Bonus structure at small hedge fund (am I being played?)

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Okay, so I just received an offer from a small hedge fund (10 - 20 people) in Chicago. I will be a trading assistant until I can prove my worth and become an actual trader (6-12 months).

The hedge fund manages around $60 - 120 million dollars and primarily does volatility arbitrage on equity options. I hope I'm not giving away too much info...

Anyway, I graduated last year from a target school and have a job in a completely different industry where I'm earning around $50k but pretty much hate my job because it is so fucking boring and un-challenging.

So, the firm has told me that everyone starts with a $35k base + a discretionary bonus. If I would take this offer, I'd pretty much be living in poverty until a bonus materializes. Is this firm just trying to get cheap labor and fuck me over when it comes around to (discretionary) bonus-time, or will I be able to earn enough bonus to at least meet (preferably exceed) my current compensation?

Can I expect (assuming I am a top-performer) to make up for this shitty comp in a year or two when I'm an actual trader?

It sucks having to take such a significant pay cut just to get my foot in the door. Should I keep applying to other places and decline the offer since my job right now is pretty secure, albeit boring as fuck?

Thanks for any insight you guys can offer me.

Comments (37)

 
May 17, 2012 - 12:17pm

StephenLanus:

The hedge fund manages around $60 - 120 million dollars and primarily does volatility arbitrage on equity options. I hope I'm not giving away too much info...

Sounds like Gladius. If it is, I would take it. You can learn a lot from Pav. He was the former head of volatility arbitrage at Citadel before founding this shop.
-MBP
 
Mar 28, 2017 - 2:50pm

manbearpig:

The hedge fund manages around $60 - 120 million dollars and primarily does volatility arbitrage on equity options. I hope I'm not giving away too much info...

Sounds like Gladius. If it is, I would take it. You can learn a lot from Pav. He was the former head of volatility arbitrage at Citadel before founding this shop.

Nope. It's not Gladius. Although, the founders of this fund do have pretty respectable backgrounds (think Peak6, Infinium, CTC, or Ronin - not saying which. but of that caliber) so I'm sure I could learn a fair bit regardless.

I want to trade, for sure. I'm just not sure if I should wait around for a better offer considering I have the luxury of an easy paycheck for the time being. At the same time, my background isn't super conducive to trading firms (environmental science degree), but I'm working on beefing it up with more trading related experience (have been trading on my own for 3-4 years).

 
May 17, 2012 - 12:38pm

StephenLanus:
manbearpig:
StephenLanus:

The hedge fund manages around $60 - 120 million dollars and primarily does volatility arbitrage on equity options. I hope I'm not giving away too much info...

Sounds like Gladius. If it is, I would take it. You can learn a lot from Pav. He was the former head of volatility arbitrage at Citadel before founding this shop.

Nope. It's not Gladius. Although, the founders of this fund do have pretty respectable backgrounds (think Peak6, Infinium, CTC, or Ronin - not saying which. but of that caliber) so I'm sure I could learn a fair bit regardless.

I want to trade, for sure. I'm just not sure if I should wait around for a better offer considering I have the luxury of an easy paycheck for the time being. At the same time, my background isn't super conducive to trading firms (environmental science degree), but I'm working on beefing it up with more trading related experience (have been trading on my own for 3-4 years).

A bird in hand...

-MBP
 
May 17, 2012 - 12:24pm

I was in a similar situation a few months back and took a low base at a boutique IB to get out of a BO role. I say, look at it as an investment in your career. If you ultimately want to trade and what you are doing right now isn't relevant, then you are just wasting your time.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 
May 17, 2012 - 1:15pm

dabanobo:
Optimistic case:

$120M AUM.
10 people
20% return, 2 + 20 -> $2.4 + $4.8 = $7.2M revenue
50% margin -> $3.6M bonus pool, $360k per.


You can bet your ass the FM will be keeping most of that 3.6M for himself.
-MBP
 
May 17, 2012 - 1:35pm

manbearpig:
dabanobo:
Optimistic case:

$120M AUM.
10 people
20% return, 2 + 20 -> $2.4 + $4.8 = $7.2M revenue
50% margin -> $3.6M bonus pool, $360k per.


You can bet your ass the FM will be keeping most of that 3.6M for himself.

Exactly. But do you think I'll be able to get at least 20-30k as a trading assistant the first year? I'll worry about the big bucks later, I just need to pay the bills...

 
May 17, 2012 - 2:12pm

manbearpig:
dabanobo:
Optimistic case:

$120M AUM.
10 people
20% return, 2 + 20 -> $2.4 + $4.8 = $7.2M revenue
50% margin -> $3.6M bonus pool, $360k per.


You can bet your ass the FM will be keeping most of that 3.6M for himself.

I was pointing out average pay. Obv there's skew; FM'll get the biggest share for sure, but senior traders/PMs will also get a large chunk. Low man on the totem pole will get... lunch.

 
May 17, 2012 - 1:51pm

protectedclass:
Have you looked into the props? I am not sure I would ever get involved in a hedge fund that small.

I've applied to quite a few props, but without much luck due to my background. I've gotten a few first rounds, but haven't gotten past those.

I would prefer a market-making prop-shop, but really just want to get into trading in general. I will probably end up accepting, and see if I can use this experience to gain entry to a firm like that in the future.

I know that the biggest difference between pure prop-shops and hedge-funds is just that it is someone else's money you're trading in a hedge fund, but what are the other key differentiators?

 
May 17, 2012 - 2:04pm

Worst case, you're taking a $15k/year pay cut very early in your career for something with huge option value for the rest of your career. Why wouldn't you do this?

 
May 18, 2012 - 3:06am

Dude you should probably do this. Even if you take a 15k pay cut (which you prob wont b/c you'll get some kind of bonus), you are setting yourself up for the career you really. If you went back and were graduating now and had two offers- this one and one for the job you are currently at, which one would you take?

 
May 18, 2012 - 4:50am

$35K base is pretty low for any respectable hedge fund or prop trading shop. Any idea what their previous performance has been like? If you think the people are smart and legit, it's not necesssarily a bad gig. Vol arb trading is a very valuable skillset, and if you do well you can make a ton of money. Do you know if you're getting a certain % of pnl as a bonus, or is it purely "discretionary?" If it's the latter there is a good chance of getting screwed over, which is what happened to me at my previous fund.

Just be careful and use your best judgment. Chicago in particular is filled with chop shops and shady sons of bitches.

 
May 18, 2012 - 8:01am

Brady4MVP:
$35K base is pretty low for any respectable hedge fund or prop trading shop. Any idea what their previous performance has been like? If you think the people are smart and legit, it's not necesssarily a bad gig. Vol arb trading is a very valuable skillset, and if you do well you can make a ton of money. Do you know if you're getting a certain % of pnl as a bonus, or is it purely "discretionary?" If it's the latter there is a good chance of getting screwed over, which is what happened to me at my previous fund.

Just be careful and use your best judgment. Chicago in particular is filled with chop shops and shady sons of bitches.

This.

35k is pretty laughable, unless they were offering some type of equity. But Chicago is known for having several chop shops/arcade trading operations.

Dont listen to those above screaming "OMG definitely take it! No doubt!". Because going to a piece of sh-t operation, and getting paid an associate degree salary, will suck very hard and you will want to leave verrry quickly (which doesnt help the CV). Just make sure you know exactly what you're getting yourself into...

"Sounds to me like you guys a couple of bookies."
 
May 18, 2012 - 11:48am

Brady4MVP:
$35K base is pretty low for any respectable hedge fund or prop trading shop. Any idea what their previous performance has been like? If you think the people are smart and legit, it's not necesssarily a bad gig. Vol arb trading is a very valuable skillset, and if you do well you can make a ton of money. Do you know if you're getting a certain % of pnl as a bonus, or is it purely "discretionary?" If it's the latter there is a good chance of getting screwed over, which is what happened to me at my previous fund.

Just be careful and use your best judgment. Chicago in particular is filled with chop shops and shady sons of bitches.

Absolutely agree with Brady here. Definitely get some percentage written into your contract. "Discretionary" means they will pay you whatever they feel like, which often amounts to little more than a slice of pizza.

The thing is, you are starting as a trading assistant and they are promising you that, if you do well, then they will promote you to full trader role. We don't know if they actually intend on fulfilling such promise or just using you as cheap labor.

On the other hand, if you really want to get into trading by all means necessary and see no other viable window of opportunity, then you can see this low paying job as sort of a paid internship. Indeed, $35,000 is much better than most internships out there. Also if you budget yourself wisely (e.g. getting a roommate if necessary, limit your spendings when going out) then $35,000 is livable even in the nicer neighborhoods of Chicago---it is much easier than in NYC that is for sure.

I too am concerned about their AUM/employee ratio, seems like too many cooks in a tiny little kitchen.

Too late for second-guessing Too late to go back to sleep.
 
May 18, 2012 - 1:14pm

brandon st randy:
Brady4MVP:
$35K base is pretty low for any respectable hedge fund or prop trading shop. Any idea what their previous performance has been like? If you think the people are smart and legit, it's not necesssarily a bad gig. Vol arb trading is a very valuable skillset, and if you do well you can make a ton of money. Do you know if you're getting a certain % of pnl as a bonus, or is it purely "discretionary?" If it's the latter there is a good chance of getting screwed over, which is what happened to me at my previous fund.

Just be careful and use your best judgment. Chicago in particular is filled with chop shops and shady sons of bitches.

Absolutely agree with Brady here. Definitely get some percentage written into your contract. "Discretionary" means they will pay you whatever they feel like, which often amounts to little more than a slice of pizza.

The thing is, you are starting as a trading assistant and they are promising you that, if you do well, then they will promote you to full trader role. We don't know if they actually intend on fulfilling such promise or just using you as cheap labor.

On the other hand, if you really want to get into trading by all means necessary and see no other viable window of opportunity, then you can see this low paying job as sort of a paid internship. Indeed, $35,000 is much better than most internships out there. Also if you budget yourself wisely (e.g. getting a roommate if necessary, limit your spendings when going out) then $35,000 is livable even in the nicer neighborhoods of Chicago---it is much easier than in NYC that is for sure.

I too am concerned about their AUM/employee ratio, seems like too many cooks in a tiny little kitchen.

"Definitely get some percentage written into your contract. "
Trading assistant getit? Some of you need to stop dreaming. A percentage of what exactly, the P&L you haven't made? I can pretty much guarantee you, you get to keep the change when you do the coffee runs, that's as big of a guarantee they can probly give you.

As my previous comment - MONEY IS NOT THE ISSUE. Only thing that can possibly be wrong is too many people (as said above, and as the comment I am commenting on is correctly saying)

 
May 18, 2012 - 1:29pm

Brady4MVP:
$35K base is pretty low for any respectable hedge fund or prop trading shop. Any idea what their previous performance has been like? If you think the people are smart and legit, it's not necesssarily a bad gig. Vol arb trading is a very valuable skillset, and if you do well you can make a ton of money. Do you know if you're getting a certain % of pnl as a bonus, or is it purely "discretionary?" If it's the latter there is a good chance of getting screwed over, which is what happened to me at my previous fund.

Just be careful and use your best judgment. Chicago in particular is filled with chop shops and shady sons of bitches.

All of this. The most important thing is deciding if you think this is legit or not. If they truly have a value-adding strategy and you understand it, that will make you a valuable man (whether to them or some other fund). If they don't, then this isn't worth your time. I really do think that in trading/investing that there is such a thing as bad experience. When you're young and impressionable, you'll pick up the value-destroying habits of the guys you're learning from. There are multiple ways to learn surgery. You might do a residency at Columbia. Or you might shadow a guy that steals kidneys in Colombia. They are very different experiences.

Oh, and change your username (if you can)

 
May 18, 2012 - 8:21am

Are you incapable of asking someone who works at the firm? For fucks sake it's not like you are asking for a million dollar bonus. Just ask them the average bonus range for a trading assistant. I don't trade, and i have a 200 to 300k pay range. My firm has a sub 1b aum level. It's all about negotiation skills.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
May 18, 2012 - 9:41am

I wish I had that offer. I know what it is to have a save job that pays the bills but it is unchallenging. Ask more questions about the bonus, keep in mind the bonus tax rate to do your calcs. Get in, pay your dues, work hard, learn a lot , and move up.

 
May 18, 2012 - 10:42am

35K is peanuts, and so is 50K - given you most likely are striving for 7 figures one day.

That shouldn't even be the bloody question in the first place!
You got two kids to feed? An ex wife on child support? Parents you have to take care of?
You most likely don't; if you do, 15K might make a difference and I take the peanut bit back.

The ONLY question you need to ask yourself is:
Vs. my current job will it be good?
Will I learn something?
You need to ask around if it's a good shop.
The AUM is important, but not that important. What worries me is 15 people for 90 AUM. That's a lot of people for that amount of money... Is it like an IDB house sink or swim type of mentality? Am sure as hell wouldn't want to work in such an environment if that was the case.

What's your added value? "trading assistant", there is a similar job I can think about in "naughty" movies, that helps prep actors... If you are good and you start making money they'll need to pay you to keep you. If you are sh.t you won't get paid. If you are good and they don't pay you, you leave. Simples?

 
May 18, 2012 - 12:00pm

I am moving to Chicago in a few weeks, and I have been scouring the web for apartments. Unless you want to spend more than 1/4 of your monthly income on a place, it would be a struggle to live on the north side without living with roommates if you are making 35K. And even then, it would most likely be a shared bathroom situation.

Also, are there any other benefits? I know a few places have free breakfast and lunch, that would add up quickly if you think it is about $15 for the two.

51549 = $3675 in compensation that you didn't even realize!

Might be worth it if they throw in full insurance including vision, and a full 6% 401K match, if, of course, this is your only trading option and this is your career you think you want.

 
May 18, 2012 - 3:47pm

35K is small, but if this fund has not been around for very long look at this as an strong gamble. A lot of upside: the strategy does well, your able to contribute to their success, and increasing AUM (thus allowing them to pay you). Don't worry about if they are just "using" you, they might just want to see how hungry you are. At the very worst case scenario: the shop closes down within the year.

Fear is the greatest motivator. Motivation is what it takes to find profit.
 
May 20, 2012 - 10:36am

Yeah, I went ahead and changed my username. I had originally made it when I was just lurking and never intended to post in the forums. That said, my Linkedin profile views jumped like 10000% over the past few days, haha. I intended to change it after I started the thread, and now realize it was dumb of me not to do it beforehand.

Anyway, I went ahead and accepted the offer. Although the place is small, it seems pretty legit from my initial experience with them. I was invited out to dinner with them the night before the interview and got to chat extensively with most of the traders, and they all seemed like pretty smart guys who made a decent buck. Their most recent hire had started a little more than a year ago, doing what I will be doing, and was promoted to an actual trader with his own book about 8 months in.

He commented that I had a way better understanding of options/derivatives than he did when he started, so I'm hoping I can make the transition to trader by month 6 or so. I know it's an ambitious goal, but being payed barely above the poverty line seems to provide plenty of incentive to work hard.

The bonuses are tied to fund's performance as a whole, so I don't think it would fly to ask for a percentage of my PnL, especially since I won't even have one as an Assistant Trader.

I guess I'm taking a pretty big risk, but I think it is a calculated one with a positive edge. The upside can potentially be pretty high if we/they are successful and increase the AUM substantially over the next few years. Worst case scenario, I hate it after 6 months, quit, and try to find another prop-trading role with some actual experience under my belt. Best case scenario: make bank and start my own fund/prop-shop...

BTW - this is the OP with a new username

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