Have an offer to join a small hedge fund (sub 250 AUM). Went to a non-target school and reputable but non EB/BB investment bank so my options have been pretty limited on the buyside and it’s been difficult to gain traction at larger shops just due to my branding. Is it worth taking an offer like this and would it limit my career growth/ability to move to a larger platform down the road?
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Joining a small hedge fund can be a double-edged sword, and whether it's worth it depends on your long-term goals and risk tolerance. Based on the most helpful WSO content, here are some key considerations:
Pros of Joining a Small Hedge Fund:
Interesting Work and Exposure:
You'll likely get exposure to all levels of how the fund operates, from investment decisions to operational tasks. This can be a great learning experience, especially early in your career.
Better Lifestyle:
Smaller funds often have a better work-life balance compared to larger platforms or investment banks.
Potential for Rapid Advancement:
If the fund performs well and you prove yourself, you could move up the value chain quickly, gaining responsibilities and potentially a more significant role.
Unique Skill Development:
Working in a lean team means you'll likely wear multiple hats, which can help you develop a broader skill set.
Cons of Joining a Small Hedge Fund:
Limited Optionality:
Moving to a larger platform later can be challenging, especially if the fund doesn't perform well or lacks visibility in the industry. Larger funds often prefer candidates with experience at well-known institutions.
Lower Pay and Stability:
Compensation at smaller funds is often lower, and the fund's survival can be precarious, especially if it's reliant on a single investor or has limited "sticky" capital.
Administrative Work:
You might have to handle non-investment-related tasks, which could detract from your focus on developing core investing skills.
Career Risk:
If the fund underperforms or shuts down, it could be harder to land your next role, especially without a strong brand name on your resume.
Key Questions to Ask Yourself:
Do You Believe in the PM and Strategy?
The success of a small hedge fund often hinges on the PM's ability to deliver strong performance. If you have confidence in their track record and strategy, it might be worth the risk.
Is the Fund's Capital "Sticky"?
Funds with a single investor or light commitments are at higher risk of collapse. Ensure the fund has a stable capital base.
What Are Your Long-Term Goals?
If your goal is to eventually join a larger platform, this move might make it harder unless the fund performs exceptionally well. However, if you're looking for a more entrepreneurial experience, this could be a good fit.
Are You Comfortable with the Risk?
Joining a small fund is inherently riskier than joining a larger, more established platform. Consider your financial situation, career goals, and risk tolerance.
Final Thoughts:
If you're struggling to gain traction at larger shops due to branding, this could be a valuable stepping stone. However, it's crucial to evaluate the fund's stability, the PM's track record, and your own career aspirations. If you believe in the fund's potential and are willing to take on some risk, it could be a worthwhile opportunity. Just be mindful of the potential challenges and have a contingency plan in case things don't work out.
Sources: $1B hedge fund with, Joining Start Up Hedge Fund - What to Expect, Work at a Start-up Hedge Fund? (Generally) A Bad Idea, Megafund vs SM Hedge Fund, Routes to Buyside PM
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No. Keep trying for a more established fund that can offer real training and has infrastructure. $250mm is too small and not a bet worth taking unless you were much more senior and had greater conviction of yourself add value to the fund.
Could you please explain what infrastructure means? Isn’t picking stocks just… picking stocks? Why does a bigger platform mean that training will be better or is it just generalizing that the bigger the platform the more successful they are… the better their process probably is?
Besides potentially higher near term comp / branding, why does everyone say joining a small fund is not good? Would the answer be different if OP said they’re joining a $400M+ launch? If their opportunity didn’t work out why couldn’t they go to a larger fund / a pod?
WSO makes it seem like the only acceptable option for first HF seats are $2b+ SMs or top pods which probably have 100 seats total and maybe hire 20-30 total people a year. I’m not in the HF world so maybe this is true but also trying to understand the sentiment.
I'm on the private side but from what I know, there are larger than you would think fixed costs. Heard $500mn AUM is what you should be targeting at the bare minimum.
Take the offer. Yes, you'll earn less and the job stability will be lower. But you will now officially be on the buyside, which is the hardest transition to make.
Also, the learning could well be better than at a large fund, since you'll be working much closer to the PM/CIO than at a large fund.
If you're lucky, the fund does well and scales. If it doesn't, moving to a different fund will be easier from that position than feom your current role.
Respectfully disagree with the comment made before. I'm one year in the industry, also on the buyside although in PE at a fund similar to the size of your hf. Having a job is better than not having one, especially at an unpredictable time like this. At a small fund you might actually learn a lot. Career growth is also largely what you make of it (networking...). It seems like people definitely care about investing experience though
Given your circumstances, the small hedge fund might be worth a try, especially given the current economic climate. But you have to know that the majority of small hedge funds have some common negatives like: 1) limited broker resources (you likely only have access to a number of brokers because there is just no way you can pay everyone with sub-250m AUM), 2) limited third party resources (because at sub-250m AUM, there is just not much budget from the management fee), 3) given the AUM per investment professional is low, you will very likely get paid lower than what you might be paid elsewhere, 4) a lot of small hedge funds never succeed in fundraising and scaling AUM.
There is a small chance the founder is good and you can learn a lot from him. Or maybe it gives you a good stepping stone into the buyside, which then gives you a chance to aim for a larger hedge fund.
I think people advise you to try aiming for a large hedge fund because the odds of career success is higher there. But I think only you would know whether you have a real shot at a larger hedge fund right now, or if you need a small stepping stone (in which case the small hedge fund might not be a bad choice).
How hard is it to move from a smaller hf to larger well known? I assume brand name matters less than it does in banking / pe especially at the junior level?
It is still hard, but it might get easier when you get into the buyside especially if you 1) build good relationships with brokers (a lot of times brokers know which PMs are hiring and are recommending good analysts to them), and 2) if you build good network on the buyside (so you kind of become like a "known" face in whatever sector that you are covering).
As to how hard it is to move from a smaller HF to larger well-known - I think it might be marginally easier, but again it really depends on where you are at in your current EB/non-BB investment banking role.
In terms of difficulty, the analyst candidate that comes from a tier-1 HF will get the easiest search right, because they will easily get at least a first look from other tier-1s or tier-2 HFs.
The next most likely candidate is usually a "lower tier" buyside analyst looking to break into a brand-name HF. I would probably put that group of people on par with a select group of sellside people (sellside analysts or sector specialist sales who are known to the buyside for being good).
I think as long as you are in a position where you can become a "known" analyst in whatever sector that you are covering, then your chances are slightly better. So it really depends on where you are at on the EB / non-BB investment bank.
Echoing @kil
These posts are pointless unless you explain what the alternative is. Is working at a small hedge fund better than unemployment? Pretty easy question to answer
There are pros and cons to working at a small shop. You get a lot of exposure and oftentimes the seniors are well established people who got rich from finance and are running a de facto family office. You can learn a lot from them
The downside is that, especially if not in the above scenario, the sources of funds can be unpredictable and a fund could collapse pretty easily. Happens to plenty of such funds every year
Then there is the professionalism point, which is partly covered by the ‘infra’ point above. Going to work everyday and your day-to-day will be very different compared to citadel or a large single manager. You’ll have access to fewer resources and your investment process will not be as standardised as those places. It means that you skip all the BS, but those are valuable skills which you’ll need to develop if / when you go somewhere else
It can be. I interned at a ~$200M NAV hedge fund where I was "employee" number 10. Small funds can be a very interesting opportunity because you will be asked to do more simply because there are just not that many people to do the work.
One nice thing about the hedge fund world is that, while there are big caveats to this, if you do well and are able to demonstrate legitimate returns, you will make a good career out of it. Most of the big hedge funds you know of started tiny.
be cautious- public markets unforgiving and $250mm aum is light. I once interviewed at a shop with ~$1B AUM to join as the 4th investor and the fund was backed by a very very well-known firm, everyone there had pedigree, fund size had grown significantly in the previous 2-3 years.
Ended up getting to final round and lost it to another guy who worked at the same bank and same buyside job as me. Checked up on them a year later, and was shocked that they had actually shut down. It's brutal.
I imagine that you may need to trade up your bank (not sure what lateral market is like as I've left the industry) but you may want to look at regional offices of reputable banks where they care about regional tie. Bank of America LA might be an option if you are in California as they like West Coast schools, Midwest has some reputable MM/BB presence too (Piper Sandler Minneapolis, Baird, William Blair, Lincoln etc.)
I think after like 1-2 years there you can get healthy looks from buyside firms, especially if you also target geographically too like staying in Chicago for example.
depends on what your other offers are?
This is actually a refreshing thread for a pretty common question that gets dunked on
Let’s run through the math. At $250mm and assuming 1.5% mgmt fee, your fund has a $3.75mm annual budget. Let’s assume 5 IPs (including founder/cio) and 2 “other employees” (accounting/cfo, investor relations/coo). Assuming base salary of $500k for the CIO/founder and $150k for everyone else, that’s already $1.4mm ($2.35mm left). Bloomberg terminals for investment staff will be another $150k, office space and expenses in HCOL for $100k annually, prime brokerage/other fees for 0.5% of AUM are $1.25mm. Now there’s $850k left for all conference travel, expert networks etc. (my PM told me 1 GLG credit is $1.2k and this is only for basic calls, while “premium” calls are 2.5 credits). From an infra perspective, are you fucked here? I don’t really think so, but you’re cutting it very close if you have even the slightest intention of acquiring alt data or even bringing on a dedicated IT person for your fund. HF jobs are a gamble and there are people on wsb beating the s&p with no resources, but what’s the sharpe of such an individual? Is there a lockup on AUM (unlikely at this size)? Does this fund have a right to exist? At the end of the day, you need to make the call as to whether or not you think these guys have a chance and what opps you have if it doesn’t work out. Good luck!
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