HF/Am Analyst vs PM
Hey,
So I’ve heard multiple different rumors as far as the comp and position of an analyst and pm at HFs. On one hand so hear being a PM you can make millions, while analysts are stuck in the six figure range. On the other hand, I’ve heard analysts can get a portion of PnL, and they can make seven figures and often just don’t want to make the jump to PM, as it’s not necessarily a better role. How big is the comp difference really, do analysts get a portion of the PnL? Or is it always better to be a PM? Thanks
Comp varies signficantly depending on how much the PM/team makes. Usually PMs at the large multimanagers take a 12-17% cut of the profits. Analyst pay varies depending on experience and how much you contribute to profits of the team.
I have heard of analyst make as little as their base salary (in cases where the team makes no money that year) to all the way up to high six figures/low single million. It really depends on experience and how good you are in generating money making ideas. Despite everyone hearing that hedge fund pay is insane, the average analyst probably makes around $250-400K per year.
If you want to learn more about differences in pay at hedge funds, read Hedge Fund Salary and Bonuses – From Analyst to Portfolio Manager.
Thanks for the info, also, your website has a lot of great content! How common is it for analysts (probably more senior) to get a cut of PnL? Also, is this the same pay structure as in AM, smaller RIA, or at a PB that doesn't charge a performance fee? Or does that work differently?
Pretty common for analysts to get a cut of the P&L. Some get a small cut right when they break into the industry (typically from banking or sellside shops) or you will get a cut after the first year. The bulk of the money obviously goes to the PM though.
The more you prove your worth, the more money you can ask for. Not sure about pay at other types of long-only shops. Usually its steadier pay with less upside.
Typically a PM will always make more than an analyst. After all they are the boss. As to why some people don't want to be PM and/or can't there are a variety of reasons. First, the most obvious, way less PMs needed vs analysts. Also, a PM will focus more on the portfolio as a whole vs doing deep dives into specific investments. They often will have more marketing responsibilities too. There are tons of other responsibilities as well. So some people prefer to just focus on investing and research.
Also, I'm sure you didn't intend anything by it and you're probably inexperienced (totally fine), but being "stuck" in the six figure range is pretty awesome and not an easy feat to achieve. Very very very few people end up making 1m+, and I'm not talking generally speaking, I'm taking within finance.
This is only true if you add “within the same team”. There are definitely teams where people with analyst titles make more than the vast majority of “pm”s in the industry. I’m sure that’s what the op is getting at - being a well regarded and tenured analyst on a great team can be in some cases a much higher expected value play than leaving to trying being a PM at millennium or wherever
Thanks for the info. Does this apply for all top analysts, or only more senior analysts? If a junior analyst is killing it, will they get paid equally with more senior analysts that do well?
Sure. While true, its kinda an obvious point. Those jobs are few an far between and not indicative of the industry. In any sector there are outliers, even more so in finance.
anyone else in college and thought pretty much everyone who is 30+ years old working in finance (think IB PE HF) is easily clearing 1m / year.
I worked for a USD 4 bn event driven hedge fund in the London office. The fund was based in NYC and the London office was a satellite office. The fund focused on 3 strategies: (i) merger arbitrage, (ii) special situations equities, and (iii) credit. The CIO (founder and the fund was named after him) was involved in all investment decisions but he was mainly an arb guy so that was his main interest. Each strategy had a "head-of" who was basically the PM of that strategy. Each PM was responsible for building out his team as he saw fit. I worked in credit where we had 2 co-PM's (both NY based) and 6 analysts (4 in NYC and 2 in London).
When you join as an analyst your job is to do all the grunt work, modelling and memo writing and generally you are told what ideas to look at by your PM. Comp at this level is fairly standard and matches what you would make as an IB associate/PE analyst. Given that almost all HF analysts come from IB, the benchmark for entry level HF pay is based on what you might make in PE or if you stay on as an associate in a bank. At this level you are viewed as a commodity by most PM's and you will be paid the bare minimum necessary to keep you from looking elsewhere. Note that I didn't say to make you happy, I said just enough to keep you from bothering to look elsewhere.
The shakeout phase generally ranges from 6 months to 2 years. Some guys come in and just can't produce good work and get kicked out. Some guys don't gel well with the PM and his style and leave voluntarily. Some guys just can't get past being a model monkey and learn to generate ideas that their PM will like. At my fund, guys in this range were making around GBP 200k all-in, which at the time was around USD 400k.
After this point there is no real set path. One guy joined our credit team in NYC right after the 08/09 crisis and made a killing for the fund and was made a partner after 2 years. Other guys just stalled or got comfortable or frustrated that there was no path to PM in that fund. Turnover can be high as guys move to pursue better economics or a position where they have more of a say in idea generation. After 5 years, if you are generating good ideas, you may get P&L linkage to your ideas. This is where real money can be made and an analyst can out earn a PM if the mechanics of the comp allow for it. One of our PM's told me that an analyst in the arb team made USD 1 m a year over quite a few years. This guy was mid 30's and was in the business for 5-7 years. Most guys in this bucket are pulling between USD 500-700k with a base of around USD 200-250k.
My PM's were making between USD 4-5m. They were both partners in the management company and were comped on the performance of the credit part of the book and also shared in the profits of the management company. These guys had around 20-30 years experience in the business.
This.
At my fund, junior and mid level analyst make a discretionary bonus that is more or less in line with banking / PE. Their comp has the least variability, for better or worse. Senior analysts start to get a % of the incentive fee. This is when they can see their comp really inflect up in a good year. As a PM, I get paid for performance of my own book and performance of the fund. And because I'm a partner, I also participate if the fund gets bigger.
Thanks so much for the detailed response, this is very helpful. Do you think that analysts having to do mundane work is standard across all funds, or do you think at smaller funds analysts could have more of a decision making role?
This.
Partners in the Management Company presumably means they get a cut of profits (ie. what's left over after management fees used for costs). By the way "fund costs" can be used very liberally by those up top... The remainder post costs, can often be as much or more than the cut of performance. There is a reason why funds like to raise a lot of capital and quickly and will do what it takes to keep it, whether or not the opportunity set is good. At a certain size, it is often a game of "what can we do to keep capital in and paying us", especially if the fund can't get traction to raise more capital.
Hint: Raising that capital is often not to access/execute "one time opportunities" or whatever marketing spiel they put out with slick decks and docs.
For those of you on the outside looking in, I can assure you that so much of this game is luck and that there is plenty of group-think (ie. crowded trades is a nice way to put it). That goes for the CIO and big wigs all the way down to analysts who are rocking Excel and PPT 14 hours a day. When do you join in the cycle? Who is your boss? How is the fund doing? Does it have capital? How many people are there? What are the politics? Who is producing? So often the guy who gets partner in a short bit is no more fundamentally talented/smarter than the guy that leaves after a year. Look at the bios of so many of the bigshots today. Few would make it if they started their business today. They came at a different time when information was much tougher to access and the business was far less competitive, amongst other things.
As I have said many times in other threads, this is not to take away from peoples' abilities or accomplishments or the talent of others, but to dispel the common myth that so many positive results in the industry are from skill. They aren't. So often it's luck and it's spun and marketed as skill later.
Good Luck
At a multi manager analysts usually get a cut of the P&L. low 7 figures is fairly common but then so is getting blown out.
I think this is a difficult conversation to have with the pm when the time is up for the analyst to have the performance linked to the pnl. Would appreciate any insights on this
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