consistent LO pay vs large swings in HF pay. Any thoughts/advice would be much appreciated. Thank you all.
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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.
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.
Take the stability and enjoy life before you go the grave brother
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.
If you pass that up you're insane and I would assume that the odds of you getting back into such a seat if you blow up at the MM are quite low.
What's the typical comps progression in LO? Say a post MBA grad with 2-3 years of WE, what's the typical first 1-3 years of comps like? Thanks
$250-325k post-MBA Analyst
Within 5-10 years as tenured Analyst can reach $500k-1m+ (some $1-1.5m+)
Once you hit PM could be anywhere from $700k to $20M+ (median prob $700k to $3m) depending on asset base.
$2-3m in MM seat is the top <5% of MM analysts. $1m in MM is doing very well...
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.
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.
Some other questions to think about:
Is the pm a match for your investment process?
What’s the pm’s track record?
How comfortable are you in finding short ideas in your coverage space?
How fast can you ramp up to adapt to market neutral style Investing, which generally entails a higher idea velocity and shorter time horizons?
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.
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.
Unless this is for a PM role, this move would make no sense...
Thank you all. I appreciate your comments very much
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.
At this level you need to get guarantees. Recruiters and firms will be overly optimistic.
At this level you should be able to get real (7 figure) guarantees if the place wants you to join.
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
For context. 750k at a top asset manager is a great gig.
Everyone else on this thread has done the polite thing here with respect to his workplace...
Can I take your job if you leave?
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I think it depends on the HF and role within the HF.
If you're referring to a multi-manager ( Citadel, MIllennium, etc), then the turnover on the investment teams is typically very high.
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.
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Deleted to avoid furthering the people who outed you. Sorry about that.
This guy clearly wanted to remain anon but y’all are calling him out... come on people
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.
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?
LO is easy choice.
Depends on what you want out of life (and how much money you think you need). With that job security and 1.5-2mm, I would probably go LO. Too much risk at the HF.
Truly comes down to the sector and your thoughts on it, personally I would take option #2 since you are in the echelon where you can find those types of roles again. If you think your sector can explode the next little while this may your chance to truly break into next tier. If you are concerned you sector is still up-coming etc...would say LO is the right decision.
Not sure why you care about skillset you already in the top end of your industry you have all the skills needed. Likewise think you got a lot of street cred if we talking about the opportunities presented to you. Just depends how you value the upside and as mentioned risk aversion.
Lastly, the WLB argument I hear this one lots but think if 1 year your industry/sector is super hot and you work like a mad man that is worth 2-3 years of slow WLB elsewhere.
What kind of returns would the 4-5bn SM have to put up for a sector head (I'm assuming that's the same as senior analyst, so someone late 20s-mid 30s) to make $3-6mm?? How do the numbers change for $10bn+ L/S SMs?
^^ Interested - Anyone know this?
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