Does anyone here have any experience with working at a startup hedge fund? Wondering what it was like. I'm asking more in the context of a smaller launch with just a couple employees.
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I always tell kids this and they never listen: If you're going to start a hedge fund, pick a cool-ass name. You can't change your name 2 years down the road without losing brand power. Kids always come back to me saying "Damn, maybe Smith Capital was a lame name, bro. We def should've listened 2 u when u suggested Ca$h Money Traderz, Ghostbusters, Dinosaur Hunters, or Cocks with Stocks." Plan for success.
Thanks for the advice...but I was asking a serious question about joining a new fund run by some legit guys, albeit with small ($100mm) AUM.
The fund I work for has six employees total, but it's not a start up and we manage much more than $100M. The fund business is highly scaleable, so the number of people working there is one of the least important questions.
If I were you, I would ask:
1) What specific job role you will have and how that will grow.
2) How sticky the money is -- could it get called away?
3) Compensation and expected ramp.
Regarding number 3, if you don't have any HF experience and this is the best you can do, then probably take it. But if it were me, I would want to make damn sure that my comp would ramp a lot with any increase in AUM and based on performance. The reason is that you are taking additional risk by accepting a job at the firm (relative to an established firm) and should expect to share in the upside if it works.
In terms of what it is like, it shouldn't be much different than working at any other firm assuming you have access to all of the standard stuff like Bloomberg, etc. It might be a little more entrepreneurial (which is good if that fits your personality), but investing is investing for the most part. It depends much more on who specifically you are working for than anything else. In general, smaller funds are more nimble and present less structured opportunities (which could be good or bad) than larger institutionalized funds. I personally don't think I could work at a large fund because I like autonomy and hate attending boring investment committee meetings.
I've only worked for small HFs so here goes:
Ravenous is right about comp and additional risk, but you should understand that the founder(s) are probably taking all their money and putting their careers into this. You likely won't be in a position to negotiate. If the fund doesn't perform, if assets don't grow, you can expect very low pay. If things go very poorly, even if you are a stud, you can get laid off. You are taking more risk, but the founder(s) are taking exponential risk, so expect to be a bit underpaid at first compared to peers, then paid in-line if the fund "makes it", then see a payoff down the line.
"3 years" is what new HFs tell themselves, because that's what the fund of funds say - build a 3 year track record, then we'll invest. The reality is that you need several years of good performance AND growing AUM. It's a catch-22. But no FoF or institutional investor will give $ to a sub-$100m AUM fund. In my experience, both sub-$100m AUM funds greatly underestimated the difficulty in raising funds.
So who is going to do the marketing? If the founder(s) are devoting as close to 100% of the time on investing, who is going to meet with high net worth individuals to raise AUM?
Also, don't expect a lot in terms of support. Depending on strategy, under $100m AUM probably doesn't trade enough with the sell side to warrant good coverage (meetings, conference invites, etc.). You will probably have a handful of brokers who cover you and send along their notes. In my experience, training was also lacking. You'll need to pick up a lot of the business on your own and network with your peers.
When I joined the small HFs that I've worked for, I had the same hopes that you might - legit PMs and I (+small team) will kick some butt, AUM will go from $100m AUM to $500m to $1B, and PMs will get super rich while I make a ton of money for my age. I think a real payoff is possible, but you need a lot of things to align.
Fund #1 for me was doing well, grew to >$100m, had interest from FoFs, but then 2008 hit. Performance suffered, we were under our high water mark, and some of our larger investors pulled money. I got laid off.
As an aside, small funds are where redemptions begin. It's that old saying of "You don't get fired for buying XYZ known brand". FoF, institutions, family offices all have to explain themselves when a small, unknown fund does poorly. That's why the tend to avoid them or blow out quickly.
Fund #2 had a few good years of performance, but exasperated the network of friends and family. The fund never got big enough to attract institutional funds, and so AUM just moved sideways. A redemption here and there can offset good organic growth. Eventually, I left for a >$500m fund.
In summary, I am pleased with all that I learned by being in a small environment and I feel it has given me a leg up on the competition as I've had to find new jobs / interviewing. That said, it is also tough to get your foot in the door with Uknown Fund $100m AUM on your resume. If I could go back and change history, I would have spent time at a larger fund first, then moved to something >$100m but still small.
I agree with all of the above, especially about support (there will hardly be any) and the AUM issue -- the fact is that most small funds never scale properly. Going the fund of funds route is a total bitch to raise assets -- the demand far outstrips the supply and you have to jump through a thousand hoops to get anywhere.
I don't think I would do it personally unless I had no other options. The fund I work for is $1B, but it's all the founder's own capital and the firm has an extensive 15 year track record of out performance. Working at a tiny fund with soft capital is a bad career risk IMO.
The support issue can be big or small. We don't do a lot of business with the Street and that doesn't really bother me (the sell side is pretty worthless IMO), but it could be an issue for someone else depending on what they know about investing and what approach they take.
All of that said, if you're working with someone good and known, they might stake you if you contribute a lot to the fund, which is the best way to get started. If you're one of 30 or 50 analysts at a large shop, it is much harder to stand out.
So in sum, I don't think there are any easy answers or standard paths on the HF side. The unfortunate reality is that a lot of the easy money in HFs was made decades ago when the industry was in its infancy, not today where it's pretty mature and extremely competitive. You can still make a very good living, but don't expect to be a hot shot running a billion dollar fund any time soon unless you are exceptionally talented or have some very deep connections. You can get there if you work at it for a long time, but it's hard to really break into the business in a big way. If I could do it again, I probably would have gone into tech, not finance -- not because tech is better, but because you can design a stupid program like Draw Something and then sell it for hundreds of millions. Finance is much harder than that.
thanks guys, really appreciate the perspective. I think I'm pretty well braced for most of that -- I understand that at the $100mm stage, it's not just a hedge fund: It's a small business (with everything that entails). Also, given AUM it's unlikely these guys are even paying themselves but there is some sticky money and decent infrastructure already in place. I guess my biggest worry is that out of necessity I'll end up being more of a middle-office role and after two years, the fund doesn't make it and I'm left in a pretty bad spot because I haven't built the skills I want to be building (investment analysis, portfolio management, etc...). Either that or it does so great they hire more qualified people to do the front-office type work and I'm stuck again in middle offi
asking for compensation at a start-up HF (Originally Posted: 07/16/2014)
i have a potential opportunity to join my boss at his start-up hedge fund, somewhere in asia but i'd rather not say for confidentiality reasons. i'm currently at a $1.5 billion l/s asia-focused fund doing pure research. structure would be two co-pm's, a COO, and me. my official role would probably be something like operations or sth for fundraising purposes but I'd be doing a mix of everything, from expensing taxi fares to doing research. my guess is 50% of my time will be spent on admin/ops/marketing stuff, 50% research but i think it's useful experience in case I want to start my own fund one day. day one AUM will probably be around $100mn AUM as we are getting some legacy assets from the spin-off but they'll mostly be long only money
what kind of comp should i ask for? since financially the fund will be better off than other start-up funds, should i ask for market rate? honestly i would prefer a shittier salary + profit sharing so i can share in some equity upside at some point, even though it could take 2-3 years to raise some more money. what % of profit sharing is appropriate? 3%? 5%? I have one year of equity analyst experience at my current firm. for the record, i just turned 24 years old. but then again, they could probably just hire someone else who won't ask for any profit sharing.
3% to 5% sounds way high, but if you really believe in this place, accepting less than market for a small equity stake could be worth it. I have a very hard time imagining you could get much more than 1% without bringing equity to the table yourself.
I think you're asking the wrong question. first you need to clarify your role and what your expectations/metrics/goals are, for example, you mentioned fundraising. if you are working to add money to the fund, you deserve a piece of that. I'd first clarify your role and then see what they offer as far as equity. if they see you as more of an analyst/ops person, I'd plant the seed that you'd be willing to accept less than market salary for a share in the company's growth, but I'd leave it at that.
i've had some other friends in the industry say that if you're working there from day one, it's like a start-up but you should definitely ask for some % of the profits. but then again it depends on how much AUM we have on day one
i've also heard some people get profit sharing but not equity. i guess that makes it easier for them to fire you in tough times.
There's no way you'll get real equity. A bonus structure based on the performance of the fund is reasonable, especially at a small fund. But at $100M, that's already big enough to pay you market rates.
If they're leaving with $100M, I have to believe they have a track record to speak to, right? If so, fund raising could be going on from day one. If they don't have any track record, then you're unlikely to get anyone for 3 years, like you said.
If it were me, and you really believe in these guys, I would decide what market is (probably your current pay), then take as much off that as you care to that could be made up in an average returns year. Then you've got your upside but also some skin in the game, which the PMs should appreciate. It would be nice if you could get a piece of any new capital you bring into the fund. Don't get too greedy, though.
With one year of experience, you're not very valuable and easily replaceable. Basically, what this tells me is that they like you and want you for the analyst work they won't want to do. You know what you're doing but are still relatively cheap.
Speaking from experience, make sure you make room for renegotiation after one year. Issues will come up that you'll want to discuss (new salary, bonus structure, etc.). Always have an exit strategy.
Do Start Up Hedge Funds have Front and Back Offices? (Originally Posted: 09/02/2009)
I have been interviewing at a relatively new fund with only 10 employees. The partners seems to have a good track record and potential for growth. I believe they have something like $200 million in assets and cash currently and they are only a few months in. Physically, its obvious that front and back offices would not exist but lets say the fund grows over the years, would the first couple employees automatically be in the front office because of how long they have been there and what they were exposed to? Any feedback or personal experience would be appreciated.
Hmmm, I'd assume almost everyone they hire right now would be FO (investment/research team) and marketing/sales.
At small funds like that, BO work is normally outsourced.
Yea I agree with Mez mostly. Im at a start-up PE shop. Similar in size. Everyone is really doing a little bit of everything. Front, mid and back office. But a lot of the stuff is outsourced.
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Everyone does a little bit of everything. And yes, you could push for your own set of responsibilities if the fund grew and added staff down the line.
This really depends on a lot more factors, like what kind of strategies does the fund trade and what the managing philosophy of your prospective bosses is. I think on average it is more difficult to do this at quant funds because they tend to be run by PhDs who have little respect for anyone w/o one. You should definitely try to talk to them about this in advance, and also be aware that you will need to push for more as you work there.
...small hedge funds have "back-office"-type jobs. In fixed income at least, usually a 200MM fund will have at least one Trading assistant to book trades and make sure they settle properly. They also will usually have a back-office/ops guy who handles things like margin posting, reconciling positions and cash at the end of the day, providing PM/traders with position sheets, calculating the P&L, etc. Also they will usually have a tech guy who i guess would qualify as "non-front-office". Upside can be better at a small fund if it grows, but remember that with small AUM comes smaller pool for compensation so the managing partners may not want to many front-office people that will eventually want front-office-type pay. I worked for a smaller hedge fund (around 300MM) and the back and middle office people at that fund were not going anywhere. Remember that most hedge funds are around just to make the partners rich, they arent trying to to build businesses that will be passed along once they retire, etc....so there really isnt a need to bring along young talent unless they end up raising more money then they can handle themselves or unless they have some sense of altruism.
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