Comments (27)

Aug 4, 2011

Depends on what you mean by realistic. Certainly more possible than in most professions, but obviously not without greater risk. As an outsider, I would say that it is at least as possible that you would fail/blow up as it would be that you would succeed. If you can stay though it seems not improbable by maybe 7-10 years. I know a guy who had a good track record. Set up his own HF with his own money, plus that of a few friends and contacts. Went out of business a couple of months later. This seems to be common.

"...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

  • Schopenhauer
Aug 4, 2011

It's definitely realistic. Even at my fund <200mm it can happen for a guy w a few years of experience. Key is performance. If you can make 20m in P&L wiht a lot of it alpha then there is a good chance you will be worth paying 500k. The key is to find a situation where the upside economics are there.

Aug 5, 2011
secretariat:

If you can make 20m in P&L wiht a lot of it alpha then there is a good chance you will be worth paying 500k.

This is a terrible payout. If you're bringing in 20 bucks and you don't make seven figures you're at the wrong firm.

    • 1
Aug 5, 2011

A guy at the prop firm I'm interning at made nearly that much today and he's just 3 years out of university.

Aug 5, 2011

20mm in pnl nets the HF 4mm or less for the average fee structure. And there's a fair chance that some luck was involved (and they have to pay the other people at the fund that weren't so lucky) so 500k sounds about right.

Also, it would be nearly impossible to make a 200mm HF 20mm in profit in a year unless you're managing a huge chuck of that capital.

But if you spend a few years at a big fund, 500k is definitely possible. A couple of the funds with huge AUM hire people with a couple years of experience and pay 350+ first year.

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Aug 5, 2011
CashCow:

20mm in pnl nets the HF 4mm or less for the average fee structure. And there's a fair chance that some luck was involved (and they have to pay the other people at the fund that weren't so lucky) so 500k sounds about right.

Also, it would be nearly impossible to make a 200mm HF 20mm in profit in a year unless you're managing a huge chuck of that capital.

I'm having a hard time believing you work in this business. The people who "weren't so lucky" don't get paid. (Also, the OP explicitly said a lot of it was alpha.)

20MM in PNL on 200MM AUM @ 2+20 = 8MM net for the fund. The PM gets a big chunk of that.

Aug 5, 2011
dabanobo:
CashCow:

20mm in pnl nets the HF 4mm or less for the average fee structure. And there's a fair chance that some luck was involved (and they have to pay the other people at the fund that weren't so lucky) so 500k sounds about right.

Also, it would be nearly impossible to make a 200mm HF 20mm in profit in a year unless you're managing a huge chuck of that capital.

I'm having a hard time believing you work in this business. The people who "weren't so lucky" don't get paid. (Also, the OP explicitly said a lot of it was alpha.)

20MM in PNL on 200MM AUM @ 2+20 = 8MM net for the fund. The PM gets a big chunk of that.

I'm having a hard time believing that you work in this business. 2+20 is actually above average fee structure (average is closer to 1.5/20 post-crisis). And it is important to note that a good piece of the 1.5 management fee is spent on rent, data services, marketing, back office, trade execution, lawyers, etc. "Alpha" is not as clear-cut as you assert. Someone that generates a market-beating return in a given year is not necessarily generating alpha, because quite often there is an element of luck. If you disagree, maybe you should have a talk with the people that payed funds like LTCM hundreds of millions in fees, only to lose the bulk of their investment later. Moreover, there are different qualities of alpha (e.g. if the return is volatile or correlated with returns of other strategies within the fund it is less valuable to the fund - a lot of big funds pursue strategies with lower expected returns because they are less correlated with other strats).

Within a large hedge fund, the returns of particular groups ebb and flow. While the majority of comp at the senior level is based on PnL, the more junior team is going to get paid regardless of whether it is a great year or not. This has to be subsidized by the groups that did have a blowout year.

Consider an example - a small multi-strat fund has 200mm aum and 4 strategies (stat arb, event-driven, macro, and equity l/s). This year stat arb generates a return of 10%, event-driven a return of 10%, macro a return of 5% and equity l/s a return of -5%. So assuming the same % of aum in each strat, the fund returns 10%. Junior people in equity l/s will be paid (equity l/s may have just been a poorly returning strat across all HFs this year) - this is subsidized by the better performing strats.

Aug 19, 2011
CashCow:

20mm in pnl nets the HF 4mm or less for the average fee structure. And there's a fair chance that some luck was involved (and they have to pay the other people at the fund that weren't so lucky) so 500k sounds about right.

Also, it would be nearly impossible to make a 200mm HF 20mm in profit in a year unless you're managing a huge chuck of that capital.

But if you spend a few years at a big fund, 500k is definitely possible. A couple of the funds with huge AUM hire people with a couple years of experience and pay 350+ first year.

They DON't have to pay those people. If those people are managing risk, they should not get paid if they don't bring anythign in. If it is a person that does not manage risk, it would be a fixed cost. management fees shoudl be taking care of the latter, not incentive fee.

you can make 20mm for a 200mm book without commiting too much capital if you are using vol strategies or if you can churn with a good hit rate. 20mm in PnL should be very easy to make. making 200mm on 2Bn is far far harder.

you should expect 5-8% payout on total pnl. so at least a buck.

    • 2
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Aug 6, 2011

I think he was looking at it from an individual book perspective. Maybe he was saying, if you are running 200mm in your book (you're the PM), and you turn a 20mm profit in a given year, you should be making more than 500k. Even if your fee structure is only 1.5/20, you're looking at 3mm in mgmt fees, and 4mm in perf fees, so distribute to the parent company, pay everyone on your desk, pay ops and other general expenses, and you should be left with a decent chunk for yourself.

Of course, 200mm is a sizable amount of money to be running yourself, and doesn't just fall in your lap overnight...

Aug 6, 2011

You have just a good of chance being laid off/fund closing, etc. But it is definitely possible. I think for a Analyst the most you can pull in is 400k, unless you've been there for 10+ years, same with execution traders. 300 base as a PM also sounds right, with bonuses ranging from 0 to millions.

--
"Those who say don't know, and those who know don't say."

Aug 6, 2011

@whoever said 500k+ happens only at big funds, you're wrong.

big shops actually don't pay junior guys much at all (unless they're rockstars). big funds have huge overhead and way too many ppl. paulson, for example, is notorious for underpaying analysts.

smaller shops (run by legit PMs, ofcourse) run lean. for example, a good friend of mine is part of ~8person / ~600m AUM shop run by a very good global macro guy. that's ~12bucks in just management fee right there. the guy turned down a very large HF to go to there, and i certainly don't blame him.

@op - this is not to say smaller shops are better. big funds are a great place to start a career b/c of the exposure to multiple markets/assets/products/strategies you get. it allows you to find your grove, and then either become successful in that grove at the same fund or move to a smaller fund that specializes in just that.

Aug 8, 2011
LTV:

@whoever said 500k+ happens only at big funds, you're wrong.

big shops actually don't pay junior guys much at all (unless they're rockstars). big funds have huge overhead and way too many ppl. paulson, for example, is notorious for underpaying analysts.

smaller shops (run by legit PMs, ofcourse) run lean. for example, a good friend of mine is part of ~8person / ~600m AUM shop run by a very good global macro guy. that's ~12bucks in just management fee right there. the guy turned down a very large HF to go to there, and i certainly don't blame him.

@op - this is not to say smaller shops are better. big funds are a great place to start a career b/c of the exposure to multiple markets/assets/products/strategies you get. it allows you to find your grove, and then either become successful in that grove at the same fund or move to a smaller fund that specializes in just that.

Where'd you hear that Paulson underpays their analysts? I don't know about bonus numbers, but I believe the analysts who work there after b-school get a base of around $200K. They're still relativley small in terms of number of employees, somewhere around 50-70.

Aug 19, 2011
LTV:

@whoever said 500k+ happens only at big funds, you're wrong.

big shops actually don't pay junior guys much at all (unless they're rockstars). big funds have huge overhead and way too many ppl. paulson, for example, is notorious for underpaying analysts.

smaller shops (run by legit PMs, ofcourse) run lean. for example, a good friend of mine is part of ~8person / ~600m AUM shop run by a very good global macro guy. that's ~12bucks in just management fee right there. the guy turned down a very large HF to go to there, and i certainly don't blame him.

@op - this is not to say smaller shops are better. big funds are a great place to start a career b/c of the exposure to multiple markets/assets/products/strategies you get. it allows you to find your grove, and then either become successful in that grove at the same fund or move to a smaller fund that specializes in just that.

Sabretooth? Rawr.

Aug 6, 2011
DontMakeMeShortYou:
LTV:

@whoever said 500k+ happens only at big funds, you're wrong.

big shops actually don't pay junior guys much at all (unless they're rockstars). big funds have huge overhead and way too many ppl. paulson, for example, is notorious for underpaying analysts.

smaller shops (run by legit PMs, ofcourse) run lean. for example, a good friend of mine is part of ~8person / ~600m AUM shop run by a very good global macro guy. that's ~12bucks in just management fee right there. the guy turned down a very large HF to go to there, and i certainly don't blame him.

@op - this is not to say smaller shops are better. big funds are a great place to start a career b/c of the exposure to multiple markets/assets/products/strategies you get. it allows you to find your grove, and then either become successful in that grove at the same fund or move to a smaller fund that specializes in just that.

Sabretooth? Rawr.

Nope. But thanks for bringing that up. Sabretooth's new analyst, who joined earlier this yr, also turned down a big name HF. Sabretooth's much smaller than 600m from what i last heard -- not sure though.

Aug 8, 2011

Though if they keep up this performance they may not be paying their analysts anything real soon...

Aug 11, 2011

not realistic

Aug 11, 2011

500k +? Do able.... You will have to burn that midnight oil in terms of productivity but it is not outside the raelm of thought or reason.

Aug 19, 2011

above there is a long diatribe about alpha. I am not aware of a fee structure where the manager only gets paid on alpha. The greek letter to focus on is DELTA. i.e. what is your delta to each dollar coming in the door. Ideally you have a positive gamma relationship to revenue and actually get upside kicker as the money you bring in breaks through fixed costs and net margins of the asset manager go up. If you are CEO of an oil company, they don't pull back your pay based on a lack of "alpha" because oil went up that year. You get paid on what you bring in. It's that simple.

If some guy is justifying not paying you at the end of the year because of the lack of "alpha" in your pnl, you should know you are getting fucked. every dollar not yours is his. The right boss will have a proper dialogue with you about your production absent invented performance metrics. it's true some stuff is just low hanging fruit and he can pay someone much less to generate that same level of pnl for him (so you can't overplay your hand for having bought the linkedin IPO).

    • 1
Aug 19, 2011

It is definitely possible. 5 years in you are unlikely to be a PM at most firms so the math about payout doesnt really matter, but if your boss has a good year and is generous you could make that amount. It is definitely on the high side for someone at that level but happens all the time.

As to the above debtae, if you are a PM and you make 20MM at a hedge fund you will be making at least 2MM and at some shops you could make as much as 4MM. There is nobody deciding whether what you did was "luck", this stuff is all contractual...ie u make X, you get .1-.2X.

Aug 20, 2011

you get ~400k by working in the biz for 3 years. so 500k is def doable within 5 years assuming your fund performs decently and you dont get fired lol

Aug 26, 2011

Very realistic if you're very in tune with your fund's strategy and work hard. I'm currently on track to make about 500k next year (when I'll be a third year analyst). Base + bonus amounted to approximately 300k my first year, and I'm looking at more or less 400k this year.

Aug 29, 2011
GreenwichForLife:

Very realistic if you're very in tune with your fund's strategy and work hard. I'm currently on track to make about 500k next year (when I'll be a third year analyst). Base + bonus amounted to approximately 300k my first year, and I'm looking at more or less 400k this year.

What strategy does your PM run? Assuming you are at a multi-strat fund, how much do you think this varies between strategies? Can you really say you are on track to make a number (we will call it "x") for next year when so much depends on the performance of the fund and your PM? Sorry for question overload but I am interested in making the jump in the next few years and you aren't a college freshman so I have to ask while the asking is good.

Oct 7, 2018
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Oct 13, 2018
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I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing.