IBD vs Hedge Fund of Funds
Hey guys,
just wondering what you thought about going straight into a fund of hedge funds as opposed to IBD straight from college... What are the upward mobility options and pay differences going to be like? Also, what is your general opinion of fund of hedge funds?? thanks for your input!
Depends on what you want for lifestyle but IBD will give you many more options than FOF.
IMO, you don't learn as many skills working in FOF and you probably also won't have an analyst class to make friends...
On the flip side, hours are much better than banking and pay can be (almost) comparable. You will also get a chance to interact with many managers.
In general, fund of funds is a slightly peculiar concept. Essentially, these funds attempt to take an investment that is supposed to be inherently high risk and mitigate that risk through diversification. While an interesting concept, the actual investment results for this strategy have been pretty volatile. You might get some solid exposure to senior people, but I agree that you won't get as much general knowledge as you would in an IB group. At top firms, the analyts in this division generally work long hours (9-10) but without much weekend work and without the unpredictability of IB.
Just to make it easy, I'll split the HF world into speculators and investors. The main difference is time frame. Speculators include quants, day traders and momentum guys - all out to generate daily/monthly returns, mainly based on the theory that someone else will buy their holdings at a higher price. Investors include value funds and certain PE shops, where funds put money into tangible assets, believing them to be underpriced compared to intrinsic value.
The former generally hire out of Sales and Trading programs at the investment banks. Generally they do this to avoid having to train/screen someone young. They're unlikely to hire a research guy.
The latter traditionally hire M&A guys or people fresh out of liberal arts programs. Sell-side research isn't the best path, as SS people tend to have a strange way of looking at stocks - necessarily biased by the position they're in.
Importantly, most hires are based on personal connections. It's easier to get an interview if you know someone. And all interviews will have a 'fit' component.
Now, from the FoF perspective, you won't get any trading/investing experience. However, you won't be getting valuable experience at most sell-side research shops anyway. The advantage of the FoF (if it's a decent fund), is that it exposes you to a number of different investment styles. That way, you get a much better overview of the industry, and where you might fit in. Additionally, you get to establish personal relationships with the managers, and your boss is in a position to recommend you to a position in a fund you might be interested in.
If the FoF has a decent network, I'd definitely go there. I'd recommend finding out where previous analysts have gone to (for both your opportunities), and evaluating your immediate and eventual bosses. If they're the sort of people you respect, you're more likely to get along with them, leading to a decent placement down the line.
While it varies from place to place, I think you would be very hard pressed to find a FoF where pay is comparable to IBD. I would say, on average, you could expect 70k, all-in, including bonus. The job makes you understand HOW hedge funds work really well, but you don't learn how to invest or many skills that would be transferable to a HF role. While it is true that people lateral, it is usually due to the relationships you formed because you will be constantly talking to HFs. Don't expect jumps to top places though, IBD is definitely a more typical and (probably) more respected path to HFs.
I'm working in AM, though not FoF. So, this isn't coming from an IBD-centric person.
It depends how big the FoF is. FoF takes a managing fee based on the assets. The bigger the fund, the more the analysts make, and most FoF funds do not have many analysts.
What are some well known FOF's? How big should a FOF be in order to be considered decent?
Also, will working as an FOF Summer Analyst be a good enough of summer job on the resume if I want to apply for IBD full time?
Thanks!
Would love to know a name of a FoF that pays 120k all-in for first year analysts. I understand how fee structures work. It doesn't mean they're going to be giving analysts a huge chunk of it.
If you want IBD, it definitely isn't as good as IBD SA experience. The FoF would probably set you up better than the "boutique" consulting company though.
anyone in hedge funds?
I'm start as a first year analyst next week.
The picture reminds me of Space Invaders.
I know someone starting as a BB Hedge fund of Funds analyst. He gets 60k base + 20-30 bonus. Also I think it is normally a longer time commitment than banking. He signed a contract for 3 years. Exit ops are mostly to hedge funds.
To hedge funds as... what? A marketer? I have never met a young person who moved into an analytical role at a good hedge fund from a fund of funds. So many ambitious people are math geniuses, investment bankers, traders, private equity associates and other such things of higher relevance to the day-to-day function of an investment analyst... why would a reputable fund hire somebody who essentially spent a couple of years looking at marketing materials for other hedge funds?
are FOfs (even reputable ones) really as useless as EricJM makes it out to be?
i agree with EricJM, HFOF is really boring. you look at marketing materials and interview HF managers, that's about it.
Well that's really sad to read - I hope I get a more meaningful experience...I'm a college junior going into a fund of funds for my summer internship - how difficult is it to then recruit again for IBD full time without having had any direct banking experience?? Thanks guys for your pretty candid responses
I'm starting as a 1st year FoF analyst later this summer. Fund is a little under $1B. My salary is 60k, although I'm working out in CT not NYC which is slightly annoying. I'm not sure what size bonus to expect. I interned there last summer.
When they sold me on the FT job, the argument was essentially: "Do this for a couple years and get an overview of the whole financial system. Figure out what you want to do specifically, then go get an MBA and do that." I thought that made sense.
I asked if I should really be focused on landing an IBD job "like everyone else". The answer: "Why be a slave as an analyst if you can enter as an associate after your MBA if you still want to be a banker? (When you can be a slightly better paid slave.)" I thought that made sense too.
I doubt that after 2 or 3 years I'll be jumping into a hedge fund--or will have the same opportunities as someone from IBD--but that's not really the game plan. I've always planned on going back to get an MBA, and that (from the right school) is going to leave plenty of opportunities, be they back in the FoF business, or somewhere else.
(On a side note, I disagree with the job being boring. Sure, some stuff isn't great, but all jobs have that. That's why they're called jobs. And listening to managers justify their decisions is really, really interesting. It's like Jim Cramer talking about the market except the guy I get to talk to, and ask questions of, is making $100m a year. If you don't think I'm learning anything from that over the next few years you're crazy.)
I can confirm the salary numbers mwgr5 posted. It isn't as bad as Eric makes it out to be. FoF non-marketing employees do some of the following: 1) Make sure all the financial controls of an invested hedge fund are proper. I realize this is broad, but basically they make sure the books are properly kept and the promised strategy is actually being executed. They are also in charge of making sure that the funds can be pulled if necessary, without major damage to the positions.
2) Pick strategies. This can actually be fun. You'll get to hear pitches from numerous managers. In many cases travel is involved.
Exit opps are definetly not as good as IBD or HFs. That said, you'll definetly be able to network with enough people to jump to a real HF. Even if the job is given to you solely for the purpose of kissing the FoFs ass. The MOST senior FoF people make low seven figures.
Information posted here is derived from a NYC BB. I doubt it is different elsewhere. Though the prestige of the firm probably matters more with FoFs in terms of exit opps.
what's the outlook for FOF marketing?
how is the hours like in bb fof?
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