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Comments (28)

Oct 7, 2020 - 11:24pm

Classic risk reward scenario. Do you have the guts (I don't mean courage, I mean can your stomach handle it) to take the leap. If you're going to regret not doing it every day then do it. If you were to do it and would be  anxious every day than don't. Part of it is personality. Part is also your responsibilities; wife, kids, private schools, etc. Can you stomach instability? If you go, I would suggest bank rolling the good yrs to support the potential risk of being fired.

Oct 8, 2020 - 1:42am

This is similar to people starting their own PE funds or going downstream vs. sticking at traditional commercialized firms.

It's ENTIRELY a preference thing actually. Marginal $ on either decision impacts your life very little to be honest, while the downside case does have a strong negative impact on wealth in the long term. Same with the upside case for incurring more risk.

As long as you have a nest egg of some small proportion or are able to stay another 6 months and you're willing to take massive swings (getting fired, searching for employment, etc.) then it's a good choice to leave. You have to make this decision like you're a business balanced with personal capacity in stress and what you want out of life.

One question for you: with increased set of possible outcomes, what validation or confidence do you have that you can actually produce better outcomes? How much certainty do you have over the range of outcomes? If you do some basic weighted probability analysis and find your EV (noting that it's very negative on the worst case) it probably slightly edges where you are now (where you can still get fired right). But the variance is tough- again, it's preference. Can you handle it or not?

I spoke to a PE partner recently who was partner at a growing fund (it 5x'd over 10 years) and left because he didn't believe in the growth strategy, and now spent the last 20 at a better fund albeit he had to actually start more junior than partner obviously. But it was a great decision, and one about general business direction of the fund itself so consider that more deeply now about ur current fund as well. The old fund blew up even though it had all the elements of stability and growth, and turning away being partner for a more junior (still senior role in general tho of course) role elsewhere with what was then an emerging brand name (as few companies had really) was by all superficially optical means a bad decision but actually a great business decision.

Oct 8, 2020 - 3:35am

You don't mention if you have (i) kids, and (ii) a wife/partner. Also, do you have a mortgage or any other financial commitments? Here is my thinking, at your age you should know what you want to do and jumping ship from a stable LO to a MM for money will be tough to explain to other LO's if you blow up at the MM. I can tell you, as a LO guy, it is getting harder and harder to find those stable LO seats that pay >500K. So the real question is how easily do you think you could land another LO seat if things don't work out? To me it's a simple NPV analysis. You can make +1m in a LO seat (sounds high to me and if so can I shoot you over my CV please) or you can make 2-3x (so 3m) in a MM seat. Given the average tenure of a MM analyst is around 12-18 months the numbers just don't stack up for me unless you are highly confident in your process.  

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Oct 8, 2020 - 7:07am

I understand the angst in the decision. Let me give you a real live example. Although a different role, similar enough. 20 yrs ago I was an employee of and MD within a life insurance company distribution channel (head of sales type role). I was making good money (not nearly what you are making, but good for that time and the industry). I knew others who had similar roles but were independent brokers representing several companies. They ran their own shop. From what I could tell, they made way more than me (3x-5x) but had all the overhead and hassles that came with owning and running a company. I "knew" I could do it on my own (not really even knowing what that meant at the time) and I pursued opportunities in the independent distribution world. I weighed the pros and cons and just "had" to throw in because it drove me crazy that these guys were making $X and essentially doing the same thing as I was. I hated being controlled by the company, having my territory and quota adjusted every time I blew out the numbers, etc. 

I knew what I needed to earn on a net basis to break even. I figured out how to do that and jumped in 100%. Totally a personality thing. I'm a risk taker. It's worked out just great. Your situation is different in that you'd still be working for a firm, have internal support, a salary, etc. I went cold turkey (100% commission, no benefits). I learned that real security comes from your abilities. If you can do the job, you'll make money. 

It comes down to your personality and comfort with risk. Is it worth it? If you're the type of guy/gal who says "I'm really good at this. I can bring great results to firm X because I know I'm great. I'll make a ton of money (2x-3x is like 2 or 3 yrs worth of my current situation). If I can generate that within a couple yrs, it doesn't matter what happens afterwards (risk of getting fired) because I already made an extra 2 or 3 yrs of income. I can always find another opportunity and I'll have breathing room", take it and run. 

If that doesn't sound like you, stay where you are. The risk will drive you crazy.

Oct 8, 2020 - 9:38am

The biggest difference between your situation and the OP's situation is just how different the job is at a long-only growth shop versus a factor-neutral platform. I think that significantly tilts the risk profile.

OP, if I were in your shoes, the questions I would try to answer are:
1. What level of seniority are you being hired at? In other words, how much tolerance for learning curve will there be?
2. As a corollary to question 1, how well-versed in you are the factor-neutral investing style?
3. As another poster mentioned, what's your cash outlay situation? Do you have a significant other? Do you have kids?

I'm totally with you on not wanting to stagnate in your career and on wanting to work in a positive trend. But let's be realistic here: MM hedge funds (or hedge funds in general, for that matter) are hardly a career. It's more like being a professional athlete. There's a small handful of people that are able to make a full career out of it and retire wealthy. Most of us aren't that lucky. The odds are high that you either burn out or get fired in a few years. And let's not forget, as other posters have pointed out, that you likely won't be able to re-claim a similar LO seat if this path doesn't work out for you.

That's not to say you shouldn't pursue this track. Because you are totally correct that if you want to level-up your earnings potential and have a path to running a book, you do need to leave your current seat. People pursue the professional athlete track despite the low probability of success. My adivce would be to balance your appetite for risk with (1) the fact that you're going to have to learn an entirely different style of investing, (2) at a firm that will let you go for underperformance, (3) knowing that you may well need to exit the industry altogether if this jump doesn't work out.

Oct 8, 2020 - 12:22pm

Is the MM opportunity a PM seat or a senior analyst? If it's the latter, making $2-3mill sounds way too high and would only come in an extraordinary year.

I would stay in your current firm and aim to get that promotion in a couple of years. I can't stress enough how different the two investing styles are, and as you probably know, MMs are not known for giving you time to learn the ropes. Even if they did, the NPV of each option probably favors the LO route.

  • Investment Manager in HF - Other
Oct 8, 2020 - 12:34pm

As others have mentioned the roles are pretty different and the mindset you need is different. Also, you seem to have a great seat and those in LO places are very hard to come by. Additionally MM adds another complexity as the culture there is very much "do well or go home" as opposed to SM funds. 
 

I'm on the other side and in a similar place in my career (in terms of experience and my comp is around the numbers you quote) and like I said the mindset is different and I imagine the stress is very different. The stability of the career on the HF side isn't there relative to LO, and with the diff in compensation how will your life change?

I don't know what else to say that others haven't. If you really think you have an edge and want to bet on yourself then get a PM seat and live by your returns, just know that it is a grind everyday. 

  • Analyst 3+ in HF - Other
Oct 8, 2020 - 4:29pm

Lol I wouldn't trust anything you've heard from the recruiter or PM with regards to PnL expectations. They are almost always grossly inflated. 
 

If you can get a high guarantee (seems unlikely for an analyst) then maybe go for it but the most likely scenario IMO is you make no bonus without one. 

Most Helpful
Oct 8, 2020 - 10:19pm

I have a few thoughts to help you:

1. A $50-70m is not an average, or even good year. That is an excellent year that does not happen often. On $1b that's a 5-7% return on a factor neutral book....I cannot tell you how difficult that is (not impossible but very unlikely). A typical expectation would be 2%

2. I highly doubt you are going to get a high single digit %. Your PM's payout, at most, is going to be 20%. Assuming the team is more than 1 or 2 people, you'll be lucky to get 5%. You may be offered a high single digit payout on your own sleeve, but the capital in that sleeve will be much lower and you have netting risk + costs to account for

3. A typical career at an MM is probably a year, not 2-3. And I absolutely would not be assuming $3m as a given. $3m is what I see exceptional analysts making after a big year

4. If you do decide to leave, let me know so I can send my resume for your old job

  • Associate 3 in PE - LBOs
Oct 8, 2020 - 11:17pm

justanotherday

Consistent LO Pay Vs Large Swings In HF Pay

I find it amusing that WSO has always been my north star when it comes down to major life/career decisions. To be succinct, I am 35, working for a well-known growth LO fund in NYC. I make ~750k a year as a senior analyst and I'm on track to make $1mn+ in 2-3 years, consistently. I have the opportunity to join a top tier multi-manager platform (think Point 72 / Citadel) and make 2-3x my current pay in a decent year but with the risk of being fired with underperformance.

From a purely financial perspective, my current role probably yields a better 'risk-adjusted' payout in the next 5 years. However, with the alternative, I'll leap my career to the 'next level' with better insights to run a long-short strategy, a more lucrative route, than LO. I'm torn because I have a good path now and have a comfortable life and work with good people, but a part of me wants to take a chance and 'shoot for the moon' with even the uncertainties involved. I'm not that young anymore, but I still think I'm young enough if I look at the next 10-15 years to try something more cutting edge.

Any thoughts/advice would be much appreciated. Thank you all.

justanotherday

3rd year analyst, leaving banking in 2 months (Originally Posted: 04/27/2011)

Fellows,

The first time i posted on this site was in 2007, when i was recruiting for internships. 4 years later, i find myself on the last 2 months of my analyst career. I need your help in judging severl exit opportunities that are on the table.

A quick rundown:

I started at Lehman, managed to move to an elite boutique in Oct 2008 (Blackstone M&A, Lazard, Moelis, guess one)

Opportunities / prospects i have right now are:

  • Associate offer at a large PE FOF (HarbourVest and the like)
  • Corp dev. offer (well not black and white on paper yet, but looks promising) at a 30bn+ life insurance company, well there are only so many
  • final rounds with two mega funds (don't ask why that's possible because most are done with recruiting, but maybe im recruiting for an international location)
  • or i will just accept nothing, do some non-profit/volunteer work and apply for business school in Oct.

Truth of the matter is i'm burned out and don't want to work banker's hours anymore. One of the funds told me outright that its gonna be 90 hour weeks, I know if i get it and not take the offer most people prob. think im nuts, but I'm just not that sure if PE is such a promising land. I echo all the things brought up in the recent topic 'is it worth it'

I'm leaning towards this fof. I know it's not viewed as an upward progression of my career being a M&A banker, but guys it sounds so good. 9-7, 8pm, great team, good company events (annual ski trip in Switzerland, etc) and i get 170k the 1st year as an associate and 200k the 2nd year. I'm told that 4 guys on the team are HBS grads so they can guide me towards b school if i want to pursue that route.

I know that transition back to direct PE/ HF would be a challenge after FOF and b school, but I'm at the point where i just don't care and don't want to plan for all that stuff.

As for this corp dev job, pay will be less by nature, but interesting work and a great working environment.

I guess i will stop my rambling, and let anyone who's willing to share some thoughts do so. Also, if anyone needs PE interview guidance, im happy to help, gone through the whole 9 yards with the case studies and what not.

Cheers

justanotherday

Thank you all. I appreciate your comments very much and I tend to agree with most of you.  A little more context on the new role. It's not a PM position as I will be joining a team of 3 supporting a PM who's running $1bn but growing book. But as you may know, analysts run their 'sleeves' and I will be ramping on a new (and growing) sector which could add another $500mn-1bn AuM in the next 2-3 years. At the team level, in a good year, we generate $50-70mn P&L and I will share 'high single-digit' of that. Career progression is sector head / PM in 3-5 years. This is obviously a blue-sky scenario with lots of 'could happen's'. I will most likely have a guarantee for the next year, maybe two. In terms of work/stress - there's no question It will be worse than my current role (60 hour weeks on average). In terms of my personal situation - let's just say I obligations are manageable and I have a decent chunk of savings that will last me for at least 2 years for whatever downside I may encounter. I think net net the payout is slightly better in HF assuming there's 1 $3mn pay day  over the next 3-4 years. but obviously, the odds are stacked against me as the average tenure is probably 2-3... at which point, it's probably a wash... the question then becomes, how much more valuable I do become with L/S background to run a book elsewhere or even start my on my own.. 

For context. 750k at a top asset manager is a great gig.

  • Research Associate in HF - Event
Oct 8, 2020 - 7:48pm

Long tech without hedging is a much easier life to live than gunning it for MM paydays but certainly a good job for some people.

Oct 8, 2020 - 11:03pm

.

Deleted to avoid furthering the people who outed you. Sorry about that. 

Array

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Oct 9, 2020 - 5:15pm

consistent LO pay vs large swings in HF pay. Any thoughts/advice would be much appreciated. Thank you all.

Also, I am curious how you got a job at a LO? I never see these jobs advertised and have never had a recruiter reach out about one.

Apr 26, 2021 - 8:52pm

well, a little update here.

turned down the multi-manager offer. got a raise and promotion at LO to run a new fund. also received another offer to join a well pedigreed single manager HF (think 4-5bn AUM) as a sector head.

LO fund - pro: $1.5-2mn total comp, own track record, good work-life balance, longevity con: not much further more upside from comps (unless I really scale this new product but will take 5+ years), no additional skillset from shorting, hedging

HF: pro: 0.8-6mn total comp (highly varies due to my and fund's performance, new skill set, stronger street cred? con: no track record, decent but worse work-life balance, decent job security but can't compare to LO.

thoughts?

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