What's left in public equities ex-pods?
I'm hoping to avoid regurgitating the SAME OLD pod shop debates as always, but I am curious to get a sense of things here, as recent posts on here and on twitter have been interesting.
If you are in your mid to late 20s, what are your chances of building a fairly solid net worth in public equities if you do not pursue pod world (not to mention succeed in pod world)?
Feels like there are a handful of SMs / "institutional platforms" (not pods) where you can earn good money still, but obviously insanely competitive to get into and very few seats. Climbing up at those shops also feels immensely difficult. The same goes for large LOs that are somewhat bureaucratic and if you want a shot at the big comp, you basically need your MBA + CFA + politicking lottery to get a shot at a PM seat after 10-20yrs.
I'm always amazed by the fact places like NYC + surrounding fancy suburbs have scores of boomers with fairly large net worths from finance and the buyside, yet it feels like those outcomes are largely unattainable. Perhaps its a warped perspective from my naive days about 15yrs ago who knows.
Feels like a good outcome for most is grinding away in a mid to high 6 digit income, which for tristate area is fine-ish (I know this is a disgusting world view), but also somewhat true when looking at cost of living for a family in 2025.
I suppose you can make a living grinding away at a shop like Coatue for however long you last, but you really don't see much longevity. Then you jump to a "boutique" $500mn-$700mn fund, plagued by the same realities (not gonna get enough pts in the GP, returns are meh, inflows are meh), and then you're jumping to Clearbridge or Wellington or Nueberger for stability and because you have a family, but you grind it out there at $650k all in, until??? Or you take a shot on your own with $50mn from friends and family and hit the twittersphere.
Just seems very difficult to crack $1mn in earnings year in year out at most places unless you get lucky these days... perhaps AS IT SHOULD BE... The illusion is gone and obviously to earn big bucks in this world it is immensely difficult, and just like every industry you need to either 1) own something that succeeds in a major way or 2) have a large contractual payout on profits you make for a firm / pts in the system... yes perhaps thats not new and has always been the truth. Am I crazy or did more people have a shot at making more money at some point in public equities?
some of this is cyclical. in early 2010s value SMs were all the rage (growth had sucked for 2 decades after fin crisis). VC was a perma impaired asset class. people thought pods were dumb short term investors instead of smart money they are now.
all of those funds then struggled in the late 2010s while VCs did well, so everyone wanted to go to a growth/crossover fund. no one wanted to go to a pod and make 3% returns on GMV instead of 50% owning tech working 1/2 the hours.
then returns struggled for that group and many still below hwm.
pods really inflected in 2022 because the SMs didnt protect capital and now everyone wants to work there.
this all happened in ~10 years. my point is who TF knows what will happen in the next 10. there is a feeling of "end of history" that suggests end state of HF industry is big 4 pods and capture of talent/allocator economics and SMs screwed. could be the case, but that also makes markets/stocks more fragile (think the march unwinds) and will always be place for smart investors who do not want the 5% drawdown limits
agree
Totally disagree.
The shift towards pods is structural and a maturation of the industry.
LPs used to pay incentive fees on beta and that helped a lot of mediocre talents get rich in a product that was fundamentally bad for its customers.
You’ve seen a massive right-sizing in that regard. There’s very little demand for a SM product. Conventional wisdom is that outperformance at a SM shop is short-term and will reverse in short order. That’s basically been the case since the early 2000s. Almost every star manager mean reverted with a vengeance, never to emerge on the other side of the so called cycle.
Not much. Intense competition for a shrinking pie. The result of couple handful of firms gobbling up all the alpha..
Thought this is written by myself... have exactly the same concern.
Wait, but is Clearbridge or Wellington of the world really a good exit option? thought those are secular decliners...
Not gonna lie. I think the most realistic outcome is you do the usual grind to get to a good SM. Then you either 1) play politics and get lucky into the sector head or PM seat. 2) you leave to an MM and pocket in a high signing bonus.
1) is a dreamy scenario for many
2) is possible only because we’re in peak pod mania. But grab the $ while you can. People are going to be looking back and wondering why the heck Baly was paying $5m to some mid level analyst on 6-700k/year at a 10bn SM fund with an alleged “track record”. This is happening and it’s pretty crazy. This obviously only applies to someone who can demonstrate they have been successful in managing money on their own. If you’re just doing research then that’s a tough sell and we’re back to square one. But my experience is many SMs - unless your boss is insane, you generally have a decent amount of discretion to grow as an analyst. So you wanna build a track in a safe space. MMs will discount this track record versus a guy at Citadel with his own sleeve so you’ll get paid less upfront. But it’s still not bad a trade.
realistic outcome meaning most likely input/situation that results in solid NW being built on a publix equities career?
Meaning something attainable if you’re neither a lucky ass dude or or a shit outta luck guy
How do you actually prove out that you had enough discretion to claim a track record as the SM analyst though? Unless of course you have a sleeve, but that seems uncommon for SMs and doesn’t make a ton of sense for PMs to provide
There are ways around to pitch it besides having an outright sleeve...if you're a sector head and you're "managing" a certain flavor of risk and a team of analysts, it's an easier pitch to make and a smoother transition. Otherwise, hopefully you're at a firm where any risk-taking analysts are given credit for sourcing ideas, have a responsibility in stack ranking their own ideas, and are expected to be proactive with trading/sizing decisions. If you've made money doing this, then the move to a senior analyst / sub-PM role at an MM is less of a stretch, or not even one at all.
In my view SM startups are underrated, and have in recent history had a bad rep - but the current dynamics could push that to change.
What is new:
With that context, what is old, but becoming more relevant:
There is a pretty large market gap (in terms of quality) between scaled SM and podshop PM, and I think that space gets filled up with spinouts in the coming years as the best talent craves a more diverse client base.
Great thoughts and I agree SM startups are extremely underrated now. I believe there are a few trends that are about to converge before the end of the decade that will have people talking about sub-USD 2-3bn SMs in 2035 as the "hot thing"
Startup SMs sometimes seem like good options, but these spots seem very rare and rely on an extensive network. Thoughts?
It’s very simple. Times are just not as easy despite what any person 20+ years older tells you. There is a lot more competition and fewer seats…and even fewer QUALITY seats. Most people will have to go corporate or do something else but no one wants to suck up their pride and do so.
Yeah industry's a run off. Maybe everyone's still over-earnings but expected value gets worse for every new cohort. not sure what else there is to tell you.
Most industries are like that now
What's the goal? Speaking to your comment on LOs, a long career at an LO is likely still a path to HSD/LDD $M net worth by the time you retire. Yes, gone are the days where you have PMs at LOs consistently pulling in 8 figures per year (with a few exceptions). But at a scaled LO, a decent performer who stays for a decade+ as you mention is easily in $600-800k+ range with a relatively high (for this industry) career stability which is a very good living by any standard. Or if you make it to PM you're probably LSD $M income on average.
Stepping back a little, I think we're all looking for a free lunch where we can ride the wave without having to take significant career risk and come out on the other side wealthy. I don't think that's really true anywhere in finance anymore. The industry is mature. There will always be something that disproportionately mints money for employees temporarily, today that's MMs sort of, a couple years ago it was crypto, in a couple years it will be something else. But I think the reality is if you want to have a very good outcome (above what most outside of the industry would consider very good = high 6 figures income), you will have to take material risks to get there. Starting your own thing, buying or starting a business, taking a risk joining a start up that 95% of the time won't scale or you won't get good economics in, etc.
Stepping back even further, and not accusing you OP of this but think it's worth mentioning since I have had the nag to say this on here somewhere but haven't actually put fingers to keyboard: I think people on this site tend to view careers in finance (and in general) as this linear path, where your outcome is almost pre-defined by how you got there. "IB+PE+Tiger Cub = millionaire". I used to think this way, and as someone who did not do that traditional path out of the gate, thought I was doomed to a life of mediocre outcomes. Not saying I am hugely successful but the older I get and think about what I truly want out of life and my career, the more I realize that is that thinking of your career in such a linear way will constrain you from keeping an open mind and you'll wind up ruling out potentially big opportunities if they don't fit within your narrow view of what your path through the workforce should look like. Most of your wealth will most likely be created after you turn 40, maybe even 50. Maybe I am biased by my experience, but I've found that if you keep an open mind, work hard, do things that interest you, and opportunities tend to naturally open up that you might not have thought of. Might even mean exiting the industry altogether for something you find truly compelling.
I don’t mean to sound tone deaf but your premise of 6-800k being a good deal did throw me off. 6-800k is decent but it’s not good for anyone here that’s in a “good” SM role. Any sort of >>5bn fund will give you 6-800k pretty easy as long as the fund isn’t crumbling. We’re trying to run away from that 6-800k to capture greater upside cause cruising at that income just doesn’t do it anymore l
I think asking yourself how many >$5bn SM seats are out there and what the expected tenure is for a new analyst at one might be a helpful exercise.
OP here - I really appreciate the sentiment because I likely have missed the window / path to those exceptional outcomes (in the more cookie cutter sense), but the exact thing you described is happening currently. There are new opportunities that I had once disregarded and am now leaning into a bit more as a potential path... The funny thing is the advice I have received from those who want me in that career track has consistently been "your career is a long winding road, and things will change significantly, and you likely won't end up where you originally imagined, but often times it can be an even better outcomes than you had hoped" (I agree with that more than ever, and maybe not in straight $$$ terms, but the whole package).
Anyways, I think your summary really encapsulates everything quite well. The free ride, hoping for the right path that translates into the seat/opportunity for windfalls, and the unexpectedness of one's career.
IB+PE+Tiger Cub = millionaire
this is technically true, issue is millionaire is meaningless term these days.
Answer me this... Would you put your own savings into an actively managed mutual fund in 2025?
But that's not really the question. mutual funds are not the only form of actively managed public equities. The decision that a single retail investor makes in their own capital allocation looks very different than how institutional investors behave for a number of reasons including suitability and agency differences. Were I a tier IP at a fund of funds or endowment looking to make a name for myself by sourcing an investment that pays off, if I went and told my bosses we should just go all in on ETFs, their next decision might be to fire me because they don't need to pay someone $300k+ a year to tell them that. If I tell them we can lower our volatility / increase our sharpe ratio by building a basket of hedge funds, whether or not that is true or meaningful, they still need someone to manage the process of selecting and managing those fund commitments. Hence why we all still have jobs.
OP here - adding on to what what the other person said. My understanding is that a lot of the large LOs are making their new money on SMAs for institutions. Wellington running the large cap core for example. If you manage $10bn for an endowment or even $100bn for a large pension fund, how are you divvying all of that money up? Especially with SP500 and mag-7 concentration where it is today.
The endowment has pledged giving commitments over the years, while the pension has to pay for retirements for a large cohort. Do you want to leave all of that sitting in passive... maybe, but maybe it makes sense to make some decisions towards active in some places.
All that being said, I get the sentiment, but active management decision making and active asset allocation decision making all play a role still.
What’s really at issue in this thread?
A) how hard it is to find a stable 600k-800k+ job in this industry?
Or
B) the above job/comp isn’t that great, ceiling isn’t high enough so why be in public equities at all?
One could have the same debates about banking, PE, etc. where there’s a crowding effect for top spots and most people don’t make MD, Partner, etc. The upside to public equities is that the work is interesting and independent, work/life balance is great with weekends mostly free, and comp still very good. One can get wealthy on $700k/year as long as saving and investing well.
It’s not going to get you a private jet but almost anything else is attainable. Good advice is stop looking at Instagram and comparing yourself to trust fund or top 1% finance outcome people.
Edit: some math to put this in perspective
Let’s assume someone has $1M saved at 35 when they get this imaginary $750k a year boring, stable job. Now let’s assume they save $150k per year and are able to compound wealth at 10%. This person reaches $5M net worth at 45, $10M at 51 and $20M at 58. Is that such a bad life?
Outlier differences in net worth tend to come more from long term investment success than W2 income anyways. So why not take a job where you can spend the bulk of your time thinking about investments? And not to mention, there are a lot of these jobs in lower tax places than NYC or CA so every dollar of income has more compounding value.
Hard to survive in NY on that income/wealth profile
Yeah I personally think 750k/year is not that great. the $5m at 45 speaks for itself. Would argue the 5m at 45 is a pretty optimistic scenario given reality is your 750k is more like 400k. I’m sub 30 in NY with no wife/kids on similar comp and I spend 120k/yr (70 rent, 50 all else) which nets to 280k/yr of savings roughly.I’m willing to bet that 280 diminishes below 150 once you bring in family life and other stuff (hypothetical budgets are always tighter than the reality).
I dunno. 750k seems like a chunky headline number but 5m at 45 sounds sad lol. Was hoping I’d be living in at least a 5m house by then lol.
Yeah the issue is that NYC is really stratified between the 0.1% and everyone else. Have to shoot for right tail outcomes to get same quality of life that $750k/year could afford in Denver, Dallas, etc. Or save prudently and run a concentrated portfolio with potential to compound at much better than 10%. That’s how most wealthy people have done it.
As far as housing, someone with $5M net worth and that income could probably stretch for a $3M house but that would obv materially eat into saving potential.
This guy is spending 5.8k a month on a 1 bed and complaining….you got to be frugal and let the magic of compounding work its wonders
compounding wealth at 10% isn't realistic. More realistically, one might be able to earn 6-8% nominally after tax which is more like 4-6% real.
Saving $150k a year on $750k with wives and kids isn't easy. Then you have other periodic major draws on your net worth throughout your 40's and 50s like private school, college, weddings / other life events, etc. Such a person is treading water from 45-60 an ending up with with maybe $3-4mm of liquid net worth (i.e. the $1mm they put aside at 35 which would have 1.5-2xed over the 25 years assuming a 5% real return) and their house paid off (if they're lucky) at 60. it's not a bad life but there's not a lot of cushion to absorb external shocks such as losing one's job, a major market drawdown, or family illness.
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