" you try to mentally frame other participants' reaction functions, if that makes sense
Crappy answer but both. It's not ignoring the NT setup or what may/may not move the stock but it's saying tangentially that you're more focused on the trajectory/direction of earnings estimates rather than the accuracy. To the OP and one of the respondents' above points, SMs will undoubtedly know the numbers better so I think it boils down to understanding those major inflection points well ahead of the pods.
To the TCI part of that question probably never THAT granular in terms of trying to sort out what it is drives their ownership, more around saying "hey, this company's model or PnL is hyper sensitive to mix, how can we get really good at figuring out what drives that over the next 1-3 years?" Then you figure out OK, this mix shift is massive and drives numbers well below what the street is expecting, all these guys that own it have owned it because growth was X and now it's X - 10%. When does this start to show up in numbers? If it's within 12 months, our assumption would be that the stock to some degree should or has started pricing this in and so it'd be our job to figure out to what extent and how much more downside is available.
good points. have some "pushback". i will try to respond eod. many centered around fact that you (probably?) are at mid sized or smaller tactical SM that I was alluding to. don't think your points are that relevant to the large SMs which are too rigid and (in my opinion) are well into sec decline.
For sure. Be curious also to hear if you believe that the larger SMs you're referring to would've been better off just actually hedging their portfolios (the easy answer is yes, but perhaps this would cost them AUM growth?)
the perspectives being offered on this thread are super helpful. i've spent my career jumping around small (sub $2bn) SM shops and while i haven't been at an MM i have to think i've gotten some solid experience. every shop i've been at has been quite nimble and solid alpha generation has been (knock on wood) the norm. LP relationships are aligned with a longer term view, the endowments and foundations know that they aren't getting insane short term alpha like at an MM but they are happy paying a lower fee for our approach. i'm sure the LPs have plenty of their capital in MMs as well. additionally, being small means your PM is likely still in grind mode...i have to think that at the Cubs, along with being too big and literally unable to get out of losing trades, there was a lot of complacency given everyone making a decision on the portfolio has already "made it". risk management is a big focus at a smaller shop that is still familiar with the fear of being wiped out at any moment. yea, my comp is very capped as an analyst in this space, but i love the work and learn a ton. the pipe dream is to feel good enough to go to an MM someday and successfully take on a sleeve, or start my own SM. in the all too likely case that neither ever happens, oh well, at least i spent my HF career excited to go to work every day and made, all things considered, decent money. i guess my point is everyone is also solving for their own risk/reward function, which is why the honest takes on this thread are so helpful for young folks in the space.
Well yeah look at any public PE firm.. what drives their stocks and PnL is AUM growth and the accompanying fees, not returns. Scale at that level matters & pays the bills (and some), so all the big shops then optimize for AUM/scale as opposed to returns. At some point the pendulum will flip back to caring about returns.
I'll address the rates point that I addressed on another thread but will be purposely thin on details. High rates do not hurt the platforms and I would discard this negative carry theory. Also the reason things haven't blown up is because platforms have gotten better at managing risk over time. You prob would not believe how good the most sophisticated platform - at least in my eyes - is at eliminating factor risk at the enterprise level. Factors that would've ended your business before pods got smart post-2018 Factorgeddon are now non-issues.
I don't want to defend the pod business model too much because there are a lot of T2 firms that arguably shouldn't exist. I dislike the flooding of capital into market neutral as much as the next guy because it competes away returns. That is the singular biggest risk to the model but outside of that I have strong reason to believe this model will gain share into perpetuity.
How does it not make net returns worse though? That's really my question... the strategies are predicated on leveraging alpha 4-6x, and leverage costs have increased substantially.
To your knowledge (doesn’t have to be you specifically) - are the MMs still throwing large first year guarantees to people from top SMs with track record of positive pnl? What are the sort of number ranges that you are seeing for ~5 year buyside experience? Would think LSD million. How did you go about showing your track record given you don’t exactly have a book?
What do you think is the misconception around stability of jobs at MMs? Seems pretty clear to me you get fired for losing money if you’re in a “risk taking” seat (Analyst as they call it at Citadel)
This is a good thread. (Former HF Analyst, now in LO here).
There is no free lunch in investing. Timing always matters. It's going up in the next 12-24 months, okay, when? Let's buy it right before that catalyst rather than sit on it the whole time. If you're not sure when, it's not that good of a thesis as a different catalyst (like earnings) in the interim can come along and drive you into negative territory, out of your trade (and god forbid, possibly out of your seat).
Are strict drawdown limits in MMs a negative? Yes. But you have to look at the whole picture (nimble book size, POTENTIALLY more clarity on comp & progression, DEPENDING on your PM).
There are great investment teams and unimpressive teams in each of these market specialties (PE, LO AM, SM HF, MM HF, in equity, credit or macro/misc. contexts). Finding a good team is a priceless opportunity. Being fortunate enough to pick between which one of these styles you personally like best is even more rare. But don't let hype or message boards convince you that one is strictly better than the others.
It's very difficult to get truly rich working for somebody else. Especially to get rich quickly.
You generally need to take the risk to start your own business to do that (or at a MM get your own sleeve). That is a real risk. It comes with real upside. It's not for everybody. You can also be in position to take over a PM seat at a different type of shop that someone else built. But that probably won't happen until you're at least close to 40. And it will be hyper competitive internally to get that promotion. There are great careers in this business that get built slowly. Julian Robertson started Tiger Management at age 48, after a highly successful ~25 years at Kidder Peabody where his run culminated as Head of Asset Management (IB owned LO AM).
Pay attention to the people who poke their heads in around here who have been doing this longer than 1-4 years. This is a great place to learn how to get a banking job, or to vent about your first tough two years in IB. There is also good information about buyside jobs. But the group of authors on the former is not the same people who have the real knowledge about the latter (yet). You don't know what you don't know (yet).
Now that you have the perspective of having worked at both a SM and a LO- are you happy with your decision to have gone with the LO path? perhaps dependent on whether you like your team or not, as you highlighted
Yes I'm happy in my current seat. Spent a lot of time kicking tires. Didn't take the first thing that came up.
MM HF: Your PM has his own book, he never has to do marketing/client management. Often times, he has to trade himself (perhaps more relevant in credit), because it doesn't makes sense to hire a dedicated execution trader. Sometimes shared resource w/ other PMs. Small team. One to a handful of analysts. Opportunity for close relationship, great mentorship. Analysts are closer to the action (execution). Also opportunity for Scrooge/Bob Cratchit relationship. They immediately notice when you are off the desk. Culture is like S&T (if prop trading left the bank and moved to unregulated entity). "Desk analyst". Don't have to cover the whole market because this is an absolute return strategy / market-neutral. Can stay focused on niche or be opportunistic. Depends on PM/mandate. Books typically smaller. More liquid. Rotate positions more aggressively.
LO AM: Two, sometimes three PMs per portfolio. PMs are VERY involved in marketing/client management, but probably have to trade less / not at all. Large team. 10-20 research analysts, coverage by industry & blanket the entire market because this is a relative-to-benchmark strategy. More important to put pen to paper on your thesis (inevitably some PM will miss it due to conflicts and ask for it later). Not quite SS research, but in between that and MM HF. Easier to blend in (take a lunch), harder to stand out (lots of you analysts around here). Culture is... somewhere between banking & Fortune 500. More buttoned up/bureaucratic than HFs, fewer blue jeans (pre-COVID), not blow off hours, but not 80-100hr weeks either. Institutional clients expect 'professional' managers, so professional you are boring. Billions or tens of billions to deploy. If a pod is a jet ski, this is an oil tanker. Both need a capable captain. Lot of value in not sinking this ship.
One of the most critical defining factors for people in my experience is if you have children and if your spouse works. This (on average) changes a person's utility functions pretty dramatically, where you suddenly have a really good reason to optimize for more WLB and less comp risk.
Coming out of undergrad, many have the mindset "well, all of these jobs suck compared to school, so I'll just pick the one where I can get rich & retire as quickly as possible and go back to hanging out with the boys". That generally doesn't work. It still takes 10-15 years if you're extremely lucky, and more like 20-35 for many finance paths. The boys move on and get married and/or leave NYC. You need to find a way to be reasonably happy during your day job. Make new friends. Enjoy new things in life.
Get a job, folks.