Take the 30M hedge fund analyst offer? - sort of exploding

Hey all,

I received the opportunity to be a junior analyst at a 30M equity value oriented fund (which has been around for 8 years, and has grown from 5 million. Only me and the PM (and a general operations person.) The PM said he will "train me" a bit, but expects me to pick up a lot on my own based on watching/listening to him on calls etc. Salary is what i'm making now at big4.

I would ultimately like to be successful within the HF industry, would only use I-Banking to get to HF, only use ER to get to HF etc. I've been receiving a few solid interviews within research/banking at relatively brand name places, but no offers yet.

Considering all that, does taking a 30M hf offer make sense, in terms of if the fund doesn't do well and closes in a year or two because it's so small - can I actually leverage the experience/skills to a bigger fund? - I ask b/c I've noticed the industry has gotten a lot more narrow focused in the sense that recruiters might say to me you aren't coming from IB, you aren't coming from a good sized HF, we don't want to present you. Or, other HF not considering me b/c I don't have any "brand names" on my resume, no IB etc.

What would you guys interested in HF do? Anyone with hindsight able to offer some advice?

Thanks.

 

Well 2 things:

1) If you want to work in HF, then accepting a job op in HF is probably a good move! I would take the offer if it's something you want to do.

2) The fund has been around for 8 years, they probably aren't closing their doors in the next year or two. They've made it this far. You can do a little digging (see if they've downsized at all, evaluate their positions, etc).

Patrick Bateman would eat Eddie Morra's lunch (and probably his brains).
 

dude, take it.

30m is small but i assumed your bonus + salary combined will easily top your current position (when you meant salary...i assumed you are talking about the base).

IB isn't the golden ticket to go into hf. Actually, it's far from the golden ticket as some of the good hfs won't even look at guys outside of the top groups at top banks. IB is more for the PE route because of its transaction-based nature.

if you learn a lot at your current job, it will be a lot easier for you to move around afterwards as opposed to gaining a skill that's effectively non-relevant (fundamental guys love M&A analysts because of the modeling skills but the truth is that modeling is probably ~10% of your daily job)

 

Thanks for the responses guys - when you look at the cost-benefit/risk reward of it all though, should I not think about how a fund that hasn't grown above 30M in 8 years is saying something about an inability to raise money?

Particularly, can anyone who actually works within HF talk about whether an analyst position for 2 years in a small 30M value focused equity fund can be leveraged to a bigger fund in a situation where I'm out of the job if the fund doesn't grow?

 

The only thing I would be wary about is the training (or lack of). The PM says he will help you out and then you are on your own; are you confident in your ability to trade effectively? I think the reason a lot of people start out in IBD/S&T/ER before hitting the buy side is that it teaches you a lot of skills that PMs on the buy side don't have time or resources to teach you.

 

What everyone said above is on point and I agree with them.

The short answer is that if your end goal is to work for a HF, well then here it is, so you'd have to be a fool not to take it. Even if you got a top notch IBD, S&T, or ER role, a job at a HF, big, small, prestigious or w/e, is far from guaranteed. It's not a valid comparison you're making because you can't assume the other HF job will be waiting for you (you don't even have the IBD or ER job waiting for you).

Small funds are interesting in that the payoff can be much, much greater than with a larger fund. You can help this fund grow, and eventually get an equity stake in the management company.

Ask him a few things. Ask him how concentrated his investor pool is. For example, is there one LP that makes up 50% of his AUM? Ask to see his one pager, so you can get a feel for the fund's track record. If a fund is only $30M after 10 years, it's because of one of two things: a) track record is mediocre as far as HF go or b) because of personal or logistical reasons, the manager just does not wish to get any bigger than that. These two questions will give you a good idea as to the potential for growth. The fund has to grow for you to get the pay structure you want (i.e. you don't want to be making analyst money forever).

Your only goal here should be to gain investing skills and help this fund grow. Stop thinking about leveraging your experience into a bigger fund. I swear to god I would never hire someone who viewed my fund as a stepping stone to a position with Paulson or some other large fund (and I pity the fool who would rather work for him than for me). If someone really helped me grow, I'd give them equity. You think a big fund is EVER going to give you equity? Maybe 1% after 20 years working for them lol.

Recruiters are morons (particularly GloCap - I'd never use them for my recruiting), and look at brand names, so you are right on that. But, you can conduct quite a good search without the help of a recruiter.

 

Thanks for that wonderful answer Alex. The HF manager has about 15% returns over 8 years. Says he never necessarily had the drive to grow the fund b/c he was making significant money as an idea generator/salesman at a Broker Dealer, and also made a few hundred thousand from the fund. Was at 12 Million in 2008 - now at 30M, and after a couple activist situations he did, has more confidence in the fund, and wants to raise money.

I'm really confused b/c I'm getting opinions on both sides of the spectrum. For example a former HF analyst told me yesterday, "Let me be blunt..... Take the job and you probably will have no career in the field.....you fail here nobody will hire you. You do well - who will care in a no name fund with no rep -- size of the fund should tell you everything."

Is this stuff at all true? Anyone have any ideas?

 

DIfficult situation man. I t really depends on what you want to do in the future. I see the former HF analyst's point. Also your not going to get a lot of training, which is not very good for the future I would guess. I'm no expert but that's what i think

 

Ahh, I know that no one can tell me "Take it or don't take it." - I just need to know if I take it, and it doesn't work out, can I easily move to another sub 1B Value Equity Fund with my CPA and CFA? It really boils down to that.

 
LevFinGS:
Ahh, I know that no one can tell me "Take it or don't take it." - I just need to know if I take it, and it doesn't work out, can I easily move to another sub 1B Value Equity Fund with my CPA and CFA? It really boils down to that.

hyp with GS+soros+CFA are the only ones "easily" moving around in HF's.

HFs are often very specific in strategy, so there aren't too many to choose from. it is a very small world, and competition for these spots is ridiculous.

But would 2 years exp+CPA/CFA be doable? absolutely..its just never easy

 

What would the responsibilities of the role be? What is the PM's background? (well connected) What type of school did you go to?

I actually hate the target vs non target discussion, but I think it could come into play here. Within the hedge fund world there are hundreds of no name shops, and nobody will really know what you are doing for a smaller shop. If you don't have a BB or big AM on your resume, then you will only have your school, big 4 and this, right? a few years of experience here + CFA will help legitamize the smaller fund, but I tend to disagree that any role at any HF is a better path to a fundamental analyst at a larger hf. Research at MS/GS/DB/Barclays (assuming its doable) would be a better path to larger funds

But......I think that having buyside experience, and direct face-to-face with a pm could be a great opportunity. You should just ask more questions. I always tell people to do A LOT of research into smaller companies, before joining.

How good has performance been? Is the firm profitable? If this guy is pulling in less then 1mm in revenue, and then has to pay costs, himself, and then his head of operations - how will you get bonused out? Is the whole firm 30mm or is 1 of the funds 30mm....that makes a huge difference.

Also, I dont necessarily think that being around for 8 years is a positive here. Potential investors will often ask why the fund is still only 30mm. Please ask questions before you pass up other opportunities

 

dude, honestly just grow a pair.

This is an opportunity to get hands on experience and more importantly the ability to prove yourself.

If the fund does really well you will make bank, think per headcount, not overall comp of a bank. If you make like a 20% return the fund brings in 1.2 mil + 0.6 mil = 1.8 mil assuming 2&20. Now how many people work there? you say PM, you and operations person. You do the math, ofc the PM will take a big chunk, especially at first, but I see no reason how this doesnt give you a chance to make huge bank.

 

Have to respectfully disagree with this one ^

1.8 would only be revenue...not profit. Many HF's aren't even breaking even until they hit 1mm in revenue. Think about how much bloomberg subscriptions cost, rent, travel for client meetings, etc. If the fund has a mediocre year, then the fund won't even turn a profit.... and even if it was 1.8, the PM is not going to be giving out much if the junior analyst is "not giving any trading ideas" Would you share 100k of your 1.8 with someone that wasn't taking risks or directly making money? Most people would not.

I don't think that you should take this role to get paid....the question is whether you should take it as a stepping stone. very very few funds this size will ever get above the $100mm mark, let alone $1b, but as long as its sustainable, and you can have a healthy learning experience, then go for it.

especially if salary is staying the same...it is probably in the 45-65 range right?
if you stay at this range for 3 yrs in a small hf, and are getting 20k bonuses, then your next job is not just going to give you 150k base and 150-300 range for bonus. The only real way to evaluate employees from small shops are track record, and past salary/bonus....it shouldn't be that way, but your current job's pay is probably the biggest predictor of your next job's pay.

This is a huge role of the dice, with everything riding on this PM - do you have faith in him? It sounds like you are young enough that MBA is not out of the question, so why not role the dice if you feel good about it? Just don't get content.

 

It's really insane how conflicting the opinions I receive are. I just spoke with a PM from Canyon Partners who told me that he wouldn't give a shit about my experience about a 30M fund, and would just look at it and think that I'm not good enough to get a bigger place. He doesn't think I can leverage it to another fund, and says I will be like anyone else trying to get to a reputable hedge fund from a non-hedge fund background.

I mean honestly, wtf.

 

Why are you so obsessed with moving to a "large" fund....you know that doesnt mean you will make more money, or move up faster, right? In fact, quite the opposite.

I equate "I want to work at a mega fund" to "I want to be a low level peon slave" versus be a bigger part of and have more responsibility with a smaller firm.

We've got half a million shares in the bag!
 
Best Response

At the end of the day, you have to follow your intuition about what will be the most favorable in the long run. Will you go around asking people for advice every time you make a trade?

Here's one thing you have to consider. In terms of hedge funds, there is no such thing as a consensus. Everyone has their own view of the world and recruits accordingly. Some funds like CFAs, some don't. Some funds like athletes, some don't. Some funds like more quantitative people, some funds like qualitative people (even within the same strategy). Along those same lines, I would think that there are funds that wouldn't hire some with experience from a tiny shop, as well as those that would. At the end of the day, the only things that matter are 1) will you learn more at this fund than you are at your current job, 2) do you like and respect the person you would be working for, and 3) do you agree with his worldview (his investment style). If the answer to those three questions is yes, then everything else doesn't matter, they will fall into place.

Given that your handle is LevFinGS, perhaps that is rather telling about you. If you only care about the name, then I don't know what to tell you.

 

I don't get what your problem here is

it seems like you keep comparing this offer to an offer at a bigger fund or an offer at a top bank

you dont have either

this is a choice between this or big 4. who cares if a canyon pm thinks a 30m hedge fund is the same as not having any finance experience - he thinks the same of big 4, too.

 
frank_reynolds:
I don't get what your problem here is

it seems like you keep comparing this offer to an offer at a bigger fund or an offer at a top bank

you dont have either

this is a choice between this or big 4. who cares if a canyon pm thinks a 30m hedge fund is the same as not having any finance experience - he thinks the same of big 4, too.

Absolutely agree with this.

Lets face it, small HF is miles ahead of big 4.

 

I'd take the HF offer. If the PM seems like a smart, cool guy, then I'm sure he's got a lot to teach you... and you can always apply to business school in 1-2 years... who knows, you may strike it big and be successful at this place and grow along with the firm.

The other positive thing about your situation is that you're at a big 4 valuation group right now... so when you leave this HF to move to another or to IBD or business school (and from biz school presumably to IBD and then on to HF), you'll have SOME brand name experience. While big 4 is certainly no BB, at least you've worked at a place where people know you received some training and that people have actually heard of and so forth... it can provide some feeling of comfort to a recruiter who wants to take a chance on you despite having experience at only a very small firm

 

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