Day in the Life: Hedge Fund Associate - Investment Banking Background

Mod Note (Andy): Best posts of 2014, this originally went up April 2014

***To wrap up our conversations on life at a hedge fund (as an associate) we reiterate that this what you should expect if you have an IB background and move to the buy-side at a hedge fund. Again does not include Quant funds****

Intro

We've previously outlined a day in the life of someone working in high finance (and someone not), however... we have received requests for similar overviews that provide more depth for specific roles within Wall Street as a whole.

This will detail such a "day in the life" for someone working as a hedge fund associate with an investment banking background. The focus here will be on job responsibilities, as opposed to any particular associated lifestyle habits.

Here is the typical answer to the question: "there is no such thing as a typical day"

While this is somewhat true outside of morning / evening routines, no day is the same as the next. That said, within the course of any given week or month there are a finite number of tasks that you will perform on any given day.

As such, instead of providing a detailed single day (maybe example), this post will outline: 1) Routine / rough outline and 2) Typical Activities

Routine

Wake up early (highly recommended) - This will differ depending on which coast you are on and when the market your hedge fund operates in opens, but for an Equity Long / Short associate working in NYC, for example, this is typically around 5:30-6am. For those operating in less liquid markets this could be later, while for those on the west coast this will be much earlier.

Workout: Most people work out either first thing in the morning or immediately after work depending on preferences and how feasible it is to squeeze one in first thing (i.e., if you have to be in the office by 4am then you're probably going to wait until after the market closes before hitting the gym). Many funds also have gyms and trainers on site, so it's also possible to do it in the middle of the day if your schedule permits.

The Commute: Some choose to take a short commute to work where you will typically catch up on news / market data / economic indicators on your phone and read/respond to any overnight emails that came through.

Day Outline: Once you get in at the start of the day you setup, check email, get coffee, get breakfast (many funds provide catering for most meals), etc. and begin to plan your day.

Sleep / End of Day: As stated, your hours will vary depending on fund and location, but rest assured you are not going to keep your banking hours - you are paid to think, you are no longer paid to process. With this in mind it's in the fund's interest to keep you well rested and healthy. Days don't tend to be more than 12 hours long, so save the occasional all-nighter for time sensitive material. A lot of your work can also be done from home if logistics permit.

Typical Activities

Now that we've gone over the outline, from here out, your day could be filled with any number of the following:

1) Working on New investments / Investment Memos: The primary focus of what you are doing at a hedge fund is researching and evaluating investments. Much of your day to day will involve different ways of getting information that you can use in order to do so. Once you've done your diligence on a potential new holding and come up with a thesis, you will typically pitch it to your PM either on the fly or in a regular (weekly or monthly) strategy meeting. Sometimes this means an email outlining the most relevant points about the investment, while other times it means a full blown investment memo ranging anywhere from 5-30 pages (depending on the complexity and level of detail necessary to understand the investment). They will typically have the same structure as the case study you beasted when you first got the job, only with more depth and more focus on what is relevant (as opposed to just background information that is easy to pull up on CapIQ or Bloomberg).

2) Source and Structure Deals: For funds where the focus is on less liquid assets or private / semi-private deals, you may need to work on structuring the terms. In addition, large individual investments where your fund or a group including your fund is negotiating with a company directly may be an issue as well. Similar to banking, this involves modeling potential deal scenarios, putting together update presentations, coordinating with lawyers and other funds to negotiate and arrange terms, etc.

3) Working on Investment Updates: For current holdings, you will need to provide updates for any events that may have a large impact on the investment itself. This can include items that may require a full thesis update (ex. legal judgment, big earnings miss, anything that would significantly impact the thesis to necessitate re-evaluating the investment) a short memo (ex. quarterly and annual earnings updates, smaller news items that still affect thesis somewhat), or just an email (ex. earnings previews, market moves).

4) Work on Marketing Materials: Depending on the size and resources of your fund you may put together marketing materials to pitch to potential new investors, as well as materials sent to existing clients such as quarterly letters, annual meetings, performance updates, and other presentations and analyses about the fund's performance (vs. benchmarks, alpha / beta, sharpe ratio, etc.) and strategy (see Howard Marks).

5) Backoffice Support: Similar to marketing materials, your involvement here will depend on your fund, but you may also need to coordinate the activities of the fund as it pertains to backoffice functions such as compliance and accounting.

Calls / Meetings:

1) Strategy Meetings: Most funds have weekly or monthly strategy meetings led by the PM in which fund performance is reviewed, investment updates are provided, and potential new ideas are discussed (this is usually when you present your investment memo). However, meetings are often held for special situations and time sensitive issues which can't wait until the monthly meeting. More regular update meetings may also be common (i.e., Monday Morning Meetings).

2) Conference Calls (i.e., earnings calls, investor days, etc.): This is typically for any current holdings. However... This can also be done for potential investments on your "Watch List" - i.e., companies that you are keeping an eye on or developing a thesis for in your downtime. It can also be for ideas you've diligenced in the past. But your firm passed. You continue to track it in the case that they become available at a more attractive price, etc.

3) Diligence Calls: While your own personal network can be helpful for diligence, more specific insight is needed for individual investments you are evaluating. This is where other sources of information, such as expert networks, come in. Most funds use a service like GLG to arrange informational calls related to investments they are looking at seriously. These calls are with industry experts, former employees, employees of competitors, or anyone who may be knowledgeable about the space you are looking at. These calls can be anywhere from 30mins to an hour long. Other sources of information can include finding people on LinkedIn (yes, seriously), your own personal network, talking to sell-side analysts and rating agencies. In short? Anyone who can provide you with relevant information.

4) Calls / Meetings with Management: There are clear benefits to talking to management teams on a one on one basis (if you can). This give you time to ask them about their strategy and anything else they may be able to disclose regarding their thinking and the company itself.

5) Talking to Other Funds: This is where effective networking comes into play. If you are looking at an attractive investment then in all likelihood you are not going to be the only one looking at it. Whether from business school, undergrad, your IBD analyst class, or anywhere else, it helps to have a large network of people at other funds to talk to. You can speak directly with multiple people on various topics such as 1) current holdings that they are also knowledgeable about 2) new investments you are evaluating that they are either looking at, already hold, or have held in the past and 3) what new ideas they are thinking about - many hedge funds want to remain secretive lest someone else capitalize before they do, but there are often cases where it wouldn't hurt if XYZ fund knows what you are looking at if it means they can give you insight (and vice versa).

Other Fun Stuff:

1) Reading: In addition to calls and meetings, the biggest part of analyzing the investment will involve reading as much as you can about it. In particular, you are looking for things that other may overlook (i.e., always check the footnotes). This can include filings, research reports, news articles, industry reports, emails, etc - anything you can get your hands on that will help give you a better investment decision. You also want to stay on top of any industry news / market data / economic indicators relevant to the fund as a whole - specific holdings, or anything that may present a new investment opportunity to look into.

2) Dealing with Lawyers: If you've ever uploaded a dataroom before (you have if you have worked in banking) then you will know what this entails... Those 300-page legal documents have to be read by someone and while lawyers will handle much of this work, specific issues may arise and you may be responsible for this. This is more relevant if you are on the fixed income side, as almost any investment you will evaluate will necessitate reading over an associated credit agreement in order to 1) know the credit terms (rate, length, covenants, etc.) and 2) peculiarities. There are also cases where you are investing in industries (airlines come to mind) or situations where a legal decision is a significant factor.

3) Modeling: There is a saying that in investment banking, modeling is the most interesting part of the job, while at a hedge fund it's the least interesting part. This is true. Modeling itself is often a methodical process once you have the basics down. You are more interested in what the model tells you and how it relates to your thesis than how good of an excel ninja you can prove yourself to be at this point.

Some notes to clarify... Modeling at a hedge fund is more similar to equity research than it is to banking - while you do create a new model for each new investment it can be put into a simple template if you are consistently looking at the same kind of company. If you are at a more generalist fund then this will be less common, but still relevant depending on how many asset classes are under your purview. Further, much of the modeling you do is updating existing models based on new information (earnings announcements, relevant news, legal decisions, changes in the market, etc.). You may also need to model the fund's portfolio itself in order to provide performance updates and inform marketing and LP materials.

4) Creative Research: On top of reading and diligence calls, which are to be expected for pretty much every opportunity you are looking at, other investments may involve doing more creative research. This can include the following: 1) diligence trips to the company you are evaluating to "kick the tires", 2) meeting with management, 3) calling every Walgreens in the tri-state area to analyze their inventory on a particular SKU etc. There are many ways that you can go about obtaining material public information. We could try to list them all here or you could read Bill Ackman's HLF presentation to get an idea of what we mean. (See page 270 for a particularly interesting example)

5) Conferences: Most of the bulge brackets will hold annual or semi-annual conferences for just about every industry and asset class they handle. These are often in NYC, but can also be in places where the weather is more "agreeable" such as Arizona, Florida, Nevada, California and others.

The conferences are held by banks in order to strengthen their relationships with their clients. They organize information sessions and company presentations where you can obtain information on the Company directly from management. The conferences also serve as an opportunity to network with other investors and pick their brains for ideas (similar to the calls mentioned above).

To reiterate, how frequently (if at all) you do any of the above will depend entirely on your particular fund, with some obviously being more "typical" than others. However, this should provide a basic overview of what its like working at a hedge fund...

Well what are you waiting for? Start blasting those emails we know you don't want to stay in investment banking for long!

Comments (71)

 
4/15/14

pretty much perfect job description

"too good to be true"

See my WSO Blog

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4/15/14

Thanks brother! Looks like we got some haters on here because the info is legit and as someone commented to us, is more tailored to a small-mid sized fund.

If you're at a large shop you have more separation with compliance and what not. Wanted to hit on as many line items as possible.

 
4/15/14

Just curious, is there a distinction between an analyst and an associate? I've never heard the latter used in a HF setting.

People demand freedom of speech as a compensation for freedom of thought which they seldom use.

 
4/15/14

Absolutely.

Associate is more of the entry level position similar to how equity research works. It depends on your firm but essentially it is like this.

Associate (support)

Make sense?

So an associate usually is in the 25-29 range, analyst late 20s to 30s, PM's mid thirties or higher.

Always exceptions since the buy-side is performance oriented but that's a good cheat sheet.

 
4/15/14
WallStreetPlayboys:

...since the buy-side is performance oriented.

^^^ Best part of the job.

Winners bring a bigger bag than you do.
I have a degree in meritocracy.
Alpha male

 
4/15/14

This is great as usual WSP! Appreciate it.

Shooter

 
4/15/14

Thanks mate. Glad to see we recovered from the -4 monkey throws out the gate!

We'll cover a few IB related posts next since some guys on here gave some decent post suggestions.

Make it rain!

 
4/15/14

Nice job.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

 
4/15/14
 
4/15/14

The overview is spot on, nice work

 
4/15/14

My dream job. Ahhhhh! Thanks @"WallStreetPlayboys"

 
4/15/14

Thank you, great information. How much of your compensation is subjective vs your performance?

 
4/15/14

This again will range. But a good idea would be something like this.

Base $150 bonus $0 - $300K.

(Yes there are massive ranges some have a base of 200K some are lower but more bonus etc just giving a guideline).

The guideline shows that a lot of it is performance based, your group/fund/analyst/PM does amazing? Well you're in the $400K+ range all in.

Now, the downside is there is certainly a tad bit of politics in play because you want to position yourself under the "high performing PM" because they will bring in the money of course. But this is no where near as important as it is on the sell side so a you are actually part of the decision making process if your ideas are good. Rememeber as an associate you are not running the book yet so your PM/analyst does matter.

That should be a decent overview.

Essentially you're more variable as performance = fund performance. While you also gain some control ie: if you're good you are rewarded.

 
4/16/14

So, the HF pay is volatile, in other words, high-beta. How much a component of that pay do you think represents the risk premium? And how much represents the "risk free" component? I am trying to use the same framework of WACC to look at the HF pay, Assume that you now have a 250K low-beta financial job. How much does a high-beta HF job have to pay in order to achieve the same risk-adjusted return?

 
4/16/14
HedgeKing:

So, the HF pay is volatile, in other words, high-beta. How much a component of that pay do you think represents the risk premium? And how much represents the "risk free" component? I am trying to use the same framework of WACC to look at the HF pay, Assume that you now have a 250K low-beta financial job. How much does a high-beta HF job have to pay in order to achieve the same risk-adjusted return?

What the fuck did you just say?

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

 
4/16/14
Flake:
HedgeKing:

So, the HF pay is volatile, in other words, high-beta. How much a component of that pay do you think represents the risk premium? And how much represents the "risk free" component? I am trying to use the same framework of WACC to look at the HF pay, Assume that you now have a 250K low-beta financial job. How much does a high-beta HF job have to pay in order to achieve the same risk-adjusted return?

What the fuck did you just say?

I laughed.

I think he's trying to justify in his little finance brain taking a consistent 200-250k over the volatile 200-400k. Or he's trying to justify to himself the decision he made to earn the consistent lower pay. Either way, 200-400k > 200-250k.

 
4/19/14
Flake:
HedgeKing:

So, the HF pay is volatile, in other words, high-beta. How much a component of that pay do you think represents the risk premium? And how much represents the "risk free" component? I am trying to use the same framework of WACC to look at the HF pay, Assume that you now have a 250K low-beta financial job. How much does a high-beta HF job have to pay in order to achieve the same risk-adjusted return?

What the fuck did you just say?

LOL *again*

I will only be graduating soon (total newbie), so I kind of know the urge to use "high" language like Beta and WACC that's not commonly understood by non-finance people.

But using those kind of analogy in a forum just sounds wrong... Moreover, at WSO too...

Fortes fortuna adiuvat.

 
4/16/14

Comparing 200-250k vs. 200-400k is of course a no brainer. But comparing 250k vs. 150-400k is not as straightforward, and would require taking beta into consideration. Of course, many in WSO would choose 150-400k just for the excitement and emotion alone. But leaving excitement and emotion aside, how much would a high-beta HF job have to pay on average to achieve the same risk-adjusted return of a low-beta 250k job? Let's leave excitement and emotion aside and have some cool-headed analysis. Anyone?

 
4/16/14
HedgeKing:

Comparing 200-250k vs. 200-400k is of course a no brainer. But comparing 250k vs. 150-400k is not as straightforward, and would require taking beta into consideration. Of course, many in WSO would choose 150-400k just for the excitement and emotion alone. But leaving excitement and emotion aside, how much would a high-beta HF job have to pay on average to achieve the same risk-adjusted return of a low-beta 250k job? Let's leave excitement and emotion aside and have some cool-headed analysis. Anyone?

I know you're trying really hard to sound smart by applying that CAPM formula you picked up last semester to an every day life situation...but trust me when I tell you that you sound like a moron.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

 
4/17/14

I am literally laughing at my desk right now. The PM asked me whats wrong.

 
4/16/14

Generally at the associate level the risk reward favors being in the HF industry.

When you are a sell side analyst (a good one) and you clear $5-700K+ or a million plus (top tier) then it becomes difficult.

At that level risk reward is tough.

An analyst at a HF (again rough) is going to get $300K + bonus of $0-$1.5 million.

Versus $700K-$1 million + straight.

So for an associate you have more leeway. With $150K base it makes sense to go to a HF because as an associate in investment banking you lose more and more touch with a different skillset.

Now if you were a VP in investment banking... now you've decided to become a sell side person in general, because turning down $4-500K would be much harder.

Anyway. TL;DR. At the higher end - top tier research analyst on sell side vs hedge fund can be debated. At the lower end, much less so. As a younger guy making $150K base going to $225K isn't changing your life. But one year clearing $250K as a bonus alone, would move the needle for you on a personal finance basis.

Note: lol @ using the terms wacc and beta someone has been doing too many dcf's.

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4/18/14

I simply point out that part of HF pay represents the risk premium due to its volatile nature. This is just simple common sense.based on econ 101. That such comment would generate emotional response at all is beyond me.

 
4/18/14

ahahaha, just stop buddy. how old are you? serious question... and no what you're saying is not simple common sense. sure it makes "technical" sense but its the worst way to phrase it.

I spelled it out for you now, hope you get it

 
4/20/14
HedgeKing:

I simply point out that part of HF pay represents the risk premium due to its volatile nature. This is just simple common sense.based on econ 101. That such comment would generate emotional response at all is beyond me.

There's some truth to this, but the real problem is that we're dealing with marginal utility of wealth for a typical hedge fund or IBD employee, while the MRP is set by the marginal utility of wealth for the average investor. The marginal investor is really everyone who is saving money, participating in the stock market, weighted by wealth and price sensitivity when it comes to buying stock, but I'm not sure the person at the 10th percentile from the top in earnings for people aged 22-65 is a bad approximation. 1% of the families in the US control 1/3 of the wealth; the next 9% control the next 1/3, and the bottom 90% control the last 1/3; most of this money isn't financial assets.

Many utility functions used in theoretical economics and finance have a feature called prudence. Prudence determines how positive the third derivative of utility as a function of wealth gets. In other words, it measures how much the utility curve flattens as people get richer, or the fact that richer people tend to get less risk-averse. Prudence is a well-observed phenomenon in economics.

So yes, there's a (1) a (small) strict accounting premium for the fact that people at hedge funds can become out of work more often than bankers- funds blow up more frequently than banks- and need time to search for a job. (2) there is also a (very small) market risk premium here, but it represents a market risk premium being set by less risk-averse finance industry employees and less risk-averse rich people than the average member of the public. If you chose a volatile industry, own your home outright and have a year of emergency savings in the bank, it hurts a lot less to lose your job, even in a recession.

So the only question left is whether there's a lot of marginal substitution and arbitrage between hedge fund jobs and market exposure. My argument is that there isn't. You can't short a job. And choosing an employer and choosing an employee is more like buying a house than buying a liquid security. There are also a lot of other factors at play than "How am I going to hedge my increased market risk?" in the decision on jobs.

In other words, the problem with applying Beta to hedge fund jobs is short sale constraints and a lack of good marginal substitution. Above, I sketch the logical argument for a model with separate risk premia for hedge fund jobs and the market for all liquid securities.

My view is that there may be some sort of market risk premium charged for hedge fund jobs, but beta/market risk premium is not an appropriate measure of the risk, because there is a different equilibrium for hedge fund employees. Similar separate equilibriums exist for a lot of other professions, too. If you don't like this equilibrium, you don't have to buy the risk, but the marginal person in finance is ambivalent on this equilibrium.

Let's just focus on the technical economic aspects and analysis here rather than make this thread more personal. I pretty much agree with you guys on this point, but I figured a bunch of business management type folks either at or aiming for fundamental funds would handle this a little more... calmly and confidently.

There is something about IBD exit ops threads that sets peoples' hair on fire when alternative worldviews are presented.

 
4/21/14
IlliniProgrammer:

Let's just focus on the technical economic aspects and analysis here rather than make this thread more personal. I pretty much agree with you guys on this point, but I figured a bunch of business management type folks either at or aiming for fundamental funds would handle this a little more... calmly and confidently.

There is something about IBD exit ops threads that sets peoples' hair on fire when alternative worldviews are presented.

And I don't understand why. Did I touch some sensitive nerve?
Yes, let's focus on the technical economic aspects and analysis here.

Speaking of the marginal utility, we are not talking about billionaire HF managers here. We are talking about young people who's careers in finance can end when the market takes a turn against them. "Performance-driven" is a nice sounding phrase. But often times it is more market-driven than self-driven.

 
4/21/14
HedgeKing:
IlliniProgrammer:

Let's just focus on the technical economic aspects and analysis here rather than make this thread more personal. I pretty much agree with you guys on this point, but I figured a bunch of business management type folks either at or aiming for fundamental funds would handle this a little more... calmly and confidently.

There is something about IBD exit ops threads that sets peoples' hair on fire when alternative worldviews are presented.

And I don't understand why. Did I touch some sensitive nerve?

Yes, let's focus on the technical economic aspects and analysis here.

Speaking of the marginal utility, we are not talking about billionaire HF managers here. We are talking about young people who's careers in finance can end when the market takes a turn against them. "Performance-driven" is a nice sounding phrase. But often times it is more market-driven than self-driven.

Sure. YOUNG people who have more capacity for risk than old people and are already in an industry where people are willing to take more risk with their careers than, say, nurses and doctors. And again my suspicion is that the people heading for DE Shaw can easily go to Google or Palantir or head to some bank if their hedge fund crashes. I am not worried about my long-term career if my fund blows up, because I have enough former coworkers and friends who know me and would *probably* want to hire me back if they had an open spot.

Everything you're throwing at me suggests a different, lower risk premium equilibrium for hedge fund workers.

Sometimes you're right, sometimes you're wrong. Sometimes people are going to get so confused and pissed at an idea that it doesn't matter if you're right. In this case, I don't think you're right and by challenging the Target school-> IBD-> Buyside archetype, you're also kind of stepping on the third rail of WSO. (I say this from experience.)

Look I'm willing to step on the third rail on occasion, but I want to do it with a carefully planned and factually correct argument. When I make a post like that, I want people to get pissed off and throw MS at me because they're idiots and I can eventually prove it, not because I've missed two or three important things and accidentally set off some firestorm. And I think you're missing two or three important things here.

For the record I'm not pissed and encourage any attempt to make people think things over, but I dont think you're going to make any headway on WSO with this argument. (Perhaps on quantnet).

 
4/18/14

Great post. How common is it for banking associates to transition to investment analyst at hedge funds or long only shops? I know it's pretty common for pre MBA IB analyst, but how about post MBA associates?

 
4/18/14

Man you guys are fodder for great post ideas.

That said.

1) yes you can go from associate to hedge funds. Usually it is slightly higher pay but not by much because again it is performance oriented. As an example the associate would get a base of say $170-180K instead of that $140-150K for an analyst to hedge fund. Not major but at least a bump because again performance is everything.

2) sell side stigma. Unless you work in equity research as an analyst it is harder to show you know how to pick stocks. In IBD you are closing deals and eventually learn to sell and develop relationships. So generally once you make the VP jump there... It's much harder to make the jump to a HF because as mentioned the cost benefit analysis becomes harder and the hedge fund has less comfort in your ability to learn a. New skill set.

3) private equity items, yes this is common post MBA, you need a strong background + a top tier school though (as always) but will leave it at that since this post is about hedge funds.

Think that covers the highlight. Go get drunk guys it's the 3 day weekend!

 
4/18/14

Thank you for this great post!

 
4/18/14

I have a similar question as ehran08. Is it possible to get an MBA from a target school and go straight from there to a PE shop? If so do you have any examples at your shop?

 
4/19/14

"Start blasting those emails we know you don't want to stay in investment banking for long!" LOL

Fortes fortuna adiuvat.

 
4/19/14

Articles like these are a great help especially to us who look to break in

 
4/19/14

thanks for the update!

i'm not smart enough to do everything, but dumb enough to try anything

 
4/20/14

Do you have any thoughts you could share on the HF from undergrad subject? Comp, etc.

 
4/21/14

Many thanks to IlliniProgrammer for the cool-headed discussions. We are not talking about the kind of people heading for DE Shaw. We are talking about the young stock pickers at L/S equity funds. I would argue that young people starting their career have the least room for career risk taking, before they develop a network of friends who have the power to hire them back when they stumble. We are not talking bout the cases like you, who are in the financial industry long enough to have a network of friends in the positions of power of hiring.

Two years ago in a social setting, I happened to sit across the table from a guy who used to work at a well-known consulting firm. I listened as he told me his story. He hated the constant travel, so he left after a short while to join a HF. Then his fund failed. I asked him what he was doing after that. He said he was doing some free lance works and I stopped asking at that point. Unlike you, he was too young to have a network of friends in the position to hire him back. He was off-the-track, so to speak. In his case, he had much less room for career risk taking than you, who has been in the financial industry for awhile to develop a network of friends in the position with hiring power.

 
4/21/14

I think this is a fair concern... Your risk/reward question should really be framed in terms of what are my odds of losing my job inside of two years, rather than what are my odds of getting a $0 bonus in a bad performance year. It's clearly a more risky role than the typical banking path, or sell-side research or AM for that matter. However, I actually think for a person starting out, this risk is less significant than for a more experienced hire running a part of the P&L. As an associate at a HF, if the fund blows up you should be able to land on your feet and find another similar job. You won't be "tainted" by a catastrophic blow up or even just being let go from an underperforming fund, since you're not really the one driving the investment decision making. In fact, you may have some unique perspective on where your fund "went wrong", which would make for some pretty dynamic interview fodder with other buy siders. For the PMs and more senior analysts, this could be a different story...

 
4/21/14

We are not talking bout the cases like you, who are in the financial industry long enough to have a network of friends in the positions of power of hiring.

I am not older or more experienced than these guys, at least I'd like to think. I'm in my 20s and I also spent two years in grad school. I also don't think their ability to go back to their old jobs is any different than mine. Once you work in a job for 2-3 years, you develop a network and, assuming you haven't gotten fired during that time, people who've worked with you will either want to hire you very badly or at least say, "Oh- HedgeKing. I worked with him for 2 years at MS IBD. He's solid. He's done this kind of work. Hire him." It's a lot easier to get an old job back than it is to go for a new job, and it's not like IBD is crawling with as many unemployed people as S&T is.

There are times where risk premia get higher. If there is some five year career commitment that involves earning less money in the short term to make more in the long-term, people tend to get a lot more risk averse and impatient. But if you are being offered more than your old job, if you can always go back, and if you have significant savings, I don't think the utility of wealth curve has anywhere near as much concavity as you think.

I will admit that it's different for people who *start* at hedge funds. These people will need to go get MBAs at some point if they want to go to IBD, but to be honest, even at Princeton, I don't see a lot of guys getting hired directly into fundamental funds. OK, a few PIMCO folks, but that's really AM. I hear about folks getting hired into fundamental funds with MBAs or IBD experience.

If you are recruited directly as an undergrad and wind up getting fired from a hedge fund, but managed to survive there for 18 months, I suspect you have a lot of options in Asset Management as well as the hedge fund business.

And finally, your analysis makes no mention of the fact that HF people work less. My team pulls 50 hour weeks. Some people won't show up until 10 AM- in S&T these people would have been fired by 8:30. In stat arb, we're a bunch of academic types and there is little stress or screaming. I don't think that happens in IBD- it certainly didn't work like that in S&T, and I'm pretty sure that even at the fundamental funds, guys work less than in IBD. So on a comp per hour or comp per stress basis, your argument gets to be more challenging.

Look, people want money, but they also want to have lives. As they earn more money, the marginal value of their time increases. There are some people who wouldn't want to work for a hedge fund, but for *most* people in finance, it's a pretty darned good deal if you can get it.

If you're a quant kind of guy, I do think it may be a mistake to choose a boutique fund out of undergrad over a quant analytics role. It is harder for a QR guy to point at a trading record and say "That's mine. Hire me, Bridgewater" than it is for someone running a classical fundamental investing portfolio. And I'm not sure it's necessarily even a bad idea for a college student to choose GS/MS/JPM IBD over a

But in terms of exit opps, my personal opinion is that working for a hedge fund is often better than being an associate at a bank. The kind of person who prefers being an associate at a bank is someone without a lot of money saved, who is highly risk-averse, and does not mind 90 hour weeks. But what is the point of earning a nice, consistent $200K/year if you don't have any time to enjoy the money you're making? Me personally, given the choice between joining the USMC and being an IBD associate, I'd join the Marines. I have enough money and a Marine's schedule involves six or seven hours of sleep every night, and the first 15-20 hours of personal training per week aren't work IMHO. The other 85 are, but that still beats IBD.

 
12/19/14

...... pretty sure that being in the Marines as other downsides besides the schedules. Like, yah know, a high mortality rate.

Life's is a tale told by an idiot, full of sound and fury, signifying nothing.

 
4/21/14

Guy with no job experience argues with guy with legit job experience

If you land a job on the buyside (a good firm) and your firm blows up after 1 year... You can always go back to the sell side.

With a buyside job, if you can't land interviews on the sell-side you are likely in jail. For insider trading or some such nonsense.

TL DR? Abandon thread!

Consider this a one last shot to end the derail. Like Michael Jordan in his prime take the shot ... Fade fade fade away!

 
4/21/14

Yes, people in HF or PE sometimes do come back to IBD. But they often have to start as first-year associates while their former colleagues of the same analyst class are about to make VPs.

 
4/21/14

Hmmm. A few thoughts.

1.) We don't know HedgeKing's job experience.
2.) If I am truly an authority, I should be well-equipped to defend my answers and respond to challenges to them. It's OK for people to respectfully challenge experienced people- this is how many people get more informed.
3.) As an aside, you might get less trolling and fewer front page thread derails if you chose a more neutral username than WallStreetPlayboys. With great success and great wisdom comes great humility. (I am anything but humble, but when conscious decisions like usernames are involved I am sometimes able to try a little harder than I do otherwise.)

 
4/21/14
 
4/21/14

Hopefully this isn't a double post.

1) if people get offended by a user name on the Internet or a moniker they have social anxiety issues and nothing is lost.
2) we don't really troll on here, as seen by the detailed info/posts/comments we leave. If people don't want to read it... don't click on the post? I think people can use the Internet as they wish.
3) yes you have more say in the topic if you have experience, as you said with money in he bank it is a no brainer.

Pure and simple out blog/posts raise a few hundred bucks a year for Red Cross so we really don't give a crap, just having fun here giving good info for FREE and doing it in a more interesting way than the boring dry type A nonsense we all deal with on a day to day basis.

Anywho if the debate rages on... We leave you with this meme (joke)
http://farm2.staticflickr.com/1368/987251565_22ea2...

 
4/21/14

The idea that someone with a buyside job can always land a sellside interview is not supported by reality. The only successful cases of buysiders going back to sellside that I know of are people going back to their old groups. And this is only possible if they maintain warm relationships with their old groups after they left. Do you really think if you jump ship before the 2-year contract ends you can still do this? And even in those successful cases, they often have to lose a few years of seniority.

 
4/21/14

In a great mood today after 4/20 this weekend so I will answer.

Absolutely.

Go try it out yourself, make a fake resume.

"Joseph Bank" (pun intended resume below)
1 year at bulge bracket
1 year at a legitimate hedge fund lets call it $1-5B AUM

You tell me if you don't get any interviews. Will call your bluff. Seen it happen many times.

No need to rationalize not making the jump my man.

Good luck!

 
4/21/14
WallStreetPlayboys:

In a great mood today after 4/20 this weekend so I will answer.

Absolutely.

Go try it out yourself, make a fake resume.

1 year at bulge bracket

1 year at a legitimate hedge fund lets call it $1-5B AUM

You tell me if you don't get any interviews. I will call your bluff. Seen it happen many times.

No need to rationalize not making the jump my man.

No need to use such device. Even if you get interviewed, it's still miles away from a job offer. Even if you get the job offer, you will most likely lose in seniority.

 
4/21/14

1) if people get offended by a user name on the Internet or a moniker they have social anxiety issues and nothing is lost.

I think it's a marginal effect but it hurts and makes you look arrogant, which is bad business for offering advice. Calling yourself "WallStreetPlayboys" doesn't help you here.

2) we don't really troll on here, as seen by the detailed info/posts/comments we leave. If people don't want to read it... don't click on the post? I think people can use the Internet as they wish.

You're complaining that many of your threads get derailed. #1 threads get derailed on WSO on a fairly regular basis and #2 if it's on the front page, it's hard to avoid reading the first few lines. At that point, some people are already annoyed enough to respond. If you don't want the occasional random non-sequitir posts that derail your threads, maybe don't write stuff for the front page? I'm sure a lot of people appreciate the advice you're giving, but with great success and great wisdom comes great humility. And I think part of the reason a lot of really helpful advice on WSO gets trolled, ignored, or derailed is that sometimes it's not given with humility. It's always hard to admit that you can do better- and I'm not saying anyone is doing badly, but it's easy to change a username.

At the end of the day, we're a relatively free and open forum and sometimes people will respond to a thread that you wrote in ways that you don't like. There's no way around that. This is one of many reasons I only write OPs if I have a really good reason to, and prefer to mostly just respond to peoples' questions.

3) yes you have more say in the topic if you have experience, as you said with money in he bank it is a no brainer

You have the ability to make more points, but those points still need to survive scrutiny from others. If I claim that IBD careers are underrated or overrated, I need to back that up with an explanation. And I shouldn't get offended when people challenge that explanation or dig deeper on it. Instead, I should be ready with more answers and perhaps some facts and figures. As someone with more experience and expertise, my own personal take is that I should be running circles around the less experienced guys on the analysis when someone starts challenging me.

When I pitch a strategy, I don't just say that's the way we need to do it. I back it up with statistics, data, and a backtest (of course). I'm ready to talk about biases in the regression and prediction intervals. I'm ready to talk about tail risk. I know people are going to throw these questions at me. And when I give advice on WSO, I expect some pushback and challenges. It's natural. And the more certain I sound when I give my advice, and the more of an expert I try to come off as, the more pointed I can expect the questions to be, and the more I can expect another expert user to point out some minor detail and then run around claiming I'm an idiot.

So when people challenge you or derail a thread, it's not an annoyance but a teachable moment. When someone tries to troll or stump you but you're already 2-3 steps ahead of them and calmly/nicely explain things, you often convert a potential enemy into a friend who respects you.

I think we all appreciate your helpful advice, but I think that all else being equal, advice works better and people respect it more when it's offered with modesty and humility. I'm just saying there are a few quick and easy things you can do to make the advice sink in a little bit better and limit trolling/thread derails/arguing, which is something you've said yourself that you're unhappy with in your threads.

 
4/21/14

Honestly IP we are talking past each other.

Do not care if we get trolled, only want to make sure it is legitimate criticism. If we throw up a bad post feel free to knock it down, but if someone puts together 4+ pages of legitimate content there is no reason to get annoyed and try to get it taken down becuase the screen name or moniker makes someone "feel unhappy" not so fuzzy inside so to speak.

You seem to be upset about this "front page" idea, something we have no control over. So that is entirely on you. If you wrote 4+ pages on any topic you know on Wall Street the chances it gets front paged is probably 99% so again don't see his point.

Finally, we never got into a pissing match regarding in roles, the title says itself "hedge fund from IBD" we can debate the merits of starting in IBD in different threads, but this derail has been amusing! It actually is funny that anyone would consider an associate IBD role over a HF role, you'd have to be bonkers.

To put the nail in the coffin. Again do not care if we get trolled for a screen name that is about as aspergers as it gets. Only care if we put legitimate content up and people piss on it because it hurts their "feelings".

 
4/21/14
WallStreetPlayboys:

Again do not care if we get trolled for a screen name that is about as aspergers as it gets

Really?

Looks like we got some haters on here

Guy with no job experience argues with guy with legit job experience

If people don't want to read it... don't click on the post?

Honestly I get the sense you take this at least a little personally. There's nothing wrong with that, and people change their usernames all the time.

 
4/21/14

Nah not at all my man!

Do not care, would not even respond if it was an unranked person. Only responding because you're asking and we're giving you an answer.

If you don't believe it we put up an "entertaining post" on a commodity trader. It was taken negatively, we said

"Criticism noted won't happen again"

Done and done.

If someone on the Internet can impact your emotions, someone you have never even met... That person should strongly consider jumping off the Brooklyn bridge.

 
4/21/14
WallStreetPlayboys:

It actually is funny that anyone would consider an associate IBD role over a HF role, you'd have to be bonkers.

Can you drop the emotional language, and present the facts and logic to back up your claim instead?

 
4/21/14

The only comment I'd make is that starting hours depends on firms. My firm, along with two other people I know at relatively new funds do not wake up at anything remotely close to 6am. I usually try to get in around 8-8:30 and the other two get in around 9. We are all spinoffs from very well known managers. Probably differs at megafunds but I wouldn't know.

 
4/21/14

I think things would have to be pretty bad for a HF guy to want to go back to the sell-side. It could happen, but generally their opportunity set will be better than this. That's probably why you don't see a lot of people going back over to the sell-side... nobody really wants to. Even on the AM side (where presumably we're less competitive than our peers at good HFs), nobody ever leaves for a sell-side role.

 
4/21/14
jankynoname:

I think things would have to be pretty bad for a HF guy to want to go back to the sell-side. It could happen, but generally their opportunity set will be better than this. That's probably why you don't see a lot of people going back over to the sell-side... nobody really wants to. Even on the AM side (where presumably we're less competitive than our peers at good HFs), nobody ever leaves for a sell-side role.

From where did you get such idea?

 
4/21/14
HedgeKing:
jankynoname:

I think things would have to be pretty bad for a HF guy to want to go back to the sell-side. It could happen, but generally their opportunity set will be better than this. That's probably why you don't see a lot of people going back over to the sell-side... nobody really wants to. Even on the AM side (where presumably we're less competitive than our peers at good HFs), nobody ever leaves for a sell-side role.

From where did you get such idea?

Which "idea" are you having trouble with?

 
4/21/14

Regarding the math it is pretty clear cut

$150K 60 hours a week or
$200K 75 hours a week

This is a wash on a per hour basis.

Your downside is you go back to be at worst a 3rd year analyst or more likely an associate if you survive in the HF arena for 1.5+ years.

So risk reward is heavily skewed to jumping ship.

If you are in line for a VP promote then yes it is harder, we already ran these numbers earlier in the comments.

150-450K for 3 years
Or
225K for 3 years

If you have one good year or even two, you just buried the ib associate.

Unless you love the sell side or are becoming a VP soon it makes no sense to stay.

Hourly wage is about equal excluding bonus on the HF side. Most people who don't make this jump don't trust their performance based skillset (certainly not easy but no risk no reward).

Run the numbers and you'll get to the same conclusion. It's already in the comments but the jist is now here in this post.

Only the guys who perform poorly on the buyside would say not to make the jump. Even if you hit the median and get $250-350 you're blowing past the sell side guys. Keep your expenses low and grind it out. Take on the headache since it's a rare good shot at becoming rich.

 
4/21/14
WallStreetPlayboys:

Regarding the math it is pretty clear cut

$150K 60 hours a week or

$200K 75 hours a week

This is a wash on a per hour basis.

Your downside is you go back to be at worst a 3rd year analyst or more likely an associate if you survive in the HF arena for 1.5+ years.

So risk reward is heavily skewed to jumping ship.

If you are in line for a VP promote then yes it is harder, we already ran these numbers earlier in the comments.

150-450K for 3 years

Or

225K for 3 years

If you have one good year or even two, you just buried the ib associate.

Unless you love the sell side or are becoming a VP soon it makes no sense to stay.

Hourly wage is about equal excluding bonus on the HF side. Most people who don't make this jump don't trust their performance based skillset (certainly not easy but no risk no reward).

Run the numbers and you'll get to the same conclusion. It's already in the comments but the jist is now here in this post.

Only the guys who perform poorly on the buyside would say not to make the jump. Even if you hit the median and get $250-350 you're blowing past the sell side guys. Keep your expenses low and grind it out. Take on the headache since it's a rare good shot at becoming rich.

Typically, when someone moves from HF to IBD, his/her years in HF do not get included in seniority calculation. Even for the PE people, whose works are more similar to IBD, they would lose some years in seniority when they move back to IBD.

And who told you BB IBD associates make 225k for 3 years? First year may make that amount. Second and third years should be much higher.

And by the way, deal process is far more interesting than writing investment memos and pitching your views to PMs or investment committees.

 
4/21/14
HedgeKing:
WallStreetPlayboys:

Regarding the math it is pretty clear cut

$150K 60 hours a week or

$200K 75 hours a week

This is a wash on a per hour basis.

Your downside is you go back to be at worst a 3rd year analyst or more likely an associate if you survive in the HF arena for 1.5+ years.

So risk reward is heavily skewed to jumping ship.

If you are in line for a VP promote then yes it is harder, we already ran these numbers earlier in the comments.

150-450K for 3 years

Or

225K for 3 years

If you have one good year or even two, you just buried the ib associate.

Unless you love the sell side or are becoming a VP soon it makes no sense to stay.

Hourly wage is about equal excluding bonus on the HF side. Most people who don't make this jump don't trust their performance based skillset (certainly not easy but no risk no reward).

Run the numbers and you'll get to the same conclusion. It's already in the comments but the jist is now here in this post.

Only the guys who perform poorly on the buyside would say not to make the jump. Even if you hit the median and get $250-350 you're blowing past the sell side guys. Keep your expenses low and grind it out. Take on the headache since it's a rare good shot at becoming rich.

Typically, when someone moves from HF to IBD, his/her years in HF do not get included in seniority calculation. Even for the PE people, whose works are more similar to IBD, they would lose some years in seniority when they move back to IBD.

And who told you BB IBD associates make 225k for 3 years? First year may make that amount. Second and third years should be much higher.

And then there is that risk premium thing on the HF side.

And by the way, deal process is far more interesting than writing investment memos and pitching your views to PMs or investment committees.

 
4/21/14

How much of the HF pay can be attributed to the premium of career risk?

 
4/21/14

If you think a deal process is more interesting, don't transition to a hf, jesus. All the hf analysts I know disagree with you.

 
4/21/14

Good play.

Winners bring a bigger bag than you do.
I have a degree in meritocracy.
Alpha male

 
4/21/14

We can go back and forth all day, at the end if you're talking about $225K for an average for 3 years or even $300K the point is the same.

"Do you want to be paid for performance or for more hours"

If you want to be paid for performance go to the buyside.

3 years of stellar performance you're making over a million becuase you'll be an analyst if you're that good.

On the sell side you're following the "path" every 3-4 years up or out.

Again different strokes and as stated only stay in the sell side if you like it or you don't want to be paid for performance and prefer putting in "time".

This is a crazy idea unless you're already a VP or higher (opinion)

---

Honestly lol at risk premium the implied message here is clear

You believe skill is really just luck.

Otherwise you wouldn't call it a random variable, with that mindset the buyside is definitely not where you want to go.

It sounds like you believe in your long-term sales skills, so stick to your guns and enjoy your path. If you like it that's cool. The numbers still don't lie, buyside is flatter so you can move up much quicker.

 
4/21/14
WallStreetPlayboys:

You believe skill is really just luck.

I believe the efficient-market hypothesis generally holds for the public equity market. Even if it breaks down for a short time, the many arbs in the market would arb away any inefficiency in no time. Despite the abundant supply of young people who believe they possess the skills to beat the market, consistently beating the market in the public equity market is much much more difficult than most people realize.

 
4/21/14
HedgeKing:
WallStreetPlayboys:

You believe skill is really just luck.

I believe the efficient-market hypothesis generally holds for the public equity market. Even if it breaks down for a short time, the many arbs in the market would arb away any inefficiency in no time. Despite the abundant supply of young people who believe they possess the skills to beat the market, consistently beating the market in the public equity market is much much more difficult than most people realize.

So that's really a prior view which is a function of the kind of work you do more than anything else. My training and my experience tell me that there are persistent mispricings in the market.

The Journal of Finance is in many ways considered the Science or Nature of economics and finance. Any brief perusal of the JoF in the past twenty years will reveal a plethora of behavioral finance articles that challenge CAPM, some offering t-stats in the double digits (in other words the odds of this happening require scientific notation to express without wrapping around to the next line), were conducted over decades, with effects of anywhere from 2-5% per year.

CAPM is a good rule of thumb for corporate finance, but it can be way off sometimes.

 
4/21/14

Very insightful original thread. Thanks for posting.

 
4/21/14

Can we ban IP from these threads? I'm being serious. He managed to completely derail something informative.

 
4/21/14
Gray Fox:

Can we ban IP from these threads? I'm being serious. He managed to completely derail something informative.

You guys derailed this thread when you started shouting down Hedge King without answering his question. You nearly killed this thread in a flame war. I was the idiot who came in and addressed his question and agreed with you guys. Flame war averted.

No good deed goes unpunished on WSO. Next time I'll just grab a box of popcorn.

Edit: Oh wait, hedge king is still here. Maybe there's still time for that box of popcorn and I can let karma run its course on this thread. Or, we still have a civil discussion going on here and I can address HK while you guys ask WSP legit questions.

 
4/22/14

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4/24/14

I hate victims who respect their executioners