BB IBD or 1bn L/S Equity Fund?

Good day to you all.

A longtime member of this forum, just creating a new account to post this and would like to hear your thoughts, especially from those who have made similar decisions.

I've received two offers and am currently deciding which one to go for. Not going to describe the IBD offer since it's quite standard, but will give a brief description of the fund:

  • it's one of the funds under an Asset Management firm (the firm has 5-10 funds with $8-10 bn AUM, with varying fund sizes)
  • $1-2 bn AUM, ~1.5% flat fees + 20% performance fees
  • return: ~7% P.A. for the past 5 years, global L/S equity strategy
  • manager has been managing the fund for ~10 years, prior to that was an ER analyst at a bank
  • founder of the firm quite well known, manager of the fund less so. The firm has recently added managers from Fidelity/BlackRock to establish new fund offerings

What are your views on joining a fund right out of undergrad? If my objective is to learn as much as possible for the next few years, how should I go about researching this manager to see if he's the right person to learn from? ~7% P.A. return in the past 5 years doesn't scream excellence, but I don't want to base my decision solely on that number.

Thanks for reading and please share your thoughts if anything comes to mind.

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Comments (16)

May 16, 2017

It's a 1billion Benjamin fund, therefore no joke, despite the modest returns.

I'd go for the fund, but the returns have been fuck all- is that after fees? If gross then what is happening? Must've been a sequence of poor short calls.

May 16, 2017

The 7% return is net of fees. But yeah 7% is not looking good even after fees.

Do you think it's acceptable to ask the manager about the reasons for not-so-stellar performance? Or is it considered rude?

May 18, 2017

Please do not do that. Also - headline numbers don't say much. 7% could be good for his strategy (e.g. low risk, low net, etc). If anything ask him what his return targets, etc are and you will get a feel for how he evaluateser performance. Saying "why are you only returning 7%" is potentially very offensive and might make you look like a dumbass

May 16, 2017

lucky I didn't ask him that... asking about his return targets seems like a good workaround, I will use that.

Thank you!

May 16, 2017

What kind of role do you see yourself in long term? If it is in L/S, then I'd go for it as long as there is a good reason for their 7% performance.

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May 16, 2017

Not really have my mind set on a particular career path, but I personally prefer distress funds due to some prior fun exposure to distress scenarios during internship. This L/S fund tends to invest in companies that are out-of-favour or in mild/moderate distress, so I guess that is something similar to a distress fund?

Is it acceptable to ask a manager about the reasons of the not-so-stellar performance, or is it considered rude?

May 16, 2017

Well, do you want to be a hedge fund analyst?

May 16, 2017

I think I would enjoy working in a hedge fund more than in IBD. But just don't want to get off on the wrong foot and join a hedge fund team where I can't learn much from.

I guess the real question here is how to gauge if a manager is a good investor/mentor, aside from looking at his fund's return in the past few years? How does 7% net-of-fees return compare with other shops? They have most of their investments in UK/EU.

May 16, 2017

Ok so the relevant benchmark is not the US then, shielding some of the criticism.

Are there BB IBD guys working in the fund? If so, and you want to be in the HF industry then could be a decent path.

Sector agnostic?

May 16, 2017

That's the unusual part - this fund has 2 other people aside from the manager, both of them joined the firm as graduates. One of them worked there for 5-10 years and is now co-managing the fund, the other guy worked there for 1-5 years and is the analyst of the fund.

Both of them were from my school (top target in the country), but neither of them seems to have a BB IBD background.

They don't have a sector constraint, that said, they deal mostly with consumers, financials, industrials, materials, o&g, telecoms etc.

Doesn't seem to be doing a lot of biotech / tech investments (which are actually relevant somewhat to my degree)

May 16, 2017

I have a buy side bias, so unless the BB is GS, or a slick TMT group, I'd go for the HF.

Ask them about their strategies, particularly on the short side for the last few years- may give clues on performance.

    • 1
May 16, 2017

From your description, the shop has a decent reputation so I don't think it will put you in any worse position than starting out in BB IBD unless you don't want to be in L/S equity. How is the year to year volatility of the performance? 7% with very low volatility is not terrible.

May 16, 2017

I would say it's quite volatile judging from the return numbers (not sure how it compares to other shops).

Will PM you the return numbers.

May 16, 2017

OK so apparently new users can't PM..

The return numbers are (approximately):
~5% / ~15% / ~0% / ~-5% / ~20% for the past 5 years (2012 / 13 / 14 / 15 / 16)

Best Response
May 17, 2017

Those may not be returns to write home about, but I've seen far worse. I think you go with the HF opp. There's still enough optionality that if things don't work out with this PM, you can network your way into an analyst role at another one of the teams under the asset manager. And if all else fails, you can move to another L/S fund. Distressed is another animal - may be fun for a short period of time, but its a different beast so unless you're particularly passionate about it and for that reason alone want to do IBD, forget about the IBD option.

The only other reason for doing IBD is if you're not entirely set on the HF industry and would want to experiment with other asset classes like private equity/VC or perhaps move to corp dev. That's a completely fair argument for you to make since you're just getting out of undergrad and can't know enough about the differences to make your mind up (unless you have already). That's when the optionality is worth it, but even then, as someone above said, unless its GS or a top MS group, I'd probably take the HF option. Not many get opportunities like those.

Hope that helps.

JD

    • 5
May 16, 2017