What is biggest difference in moving from HF to LO?

I'm considering a move to one of the big publicly-traded LO shops.  I am currently an analyst at a long-biased HF seat (not Ruane Cunniff, but similar), but am in the dark about what an analyst seat is like at these LO places.  I suppose I'm concerned I will want to claw my eyes out based on boredom.  Are these real investing seats, or are they more 9to5/corporate-type gigs?


I would appreciate hearing any thoughts from anyone with some knowledge/experience on this,  Thanks


Edited to add: This would be moving from a risk-taking seat at SM to a senior analyst seat, supposedly with expectation of moving to PM in a few years.

 

Punchline: It's all a giant trade-off. 

Hard to generalize. It depends on the firm, the PM/portfolio you work under: Can be burning 80 hours a week at a LO too, or "claw your eyes out boredom". 

Negatives: Compensation upside will be less, less agile and more bureaucratic idea vetting process, and less tactical

Positives: Less worry about the quarterlies, slower pace, stability

It's also depends on what you are looking for in life and career. 

 

Why do u want to leave? If you're a good performer at your current seat (which I assume you are) you should make more at your current fund. Then again it does depend on what it is you're looking for 

 
Most Helpful

Am on the LO side and would say its def slower paced. The longer-term investment horizon naturally means you don't care as deeply about the specifics in each quarter. You spend less time tracking alt data or staying on top of news flow, and there isn't a constant need to generate new trade ideas. I would assume modeling can be more intense on the HF side too. Having said that, you are still very much an investor and the job can actually be even more intellectually stimulating than at a HF. You're thinking more like an owner of the business and forecasting over a longer time period (ie. 3-5 years). The due diligence process tends to be pretty comprehensive and analysts can spend 3-6 months learning about a new company before it gets into the portfolio. I would say the actual research process probably doesn't differ too much from what you'd do at a HF - but more focus on things like competitive advantages instead of figuring out near-term earnings. Hours end up being pretty flexible. Different for every shop but I avg 60 hrs per week outside of earnings season. Also worth pointing out that some LO pms can still be pretty active on the trading side. If you already cover a name, know the business, and have a good sense of what expectations are embedded, making a call to add/trim can be a pretty quick process. 

Risk mgmt is also quite different. Its often seen as less complex as L/S, which is probably a fair statement. But its a different game. You can't short or hedge, and you're pretty much always expected to be fully invested (tough to hold too much cash), so its more about sizing your positions to manage your exposure to different risks and factors. Some pms can be pretty active rotating in and out of different sectors while others take a more static and balanced approach.    

Other differences: 

Culture-wise, definitely more bureaucratic. 

Investments often need to be well-documented so its probably more writing than at a HF.

If you're at a smaller shop, you often end up talking to some clients or getting involved on the fundraising side too (ie. allocators/consultants want to meet analysts on the team) 

Getting a name into the portfolio tends to be more difficult given the lower portfolio turnover

ESG is a growing consideration at most funds - ties back to thinking like an owner in the business but can be tedious.

Comp is steadier but you won't have blow-out years at the analyst level. 

Much longer leash so job stability is a huge plus. You'll probably only get fired if your pm loses trust in your decision making, which often happens over a few years.

Downside is it takes much longer to get promoted to a PM. Doable but not easy to become a PM before 40. 

 

Very helpful color. A few things that I have heard that I would like someone to confirm or challenge:

1. Compensation: it is true that compensation doesn't have the same upside as HFs in a good year but over a long period of time, it catches up given you don't have the wild swings you see in HFs. Here long term I imagine is 5-10 years. Also, I am guessing that the HFs being referred to here are MM and smaller SMs, not the larger HFs with leaner teams but will sizable AUM - thinking Marshall Wace, Coatue, Viking, etc.

2. Ability to get cross sector coverage: typically you start as an analyst covering one single sector, but over time, if you are good, you start covering a few additional sectors. Given the ability to underwrite strong businesses, it is natural career progression to cover multiple sectors on your way to becoming a PM. Here, by over time, I mean over a 5-10 year time period.

3. Path to PM: Unlike HF land, spending time in the long only world leads more folks to become PMs. Basically, there is more opportunity to become a PM in the long only world, if you spend 5-10 years, than it is in the HF land.

Can anyone provide a compensation map for a long only vs HFs (think of an averagely successful SM HF or MM pod)? This will help bring to color point 1 above.

 

I might challenge this by saying that the record of the long only fund needs to be good. Otherwise it could be like a melting ice cube and you might need to eventually find a new seat. However, it might be more difficult to "parachute" into another long only fund as a PM once you've worked at your fund for 10 years. Career risk.

 

Everyone is accountable for returns one way or another. LOs get a bit more leeway from allocators because they don't promise outperformance or absolute returns in all market conditions like HFs do. They sell outperformance over business cycles, and in many cases, they deliver a specific style of investing. Allocators can allocate their equity book to a handful of managers with different styles (ie. aggressive growth, GARP, Quality, Value) so each manager is evaluated relative to peers in their respective categories. For example, if growth is underperforming massively this year but a particular growth manager is protecting on the downside relative to peers, its unlikely that allocators will pull capital. So they might be down more than the index and in absolute terms, but they probably won't be shitting themselves about getting fired (at least by their institutional clients). Having said that, if you're underperforming peers for more than a year or two, outflows are bound to follow.       

 

Over a decade, 79% of top quartile managers spend at least 3 years in the bottom decile of performance and 96% of top quartile managers spend at least 3 years in the bottom quartile (from Greenblatt iirc). My view is that in long only equities, you have to meaningfully underperform sometimes to outperform over the whole cycle -- because if you don't, probably means you're closet indexing which guarantees long term underperformance. 

 

Depends on the fund - there are LOs with 6x annual turnover, and HFs with 1x annual turnover. Ability to survive at a LO is generally better than a HF, Millenium has been around a long time, but many many pods have died after just 1-2 years and you could be out of a job pretty quickly. The sharpe ratio is not necessarily better one way or another, unless you have true edge like HFT or something defensible, other than "I can model cash flows better than the next 1,000 people" BS.

 

What's your comp range today and what are you looking to get out of a move to a publicly listed LO?

 

Rerum in debitis ipsum aliquid. Eveniet sed cum exercitationem voluptatem sint. Et quasi doloremque impedit consequatur officia. A sit adipisci pariatur in omnis consequatur at molestias. Saepe sed soluta cupiditate saepe ut labore.

Vel delectus voluptas dolorum esse ut rem sed. Illum illo quibusdam voluptate. Natus omnis ipsum molestias nihil.

Voluptate ullam in vel qui. Repellendus aperiam asperiores dignissimos nesciunt. Sint minima deserunt magnam non quod et. Et quos vel quo. Dolore veniam qui accusamus nesciunt.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
DrApeman's picture
DrApeman
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
CompBanker's picture
CompBanker
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”