In the next decades which career do you think will be the most profitable on average on a risk-adjusted basis?
I'm curious what you guys think about this.
Hedgefunds: You see people saying that active management in public equities is dying as more and more people can easily access financial market and sophisticated tools. Also, ETFs. Although one could argue that because of all the dumb money, fundamental analysis will become even more important.
VC: Some say that as investment platforms such as republic, or fund raising platforms such as gofundme become more and more popular, a lot of VCs will become irrelevant if they cant add value other than capital. Not to mention that the best startups usually go to the top VC brands, leaving the bottom 90% of VCs competing for the rest.
PE: huge amounts of capital competing for few companies. Although you could argue that the situation is still better than in the public markets as there is probably many times more private companies than public companies.
PE or IBD are the best on a risk-adjusted basis. There's a fuck ton of LP capital that's desperate to get put to work and PE firms are hiring aggressively to meet that need. Combine that with locked up capital and substantial management fees and you've got a good living. The problem, of course, is how insanely competitive the industry is getting. Returns are going to go way down and there will probably be a decent contingent of firms that don't hit their hurdle rates and generate carry. You may see a shakeout somewhere down the line, but the reality is that the platforms are set up in a way that will allow their investment professionals to live very comfortable lives for a long time. If I were to choose a place to earn a very comfortable upper middle class lifestyle for the next two decades while making mediocre returns, PE is the place to be.
Bankers get paid on transactions which will always happen so they'll always be around. If you want to be relatively insulated from economic cycles / industry disruption, you probably want to be a banker.
HFs are existentially fucked. VC is very top heavy and unless you're at a top fund, you're also probably fucked.
I agree with your point on PE returns being pushed down in the future, but I dont know about VCs though. If you just think about the fact that most of the startup unicorns in the past decades came from a country with a population of 300 million (US) and compare that to the rest of the world's population, it seems like theres a huge opportunity still if you also take other geographies into consideration. You could argue though that going by this logic, the same could be said about PE too.
I'm also not too sure about your point about IB. IB is basically a sales job with some modeling that no one cares about since every PE is going to create their own models anyway. It just seems like an industry thats ripe for distruption. One the other hand you see companies going public through SPACs, and I can easily imagine a scenario in the future where companies will basically tokenize their shares and go public through an ICO.
Why are HFs existentially fucked? I feel like HF or sell-side trading get a bad rep here, yet your actually not just trading time for money like in IB, better pay than IB if you're on a good desk and the best comp:hours ratio in the game
hedge fund opportunity only compelling on risk-adjusted basis if you are at a strong brand name with job security (the job security element excludes most multi manager seats) - so basically large tiger cubs/single managers that do crossover stuff
that said, i really enjoy public markets & will likely stay here regardless of risk-adjusted prospects for the average investor - i think i am good & enjoy playing the game
Very interesting and thanks for providing your thoughts.
I feel like rising up in PE is much harder than IBD actually so IB maybe the move
I would put my money on banking as its transaction-oriented. In the last year or so, I have seen 100+ new PE funds pop up, everything from LBOs to growth/late venture, and the seniors / top PE funds are already starting to discuss future returns shrinking at their AGMs. I am seeing more and more funds using fund mgmt tactics such as line of credit to keep IRRs are historic levels.
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