Why did you choose HF over PE?
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I made a grave mistake and wish I did PE.
He works at Tiger
PE blows away HF in terms of $ for the average person outside of outlier MM blowout years and a handful of very selective SMs (tiger - yes even now, Viking etc)
What is this based on?
I don't have the data but I certainly believe it. Reason is simple: PE is a control investment. You can buy the asset in a less-than-ideal state, make improvements to it yourself, and sell it for a lot more. And once you've proven you're one of the few groups that can actually do that, you attract a lot of leverage and capital to do it on a much larger scale.
Compare that to HF. Markets are public, so good assets will (at least in theory) be bid up to their full value. You get no control and can't improve them. And if, despite those tough conditions, you still manage to outperform, you still have a hard time attracting capital because LPs will just think you got lucky. You can't prove causation like a PE guy can, when he actually oversaw the improvement himself.
There's exceptions to everything I said. PE markets can get crowded and bid-up, sometimes more than public markets even. Public investors sometimes do get to influence companies. Yadda yadda yadda. But on a high level I think the less liquid markets and turnaround aspect mean more alpha opportunity for PE.
I am in a mixed HF/PE role at a family office, and I've steered it more toward the public side because there's one thing I hate about PE: I need a willing seller. My paranoia is that as PE keeps growing and sellers get more sophisticated, it will be too hard for PE to get a good deal. In public markets I always have a willing seller.
Is this true? Are you talking about mega funds?
Because I like to struggle for my comp
what's your TC?
Because I enjoy pain and disappointment
Because I was(/am) stupid and pictured myself as the next Paulson/Loeb/Ackman/etc rather than ending up as the guy stuck at small funds in 30s making less than 250k...yep, kids I'm the reason your smart friends warn you about equities.
Also went to pods and got blown out 2x in 2 yrs. Its literally all about the seat - if you're not at the top SMs or find yourself the right MM PM (impossible to diligence from outside at 22-24), I wouldn't recommend it.
Why dont you switch to something else?
Switching isn't as easy after a certain age...that said, I did switch into something else in finance (still investing) so life is better now :).
But yes, PE after ibd would've been much better in my case.
If you absolutely loathed PE and want to do publics, would you do top AM at like T Rowe or Capital or D&C, or top SM?
these are my options at bschool
This is the path
Way higher pay
Honestly worried abt those answers as a college student abt to enter industry …
Flatter org structure, greater responsibility
Higher cash comp
PE is both boring and overdone - levered multiple expansion without the liquidity. Working with a portfolio company for 5 years is heinous and there's very little value I can bring that the company can't. The only value I would bring is capital which is a commodity. Maybe some unique special strategies are cool but they're rare. Rates have also fallen over last 20+ years, is there really the same juice left to squeeze on multiples?
HF you get the capitalized value of any future world immediately and instantly. I also only have to worry about the strength of my ideas. World news/markets are fun to me as well.
Over the long run, market hours are more predictable and having put down banker 9-5's with alarming frequency, I was happy to not be on the deal cycle anymore. Under a PM with a track record and am 730am to 7-8pm most weekdays, out by 430pm fridays, occasional weekend work but tbh not really anything that I cant do on my own time, whenever I feel like it. I don't find volatility very stressful at all. I don't get people who live and die intraday, but they're here in HF world which never made sense to me, bad fit imo… And if I get blown out then so be it, I'm still very employable and will be okay in the long run. At least on this path I have a chance at $1mm+ bonus this year if the stars align.
are you at a large single manager?
What does this mean? Thank you in advance.
I think the point being made was that if you have a divergent view on a public company (i.e., it is under/over-valued for XYZ reason that is different from consensus) causing you to initiate a position, the market will react and adjust the valuation in the short-term allowing you to exit and monetize the return compared to needing to buy and hold a company for 3-5 years before realizing the return in PE
This is exactly why I picked UMM PE over HFs. I agree that a good hedge fund job is "more fun" and less of a grind, but stars need to align for a good payday and there are an overwhelming amount of bad seats in the space. For the risk adverse types that don't think they can "beat the market", PE is a pretty good, risk adjusted path for wealth creation. An average VP / Principal clears $1M cash easy at a UMM / MF and they have decent stability in the growth trajectory of earnings while you live and die with your yearly performance at a HF.
Yes the lifestyle really cannot be understated. I want to enjoy and experience life and you just can't do you that when you're working crazy hours and continually being subject to deal timelines out of your control. It gets better as you move up but not by much.
HF on the other hand is way more predictable and stable and less hours on average. I've been able to invest in happiness outside of work at a level inconceivable to any of my friends in PE and it's been one of the most rewarding things I've ever done
I mean if lifestyle is your goal, you theoretically shouldn't be in PE or HF. I can't imagine someone being good at a HF job if they work 9-5 and sign off for the night / weekends. At the end of the day, there is always a trade off between work-life balance and compensation. You can't have both….
Great points and is how I view this. Although I'm not sure that future world is realized immediately
interesting @ the dispersion of responses in this thread
HF = Adrenaline-filled high speed racing. Emotions are raw in HF world. Battle and glory. Intellectual honesty. The IQ battleground in HF world is what makes it exciting. Schmooze no one. Control my own destiny (at this level I can say fuck you to everyone and just set up my family office, not a huge sum of capital but it's a highly liquid quant strat that yields liquidity to support my life, basically livelihood won't be taken, cancelled by anyone). Can have an unapologetic attitude in life. And I like to surround myself with math prodigies (in my niche), whose thoughts are non-linear and provoking.
PE = cower and hide in private markets, in a bureaucratic and pretentious environment, and wet their beds whenever they have dreams about taking public markets risk.
PE = can fake returns by not updating marks -- denial that you're a bad investor
Facts. The ability to have financial / career independence early if you are lucky + don't have to deal with the corp bureaucracy that is PE is way understated
I can tell you why I'm not at a HF, its bc I am dumb as rocks.
Don't want to start a new thread given there's already one here. For those of you who went private to public, what do you miss/regret the most?
Access to full complete financial information / mgmt team
Army of competent consultants, lawyers, ops ppl, etc.
Little minions (e.g. analysts / associates) who are literally HQ on-demand labor 24/7
Never stress abt ST performance because of the BS private marks system
Feeling like I'm really important
Never regretted my choice though. 100x more happy now
FWIW I turned down a MFPE VP offer to join a SM HF and have never regretted my choice
PE is just such a soul-sucking grind of PMO + you're locked into it as a long-term career at the VP+ level as it is a very illiquid and back-weighted comp structure.
I'm also probably way more risk-taking the average finance professional but I'd rather have the chance to win the lottery that is HF and retire early than resign myself to the long and grueling path of PE
Like everything else in life if you don't fundamentally enjoy the work at some level it'll be very hard to be successful... so this should be a personal choice - these two careers attract very different types of people and require different talents to succeed
"Prospect in HF"
Lol ok dude why ask this question if your response to a legit answer is to question why their anonymous forum account isn't accurately updated for their latest position and status
What's PMO stand for?
Project management. The "skill" in PE (until you get to the VERY top) and how you differentiate yourself is how well you can coordinate the elaborate dance of associates, partners, consultants, legal, tax, etc. to hit changing deadlines and produce very high standards of work
Basically success in PE is way closer to a project manager (esp. at the VP / Principal) level than it is to HF investing
As an undergrad at a target, threads like this always confuse me. As far as internships and initial jobs, PE seats are a dime a dozen relative to HF seats, and I consistently see a handful of the top top kids reneging top IB seats to go straight to HF. Despite this, it appears like out in the real world, hf as a sector is viewed as past its prime and not worth it/as desired. What am I missing? Is it just a distortion of being exposed to bad PE shops vs good HFs?
the fundamental assumption ur making is tht whatever decisions college kids make regarding what jobs to pursue are correct... hint -- they're not always right
Sure but there's a reason why good HF seats are the most coveted for MF PE associates / BX + SL analyst grads
I'm sure their decisions are nowhere near fully informed, but there's also the element of the HF spots (internships, haven't personally recruited for FT yet, but observational seems to apply there too) being orders of magnitude harder to land that makes me think there is some merit to it. It feels like too much of a difference to just be caused by oversupply of top undergrads because they are pursuing the 'wrong' jobs.
It feels like everyone and their 15-year-old brother has a PE internship, only the top fraction land HF ones. Sure, PE vs HF take on ug interns with slightly different motivations, but again, doesn't feel like it's enough to explain the disparity.
Because college kids are obsessed with prestige and prestige comes from doing things which are very difficult and competitive.
At an MBA considering the switch to public markets. If you don't care about the day to day of the work and don't mind the hours, the smart move is to stay in PE all day long.
PE comp/longevity is incredible simply because LPs can't access the private markets via a fee-free index. PE firms can perform in-line with the average of its asset class (or even below) and that warrants their 2 and 20. The whole industry gets paid boatloads of money just to put in the grunt work of acquiring and overseeing a private business. You are paid to provide access. It's grueling, but you have to be really bad to fuck that up.
For public markets, LPs can just buy the index fee free. So you need to outperform net of fees to have a reason to exist (simplifying by not taking into account the sometimes real, sometimes theoretical hedging in HFs). You are paid to outperform as an investor. That's really fucking hard, but comp is amazing and immediate if you're one of the few ones that can do it. But also, you're day to day is focused on developing better investment ideas, which is a ton of fun if this stuff really interests you.
The reason to go HF is because you love this stuff, want to play the game to see if you can outperform and hit it big early, and think the grind of PE isn't worth the carry waiting for you at the end of the road. If you're okay with the downside scenario of striking out at HFs and are comfortable you'll land on your feet somewhere making more than enough to be fine, you choose to play the game that's fun.
Couldn't possibly have said it better. I've said before: hedge funds are only worth it if you love the game. If you're just optimizing for money/ prestige and don't mind putting in work/ grinding PE all the way.
PE if you want to get rich/ be a corporate executive/ have prestige. Hedge funds if you love making investment decisions.
It's that simple.
Pretty sure hedge funds have prestige and can make people rich
I think this is quite fair. The fail out rate for hedge fund employees is higher. The variance in comp outcomes, longevity, etc is higher.
So if you believe all of that to be true, and markets are efficient, the comp should harmonize on an expected value basis (I.e., comp for those who make it should be higher (same expected return) because a lower % make it). I'm not sure if that is true or not, but if labor markets are efficient, it should be true.
According to everyone grass is greener on the other side lol - I'm A2 this year and no idea what exit to pursue
The jobs are on opposite ends of the spectrum stylistically.
To make it 10-15 years in either (when you start really earning), you need to not hate it. So focus on which one sounds more fun, exciting, where you want to go to work daily.
If you solve for other variables, you'll be out before you ever get to the endgame.
Great advice. Which path do you think you'll be better at? Which suits your personality more? These are the questions I'd ask rather than worrying about stuff you can't control
This is the way.
I don't know how many times people comment "choose what you would like to do are a better fit for" or a variation of this, and it's always the best comment.
Great HF analyst / PM personas I've seen - many would have been below average PE employees. I imagine the opposite is also true.
Always loved public markets, and it's what I kinda always wanted to do. Never wanted to do PE, just didn't think I would enjoy it. Was never interested in deals or doing operational improvements or working with portcos. Didn't want to work at a law firm structure (hierarchial, titles matter, pay based on title/YoE). At a hedge fund, everyone is an analyst in essence, doing very similar if not the same work, and I knew I wanted a flatter / more meritocratic environment. There are indeed a lot of factors out of your control, but at a hedge fund you can control your own destiny a lot more. I get that the expected value of a PE career is higher, but my mindset was not to optimize for going into a career where I have high/higher expected career earnings. I just wanted to try and make it.
If my fund blows up or I flame out, so be it. But I'll do everything I can control to make sure that doesn't happen. I think I'm smart and can get another job or do something different. Obviously gets trickier with a wife, kids, or family in the picture, but don't have anyone else I need to support right now.
There's also a lot of ways to make money. I also understand that other jobs would come with lower pay, but I wouldn't want to regret not trying to make it in public equities.
cause id rather blow my brains out than format another powerpoint logo or talk to a banker
Really interesting discussion. My response likely mimics that of many ripping on private equity but can take it from another approach. I have some family ties to private equity (family operator sold to PE after > 20 yrs in biz) and so I have a natural bias against them. Will start with why HF first and then why not PE after:
HFs offer the more intellectually stimulating and challenging day-to-day, and the pressure/adrenaline of basically a high-stakes gambler with an athlete (not professional level but stakes are just high and work-rate matches). It's a combination of sheer work ethic and ability to learn more rapidly than peers, requiring you to develop edges and unique views based on > 50 different factors while being forced to simplify all of it down to a repeatable process. The SM/MM model is different so frankly it's tough to compare apples to apples, but broadly speaking you just are forced to develop intelligent views based on your understanding of data and what it's telling you. Mispricing's exist all over the place and all sets of public investors can take advantage of them. Forces you to think outside of the box and often times pushes you beyond your comfort zone of what's "consensus." Constantly challenging the status quo. That + most seats in public mkts require you to marry the micro AND macro. You have to be deep on the fundamentals of business/industry but also understand what moves a stock (in PE these are the same thing). As someone jokingly wrote above "I like to struggle for my comp" it's honestly not that far off: you have to struggle for your returns, especially now.
Why not PE is fairly simple and alluded to it in a response to someone above: I think their model is optimized for AUM growth and not for returns and over time my bet is 2 things may happen: 1) if valuations at all reset lower as a result of higher rates for longer than the alpha destruction will be immense and most LPs will redeem and 2) major MM PE shops are actively trying to find ways to grow retail investment in PE, akin to the way ETFs drove passive investing in publics and eroded alpha. On #1, most PE guys tend to believe they're adding value and another poster wrote "I don't know what value I can bring that the company won't add themselves" - this is true 99% of the time. The only value-add for a PE firm is their capital resources and if they aren't fully committed to deploying capital actively towards acquisition then they are rendered useless as a value-creator, and I would see them more as a parasite. They have no macro understanding or larger view on markets and in a world where everything has become so correlated this now matters (if you were attempting to sell in 2022 you couldn't because your sponsor timed it horribly wrong). Seen many-a-time where sponsors in 2020-2021 probably said "debt is cheap let's rev up the M&A machine" just to miss peak valuations in mid-2021 before not being able to find a willing buyer in 2022 on the brink of having to mark their portco's lower. #2 is just that larger MM PE guys have noted their focus on driving retail AUM, this might not look like publicly offered products (rather thru insurance co's) but those flows may matter LT in terms of where alpha vs. beta resides in PE.
Just my two cents a lot of this has already been discussed and well thought out better than my post above..
Seems like everyone covered the obvious ones (PE safe but boring asf and is a project management job) and HF (intellectually stimulating but much more unstable).
A lesser considered one (for those of us who don't want to work until our hair is white and bodies are on the verge of giving up) - PE pay is way more backweighted. Yes EV is higher if you work to retirement... but if you're like me and mostly sprinting to your target number ($5-10M) HF will get you there way faster.
Plus it's just way easier to achieve a level of work autonomy in HF. If you can generate alpha you have the right to ask for so much more. Way more remote jobs, ability to work from many more locations (instead of only NYC and SF), the process of starting a smaller HF is much easier than PE firm, etc. I have friends pulling in $1M+ working SWE hours totally remote. Tell me a PE professional who can do that. Ultimately my goal is to live life the way I want so nature of PE runs completely contrary to those goals
What's HFs have SWE hours and are fully remote?
Mostly SMs that are small enough to have idiosyncratic cultures set by your CIO / PM.
If you can prove yourself (which is way easier in HFs given ability to tie outcomes with actions), you are able to ask for more and they have more to give (since most HFs are basically startups with little institutionalization).
Furthermore nothing about the work requires in-office or an insane time commitments. It's a largely asynchronous research job once you are fully trained and returns on time are non-linear (e.g. a good analyst spending 20 hours >> a bad one spending 100 hours). This is in stark contrast to PE where there is a much bigger need to be around your team + adhere to strict travel demands + work is largely linear due to the prescriptive nature of the job and sheer quantity of work required
Sprinting to $5-10mm vs. walking to $100mm (by 55+) in PE. Higher risk vs. longer payout cycle/lower liquidity and more grind
I would trade that incremental $90M for the opportunity to live life before my bones get creaky
What are the probabilities of either of these? P(HF sprint) =P(PE walk) ??
just to everyone quoting how "stable" PE is: I would wager that the days of PE coupon clipping is about to be mega over without rates going down for the next 40 years again. Stability is an illusion in life and especially in finance; at a hedge fund you just see that reality flashing in front of you on a screen every day.
More generally, I found that the smarter, more open minded, and interesting people were all at hedge funds and couldn't stand PE culture, which I found to be more shallow and full of people who cared a lot about status and hierarchy. There are some awesome PE people and awful people at hedge funds, but if you're good and move up at a hedge fund, you can kind of dictate your own life a lot and do your own thing.
Also you can't short anything in PE, so where is the fun in that...
Echo this - a lot of PE associates thought they could cruise into Sr. Associate roles and getting a tough wakeup call right now.
What's life without a little risk? If you love to generate investment ideas and make money out of them HF is the way!!
The markets. Receiving new information continuously and using that information to influence an investment decision is very rewarding for someone who loves to learn. Also had an interest in decision making with imperfect information.
PE I found to be too process oriented. Most of the work is not about making the best decision but rather to complete the deal/bidding/acquisition process in a timely manner to show LPs that you do a lot of work.
If this was a couple years ago, I would have gladly taken PE over HF. But like a wise monkey on another thread suggested, read Howard Marks' "Sea Change". The macro outlook for PE doesn't look totally bright. Marks argues that, for PE's business model to thrive, there is a necessary requirement, that is either low interest rate or decreasing interest rates, he makes the point that PE has been extremely successful for the past 40 years and even more so in the last two decades because we had an environment of low interest rates, and when PE firm wanted to do an LBO, more banks would compete bringing the interest even lower. The decreasing rates also made it easier/better to own floating rate debt, and since the interest rates have gone down, this has in turn appreciated the value of the underlying assets of the PE firms. In the current environment with a recession being a likely outcome in the next 12-18 months, assuming it would last for even a couple of years, it would be a bad time to enter PE. HFs on the other hand mostly deal with public equities, L/S firms make money either way, LO funds will have a hard on seeing the falling stocks of good businesses and start buying even more, Special Opportunities guy might be a little sad because there won't be a lot of PE take privates but regardless the sell off is bound to create arbitrage opportunities. All this considered, HF looks like a sweet spot to be in given the current situation.
HF = Olympic athlete.
PE = Professional sports player.
It's a different breed.
And one gets paid more….
I'd rather be a pro baller than an Olympic runner
Unless you play basketball?
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