base/bonus 1st year analyst at HF

Hi, I work at an equity LS hedge fund with about 200mil AUM (20% PM's money+80% client money) as an analyst.
I worked at bulge bracket IB for 2 years after graduation until last winter and joined current firm in April.

Our return was OK (+13% from fund's inception in April) and I currently earn 120k base.
We are small team of 2 analysts+1 PM+4 OPs and have 2/20 structure.
Although I don't have independent book, I would say I was involved in at least 50%-60% of portfolio construction(and also trading) and performed well.

What base and bonus do you think I should negotiate?

Thanks.

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Comments (32)

Jan 13, 2020 - 9:11am

No, I think he's fair.
30k bonus at HF with 10+% return sounds very disappointing even though I'm still young...I was expecting at least 150k (hopefully 250k or so) to be honest (I might be too optimistic but my performance is considered to be good).
I could easily make that much at IB,
I appreciate your comment.

  • Investment Manager in HF - Macro
Jan 13, 2020 - 10:34am

250k is an ambitious bonus, at the 2/20 you are bringing in ~8 million (but a bit under 6.5 if you only count client funds, had to edit my numbers as I used 1/20 originally...) that being said $30k is very low.

Without knowing overall costs, etc it is a bit hard. If this is an "average" year for the fund but a good year for you I would expect a minimum of $75k or so, although 100% of base is also reasonable. At a larger fund with that experience you are looking closer to your $250.

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Jan 13, 2020 - 2:01pm

Given the sub-scale nature of the fund I would dial down your expectations. The reality is that your PM will pay you the bare-minimum necessary to keep you from leaving. My guess is that you will get something in the range of USD 80-100K, which would bring all-in comp to the USD 200-220K level. That's not bad money for a HF analyst with only 1 year of buy side experience. The fact that you're asking this question suggests to me that bonus levels were not a part of the recruitment discussion (your fault for not asking). My advice would be to use your bonus discussion to get a better idea on comp ranges and where your PM sees things going. Also, be grateful to be in a seat and use this experience to become a better investor. If you're any good the real money will follow.

  • 5
Jan 13, 2020 - 9:10pm

Bare minimum to keep from leaving seems off. He's trying to build an organization and make a lot more. You need happy employees to do that. And it sounds like he's rich enough already. So a lot of factors go into the pay scale.

But these things are tough to figure out on a message board because:
1). Who knows if he contributed in a meaningful way that was noticed. If he was just along for the ride then minimum would matter
2). Do they get along. Want to get drinks together etc and more than a work relationship but someone he wants around to grow with. This might actually be more important than (1). He's looking at 10-15 in total income. So being generous is possible just because he wants his friend to have some comfort.

Jan 13, 2020 - 10:05pm

Thanks for encouraging comment. You're right that the fund is still new and he's trying hard to build it in a good way.
1) Of course I can never be 100% sure about what manager really thinks about my performance but there already was a review session and I received good evaluation.
2) Yes we do. I hope this factor would work in a good way.

Jan 13, 2020 - 9:55pm

Thanks for your helpful advice, I didn't discuss specific number before joining and agree that I should have done it.
I am just worried about getting into discussion without any sense of how much 1st year junior can get in general and how to think about deciding the amount (I know there's so much variance at HF but I don't want to get screwed).

Jan 14, 2020 - 7:51am

I think you're unrealistic shooting for 250k bonus. You claim you could "easily" make that much in banking.. that shounds way too high for a 3rd yr analyst/1st year IB associate. Maybe someone currently in banking can correct me but it feels too high and certainly not "easy".

Jan 14, 2020 - 8:26am

I meant '30k' bonus for associate at IB should be low. I agree 250k is a stretch though I hear my friends at same age getting 150-200k bonus at IB, so just thought 250k is not impossible at HF with good record. But I lowered my expectation thanks to your replies.
I apologize that my reply was ambiguous.

  • Investment Manager in HF - Macro
Jan 14, 2020 - 9:47am

You can't just compare people at the same age (as relevant experience and other factors are important), HF comp is a lot more volatile, and people with 3 years in IB making 250k bonuses (not total comp) is not standard (so your friends might be exaggerating a bit). If they are getting that they are at the very top (that is around $350 total comp) and you can't compare a small fund with a fine year to the top performers at other places.

A first year at an established fund will generally be all in around $200-400. If you are heavily involved in the investment process you should be negotiating for a cut of the PnL. Your base is a little low but I wouldn't be concerned about that if you can get the right bonus.

Being at a smaller fund you should be able to share in the PnL more, there are fewer people, the risks are higher (so should the rewards), and small teams tend to want to grow people within the firm as training is expensive and finding a good analyst is difficult.

Jan 14, 2020 - 11:02am

250k allin for my friend at IB. 1st year assoc.

many say smaller fund has lower pay but then what's the point of staying for long if risk reward is bad. I would try to pay more than large fund if I were manager...but yes bonus pool is more limited in general so Im not quite sure how much manager thinks about risk reward.

Jan 14, 2020 - 11:05am

250k allin for my friend at IB. 1st year assoc.

many say smaller fund has lower pay but then what's the point of staying for long if risk reward is bad. I would try to pay more than large fund if I were manager...but yes bonus pool is more limited in general so Im not quite sure how much manager thinks about risk reward.

  • Investment Manager in HF - Macro
Jan 14, 2020 - 11:10am

Sorry to clarify: I thought you said $250k bonus vs $250k all in. $250k all in is very reason for IB and for 1st year, new hires at large funds are at that level.

I agree about the small fund, but what I would expect is more volatile pay as opposed to more pay overall (that will depend on how good the fund is). That's why I'm saying to tie your bonus to PnL and take a cut. You should be very rewarded in good years. Larger funds will have more stable pay (and more limited upside earlier on, although that clearly changes as you get more senior).

Most Helpful
Jan 14, 2020 - 12:49pm

Let's not be naive here, of course we all would prefer to be at Lone Pine of Viking than at a $200mm fund. But there are 5 open seats of the former a year, its near impossible to get those.

The boss at the $200mm fund knows this. Maybe you could rake in a little more in IB, but then you'd be pulling all nighters, which you are currently not.

As someone mentioned above, he will pay you the minimum needed for you to stay. In all honesty, a 25yr old kid even with the right background will be perceived as a commodity in most HFs, and will be paid accordingly. You get testy about your pay, he will let you go because there are hundreds of guys with your same skillset in IB who are dying to get into a HF. It's only later in your career when you have developed more specific expertise that you start to have negotiating leverage. Sorry to be so blunt but its the truth.

  • Investment Manager in HF - Macro
Jan 13, 2020 - 6:15pm

Not sure what you mean by this? You can use a simple tax calculator for this, is that what you are asking about? Assuming nyc (living in the city) you can use a standard calculator and include federal, state and local taxes (and just remove pre tax 401k contributions and any other benefits.

Jan 14, 2020 - 5:23pm

-13% return on internal capital of $40mm is $5.2mm.
-I would be really surprised if he is getting 2/20 on the $160mm of outside capital. 1/20 is more common now, particularly for newer launches. The initial investors might have a discount on the 20 too. Lets call $1.6mm in mgmt fees, $4mm on incentive fees.
-What does 4 ops people consist of? A CFO is expensive. A GC/CCO can be expensive. Admins are not.

If you were a 1st year associate at MF PE with the same experience you would be making 350k all in. That could be off - I'm old now, but I think that is what I'm guessing the market is around. The economics of a start up hedge fund are not nearly as good as MF PE. I'd expect $250k-$275k all-in. Don't be disappointed with $240k. If he gives you $30k then yeah, thats bullshit and you should leave.

The further up you go on the ladder the less people share numbers with their friends. PE comp is pretty uniform. HF comp is slightly less uniform the first few years, but there are market rates. Once you start getting close to 30 the variability is all over the place.

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