What to pay attention to when signing a contract?
Hi guys!
I am looking for advice here when signing a contract.
Graduated in 2019, didn't have a good resume, so currently doing an unpaid intern for half a year. Working in a small L/S hedge fund, but the fund has its issue with raising capital, so I understand there was not enough money to pay me. But last week my boss told me something is coming next month and I think we will probably talk about a formal employment contract soon. Just want to know what are some of the basics to pay attention to here?
I know I probably don't have any leverage to negotiate, but I have turned down some of the other offers (not hedge funds, wealth management) along the way and I have already worked for free for 6 months. My boss seems to be nice so far and I believe he's satisfied with my works. Wondering what are the things that would be on the table to be discussed? Which one is the most important that I should manage to insist on to protect my interest? Should I worry about things like non-compete agreement?
What are you doing for the fund? Are you researching ideas and proposing them? Or are you more in a “back office” type role?
Things to think through: 1) signing bonus - will the fund acknowledge your work to this point and throw some money your way as a “thank you”. 2) base compensation - I think this is clear 3) bonus - depending on your role, what can you expect from bonus, will they give you a range or leave it totally discretionary? As much as possible I would try and get an idea of what this might look like, clearly in writing is best but that may not be possible 4) non compete - will the firm enforce one? If so will they compensate you during that period? If not how do they treat you being laid off/fired without cause? You generally want clarity on this, clearly getting advice from an attorney will make sense here, but you don’t want to be in a position where they let you go because of fund performance AND try to restrict you from working elsewhere. Also check if it is for competitors, more general (I.e. banks), or even extends to clients (doubt it if this is a smaller fund) 5) what do benefits look like 6) any other restrictions? Trading your account? Compliance? I imagine as an intern you are covered by a lot of this but just confirm
Of course read through it, have an attorney help if anything seems non standard. Basically read it, if you don’t understand something get clarify, if something seems non standard ask about it (forum, attorney, your firm), and make sure you understand what you are agreeing to.
Not sure if you are asking if you negotiate yearly increases now or if you are just asking in general how to handle negotiations on comp every year.
You definitely can’t negotiate any raises now (that would be very rare), most firms (outside of some exceptions) won’t give you in writing what raises will look like.
What I would ask about is what a career and development path looks like, what compensation along that path would look like, what future opportunities look like (invest in fund? Cut of PnL? Etc).
Negotiating for a smaller firm can be tough, in general I would say to look at market comparables, but the smaller the firm the harder that is (the “economics” of the firm become much more important). I will flag that in general firms that don’t pay and can afford to pay themselves AND don’t have agreements on what a future payout could look like if conditions improve, etc tend to be places that will undervalue you for long periods of time. You are working for free, while you are getting something from it (experience), you are at the mercy of your boss right now, they have no obligation to give you anything if they raise a ton of capital or have outsized returns, that is usually a red flag. I don’t know anything about the firm, but that would raise questions for me.
That being said I don’t know what your options look like and know very little about this place. For your employment agreement I would make sure to ask for a relatively standard base (do you think your firm will pay you at least what a first year in banking makes?) and probably benchmark to other opportunities you might have (banking, other funds, etc).
The risk is generally much higher at a HF so you also want to have the upside (so ask about payouts if fund outperforms), because if not you are taking on risk without any potential reward.
Unfortunately that is relatively common although not as much on the well known and larger funds (well known in that they have a good reputation).
The bonus part for a new hire is a bit of a red flag, top firms will give some guarantee or ranges around this.
Not seeing PnL overall is another thing I would be concerned about, that isn’t very common from the large funds I’ve seen.
Not knowing your PnL is pretty common at the places that are silos and that is many of the quant funds now a days.
I forgot to comment on the last point too, I wouldn’t enjoy that. I have seen some places do this but definitely not do this and not share PnL of teams etc. That is normally done so that individuals don’t learn the entire strategy, I.e. if you know what you did, you know what your colleagues have done, and you if know somewhat about performance you can piece things together, but that is a red flag.
Collaborating with others (outside of your pm) is pretty key to developing ideas and to improving your thought process. You will be treated as a commodity in this type of environment and won’t really get to develop your skills and you will be held back significantly (where do you go if this doesn’t work out).
I think you will be stalk a bit at this place, the “pm knows all” approach is incredibly frustrating to be a part of, and without any view into performance how can you even negotiate comp or know if your bonus is fair? Sounds like you’ll be taken advantage of.