MM Analyst Comp
By analyst I am referring to anyone who is not on an explicit PM or Associate PM role where compensation is a straightforward formula
What do people expect? I'm a relatively senior PM, to the point that I am detached and always confused about what to pay an analyst with various degrees of experience that is not directly generating ideas and p&l but more doing operational tasks and directed research.
It shouldn't matter much if the analyst is not coming up with ideas directly? But assume the book is what I would call "successful" at a MM, that makes 50mm+ consistently with a 20% payout for the PM.
Can help on more senior related PM questions in return.
It absolutely matters whether they're generating ideas on their coverage, or just carrying out instructions.
As PM you should be looking to keep at least 50-75% of the payout, if not more. If you're looking to keep a senior analyst happy, I think paying them 50% of the payout on the P&L directly attributable to them is good. On a $50mm P&L year, where maybe their coverage was responsible for half the P&L (i.e. $25mm), and you get a 20% payout, pay them half that (i.e. 10%), on the $25mm, so $2.5mm. Again, that's if you want them happy.
If you're just looking to pay enough so they don't leave, it's something like between $1mm flat, to 25% of the payout i.e. $1.25mm using the numbers above.
If they're just following directions and can't tie P&L directly to names under their sole coverage, they're not in much of a spot to be dictating comp, and 500k is probably the ceiling you should be looking at. At this point they are more a commodity and should just be happy to be there.
Questions, if you're interested in spitballing: 1. What is your edge and why do you think your process deserves to generate alpha? 2. How do you think about evolving and adapting your process to market feedback over time? How do you differentiate feedback (successes / failures) that should be learned from (i.e. adjust your process), versus feedback that is just noise (i.e. ride it out, don't change your process)? 3. What steps can someone take to improve their fundamental business judgment? I've read that starting a business is one of the best ways to get that business sense in your bones. But that aside, what else have you seen that's effective? Reading lots of 10Ks without a focused strategy doesn't seem very efficient.
Thanks - can comment on 1-3
1) I think that PMs who claim to be big picture etc are generally frauds who may get lucky from time to time, but don't have consistent, repeatable edge over time. What it really means is staying engaged, disciplined, and obsessed with markets on a daily basis. My edge comes from making a lot of small decisions slightly better than the market - this compounds over time leading to sustainable edge in a market. If you are able to develop processes / formalize logic, you can get efficient enough to be able to do this competitively in multiple markets. Once you get to this point, you are able to have insights and biases on a big picture level that directs a coherent thesis and be more directional overall and within a market (i.e. take more risk). Guys who sit back and look for their elephant or try to pick some broad thesis without being in the weeds every day are lazy hacks and not to be trusted. There are a lot of these guys in the business and their marketability and path directly influences how long they stick around - It's the opposite of edge though. I don't really know anyone in the industry who has actual edge. What I mean by this is that no one is doing something so unique or incredible that you can't comprehend it, however there are vast differences in results among people playing a similar game. For example, what makes Mahomes a better QB than me? We both can go read defenses, run, and pass (even though I have never been a QB) - but he is just exponentially better than I am or could ever be through experience, practice, and natural ability. Trading is no different as measured in terms of sustainable edge over time.
2) The most important thing is to have strong Bayesian priors and a framework on why you should make money. Absent this or a flawed version of this - you are pretty screwed. This framework really helps in terms of determining whether your process was flawed or were you just on the wrong side of variance. If your process is flawed, you need to go back to the start and reconsider your priors and completeness of your framework.
3) This is pretty heavily intrinsic imo - judgment is a very difficult thing to teach and ultimately why some HF managers can make so much.
It seems like if they are in the 10% range of p&l - you should formalize it and have them as an associate PM running their own book and contributing some analysis to you - maybe you just replicate the trades in your book if you like them? I assume that they can run a book as L/S that isolates factors and makes the vol/beta/directional exposure appropriate or do they never get the diversity required to have an appropriate Sharpe as a stand alone portfolio, whereas the trade in your book would run more directionally with less similar hedges?
Also it seems to create quite a bit of inequality. Say one PM has 500mm and one PM has 1bn allocation. Does the analyst really get paid double for working on a book that is bigger because the PM is better and has been around longer?
Answer to your last question, absolutely yes there is inequality between analysts on large books and small books.
There are generous PMs and also less generous PMs. I guess I and the people I know have been beneficiaries of the former.
You are totally within your rights to think of it in terms of replacement costs because analysts are commodities and you the PM are running a business. But it only makes sense to pay that way if you think there is no loss from the friction of transitioning a senior analyst out and a new one in. Being a high contributing senior analyst on a large book can be more rewarding than going it alone as an associate PM with a low hundred millions book. It depends on what kind of team you want to have - you see some PMs with analysts who are content to stay with them 10+ years and you see others which churn through an analyst each year. Depends on the r/r you are offering them to stay with you versus take a shot on their own. Both are legitimate business models.
Might sound ridiculous to some but I know one without an explicit % deal whose PM paid him HSD millions on a great year they had. He said he deserved much more given his contribution. Take it fwiw.
Some of these numbers are bit higher than normal but I have seen analysts getting $2+ (with direct book responsibilities)
I’m 100% against the first reply. No chance in hell an analyst (especially not a fully independent one that you just leave and collect ideas from) should be scaling bonus comp in line with book size, USD2.5m is totally crazy as many PMs with smaller books don’t even clear that, especially at lower payout shops. It’s more absolute figures you should be thinking / not cut. If you’re the only person running a 1.5bn+ book (which is what I’m assuming if you’re clearing USD 50m+ of PnL consistently in a MM platform) versus other PMs then great, the cut you can take is much higher than someone with an analyst on USD 300m book in same space. So all about next best alternative. Don’t think any analyst, unless true superstar, should be clearing USD 1m+ at a MM platform. Unless your analysts basically run the book for you / sub-PMs that have ownership of portion of overall book, then makes sense to give up more as you can chill more on autopilot.
I agree with this. In order to get to 7 figures, you need an explicit carve out and associate PM deal. I am thinking more the variance from say 250k - 750k and what factors drive that.
Another way to think about this is that being your own PM is exponentially more risky (the vast majority do not work out, even after being an excellent analyst). A good entry level associate PM deal is 150mm AUM, 5% drawdown limit, 10% net payout. The risk adjusted EV of this should be a ceiling for senior analysts? Say you make 15mm p&L at 1 sharpe 10% vol and take home 1.5mm (A very good outcome). I think you can safely put a 50% discount on this to put the analyst ceiling at 750k maybe you can go up to 1mm with truly exceptional year and individual.
Totally. And someone to deliver USD 15m PnL on USD 150m book? Super unlikely. Think if it’s a “going through the motions analyst” / zero own initiative and just do as told probably tops out at 300k bonus (I know some on the forum might hate, but that’s reality). If not sub PM but constant significant value add / is proactive, just depends how much of a pain to replace the analyst but wouldn’t throw more than 500k. This is the level every analyst should be at anyway in terms of work produced. 700k+ reserved to analysts who you treat as a partner - debate everything from sizing, to book tilts, to way more nuanced stuff than just ideas, constantly challenges PM with great points and also brings you stuff on the regular when it comes to picks. So I’d say I’m in agreement with you on this.
This is incorrect. If you work at a real multi manager analysts are regularly clearing in excess of $1m.
BS
what's a "real multi manager"?
Only place where it’s possible is Citadel, but analysts there are not analysts, they run money and big money too at that. Not to mention it’s hardly a traditional MM shop.
I’m starting to get the feeling you’re not actually a famous trader
Of course if you’re managing a sleeve your pay should scale with the size of the book? Analysts that get 7 figure checks don’t require oversight, handholding or guidance except maybe on positioning and risk here and there. Do you think people just go straight from updating someone else’s model (analyst) to managing a team and a large book (PM)? No there’s an in between and there’s pay at all levels between the two. There is a type of PM that basically just serves as a ho between between the platform and analysts who basically are PMs but don’t have enough coverage or the confidence of the mothership yet.
It doesn’t / shouldn’t scale the same way if you’re an analyst not running a sleeve. If you run something if course it scales. If PM managing infinity dollars just because you update his models, don’t mean you get bigger bucks. If you start running some of that and deliver and part of the way you get comped ofc it scales. Honestly mate, just read next time.
As an analyst without explicit carve out I would say most analysts fall into 250-700k range. Any higher than most likely there are direct book responsibilities. A good analyst that's contributing ideas but not a partner or sub-PM I would say is pulling 400-600k.
A couple of questions:
1/ how many years before you felt comfortable starting your own book?
2/ when you started without supporting analysts and probably a small coverage universe, how did you stay within risk limits?
3/ if you were to start again would you still choose your current career (assuming you started in last 10 years), would you switch to quant / different sector / another industry?
1) I did associate PM after 4 years. I do not recommend that path, but I think there is some value in trying around 29-30 depending on your position and opportunities because you will get more benefit of the doubt and a second shot if you fail before 30. If you fail later on, you will have a black mark and there will be more questions around it / harder to get a second chance. Vast majority of PMs do not work out and survivorship bias is a real thing.
2) I think that you are thinking about risk the wrong way. There is never a trade that you should not do because it is too risky, if it is positive EV in the context of your book (not so highly correlated with things that are higher EV). The question is how much of it you should do and how it fits into your book. It is the same as saying that a slightly positive EV coin flip is not correlated to your primary income stream - the degree of the EV in your favor influences how much of your net worth you will bet on that flip. It is easy to stay within risk limits, you just take down position sizes. The real problem here is that if you have a small universe, you are flipping fewer coins, which forces you to have lower gross risk in the portfolio. There is no way around this, you just run lower VaR until you are able to scale and focus on your Sharpe. Diversification is the only free lunch in markets, but it takes a lot of effort to do successfully. The only other way around this is to dynamically adjust your portfolio and build in convexity such that you are increasing risk when things are in your favor and decreasing risk when things are moving against you - this is a pretty advanced skill but worth thinking about.
3) Exact same, but it was deliberate. Figure out what your personality/interests are, what things you are good at, and mold a style of trading that fits it.
This isn't that complicated. You should pay them $400-$500K depending on how much you like them and how much you want them to stay.
As for the other stuff, almost every decent senior analyst gets a straight cut of the P&L at MMs. Typically 9-12% of what they make on their carve out + some portion of the center book in their names. If you have anything less you are being screwed.
Changing narrative here a bit. An analyst that runs a carve out is not a typical analyst. Wouldn’t make sense to give straight cut on center, for carve out - sure. Even then probably double digit cut slightly too much for the analyst taking zero risk - when you share risk / GMV via a carve with the PM your a** is not on the line, so you’re getting a free option to make extra cash / build a track with a massive safety net.
When you say carve out, how do you think about structuring what they are allowed to do? If they are covering a sector, it needs to be neutral some variety of factors? The issue is when it is part of a larger book, the neutrality and hedges ideally are not in their sector.
What is your assumption on the net payout for the senior PM that 9-12% is going to the analyst covering the sector? I assume that the idea must be beta neutral in this context?
For an analyst that just runs down ideas, some of the numbers thrown around here seem kind of high. I'm at a SM, so I'm not familiar with how things work at MM. We run $bn+, and we pay our junior/mid-level analysts $250-500k.
The irony is that at single manager shops there’s more scope to rake in more at analyst level versus a MM, as opposed to less. Sub-500k sounds about right for most analysts (even that being high end ex super talents...).
The only place that always gives senior analysts carve outs with pnl cuts is Citadel. The rest of the MMs do not systematically do that, and even at citadel there are a lot of wrinkles. Senior analysts at MMs can make 7 figs, but it’s not as common as people on this board seem to think. And typically that only comes with 5 years of experience or more. Unless you are hiring somebody with enough experience to run a (sub) sector independently, you don’t need to offer a pnl cut and you’d be dumb to do so. That being said, anybody who can consistently generate $5m plus for the comp pool needs to be in the 7 figure range or they will likely be out the door.
Anyways, in the scenario the OP talked about...if you’re making 10m of comp pool and value your team, they should be taking home 1.5-3m total in aggregate assuming 3-5 years experience, and if they aren’t you can expect they’ll leave...which may be fine. Just comes down to whether or not you want to keep training new people. Honestly to some degree it doesn’t matter bc if you actually generate 50 plus consistently they’ll always have recruiters knocking on their door so the only way to get the ones you really want to stay to do so is by offering consistent 7 figs and potential to make 2-3, which you just may not want to do.
To be clear all of the above only applies for equity long short, which has seen massive pay inflation in the past 5-10 years.
I know a few teams that have that kind of PnL with a couple of analyst underneath that have been around with the team for 4-5 years. They are nowhere close nor will be close to 2-3m. The comp just doesn’t scale that way at MMs. Hell, more than half the PMs at MMs dream to consistently clear 2-3m.
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Citadel is not the only place to give sleeves. It’s the same people playing musical chairs between Citadel, Millennium, Point72, ExodusPoint, Schonfeld, Baly. When a PM jumps from one to the other they’re going to change just enough about their strategy as is required for the new firms risk limits. There is so much cross pollination - Citadel May be a leader in some of business processes and infrastructure (very arguable whether this is actually positive for an investment team member). They’re really not very different at all. I know a lot of people who have worked at 3 or more of them - Point72 seems to get the highest reviews from formers - I never worked there, but that’s my take from people who’ve been to all of them.
Citadel only place where you are technically an “analyst”, hence my comment. When you run a sleeve I just don’t think you’re an analyst anymore. Yes, plenty of people who run sleeves at all of the MMs.
This is quite different for quant though. I think definitely there is a pecking order there. But on the L/S side, Millennium is known for highest payouts, point72 has the most relaxed risk limits.
One thing I would disagree here with is that citadel and pt72 are infamous for running an overlay book on their PMs. Which means that if it looks like a PM is about to liquidate the platform will actively bet against you. Millennium doesn't do this.
Also, risk management at Citadel is very sophisticated, which means that they probably run at higher gross than the other platforms, though this generally translates to tigher risk limits for PMs.
Honestly, the chance of anyone getting hired at a MM HF and lasting over a year is so slim, it doesn’t even matter. I don’t care what you say, there’s such a big element of LUCK in this job, that having a long term career here is so unlikely (the PM your’re working for, your investment ideas ends up playing out , the economy shits itself and you get shit canned, etc)
Why would the economy matter at a market neutral find?
In a good economy and a bull market, you can still get shit canned. That’s exactly the point I’m making.
Someday when I’m a PM with few 30 year old, established guys running their surf-sufficient sector books under me, I hope that I’m able to convince them that 7 figure comp would be pipe dream - I just can’t tell what’s going on here - is it college kids? Is it analysts who don’t generate any value? Is it selfish but endearing PMs - why would you not expect well performing established analysts at the largest MMs to not clear 7figs in a good year? Why the hell would they work there if the that upside wasn’t fairly frequent in good years? When you see a 30 year old senior analyst with his own book and a wife and kids at a conference you assume he’s expecting to make $500k?
How many 30 year old analysts have a wife and kids and enough experience to get a PM or sub-PM gig? They are likely just starting on a sub-PM gig at that point or the next few years. If they are talented and mid-30s, but want to be an analyst and not take risk, they would be more in the 700k range I think. The majority of analysts are upper 20s and low 30 though.
What is their alternative and what would that pay? I think that is your answer
From what I've seen by early 30 years old most analysts who work at top teams at MMs have a bid for either a senior analyst w/ a carve at a place like Citadel, or for a starter PM seat at one of the other MMs. That's assuming about 4-7 years of experience. While the starter PM seats start at low allocations, there's usually a meaningful ability to get more capital quickly if performance is good.
So I personally haven't seen that many mid-30s analysts who have stayed with the same team at a MM for a long time unless they are pretty well-comped, mostly because I think every analyst thinks their downside is the same as running a PM seat (the idea that you're "protected" as an analyst is bunk - your PM can/will get blown out, and even if they don't there are too many stories of PMs who lose their temper and fire an analyst after several years). Most mid-30s analysts at MMs who are the poorly comped people seem to be people who haven't managed to hold a seat down for too long of a period of time and are looking for the next seat that will give them the asymmetric upside.
You’re still on about this book running thing. Nobody even mentioned on a sleeve you shouldn’t be getting 7-digits, you are for all intents and purposes a PM at that point and almost for sure pay expressed as a cut of PnL. But UNTIL then it almost never is and if you’re at a MM and an analyst not running a sleeve, you should not be pulling 7 figures 9 times out of 10 even in an amazing year unless you’re a career analyst at some big single manager. Once again, refer to OP.
The goal posts have moved, I believe we’re in the same page now. That said I do know guys who were under the guy who ran the sleeve and who got a LSD percentage of PNL and I had that as well, but I’ll admit that’s rare. I guess it’s just a semantics issue, we say people who are analysts at various MMs get 7 figure conk frequently and you say if they have responsibility for PnL you don’t consider them an analyst, I think we’re ok the same page
What is the logic behind firing ppl immediately when their book is down X%? Would it not be better to try and retain good talent instead of hiring someone new every year?
1) call me crazy but the logic for firing someone that loses money is so that the fund stops losing more money.
2) Stop-out limits need to be enforced so that all the other PMs take note and manage their risk prudently. Multimanager funds are built on a ton of leverage. If you let 1 guy be a cowboy with no consequences, soon everyone will become a cowboy and the entire model collapses like a house of cards.
It goes both ways. Take someone with an annualized vol of X% and an ex-ante sharpe of Y How many times in a period of Z days will they randomly be down more than drawdown limit of L?
Pretty easy to do the math. Depending on where you set vol limit, drawdown limit and period length, you can fire some very talented people for randomness in their return stream.
Sometimes they do keep around proven long term PMs who hit drawdown limits - as long as they can explain why, what happened and what’s changing and maybe offer a senior analyst sacrifice. The hard limit is so you can fire the decent/poor talent and you have the negotiating position to make whichever judgment is fit if top talent hits a drawdown. Also to remove emotion from the process
Two caveats:
1) The drawdown limits are usually at shops running tight nets or some appreciation for a form of factor neutrality (not always though), and drawdowns are typically on the risk allocation to your book. Some places you may not run 100% utilization on your gross $ / Vol line. To hit say a 5-7% hard draw on your line isn't comparable in terms of frequency to a 5-7% S&P draw down (again, if you're running tight nets and not full utilization). For instance, if you're running 70% utilization of your capital line, a 5% / 7% draw down is more like 7% / 10% draw on invested capital -- this is a pretty horrid result on a market neutral book. Different firms have different philosophies on this, and some have limits on the lower bound of utilization you can run (Citadel is known for this since they want to ensure managers aren't grossing down; MLP is known for the opposite w/ several managers not fully invested)
2) Again, different shops vary by philosophy on how hard of a rule a drawdown limit is. As others have suggested, there can be leeway with either tenure / good track record (and appreciation of risk model) historically, or the right rationale on the drawdown (again, provided it's not caused by some systematic abuse of the firm's respective risk model)
For 1), if you do not run 100% utilization your spare capacity will be rapidly taken and allocated else where so there is huge incentive to be fully invested. However, many PMs (esp. at MLP) still prefer to not run 100% to pretect their downside. Not sure what you mean by '5/7 draw down is more like 7/10 draw on invested capital' do you mean on preleverage money? It would be much more than that. 7% draw down on GMV will probably be like 8x that amount on preleverage.
What do you mean by grossing down?
they could retain people based on 'talent' but thats pretty subjective whereas PL is objective- if you're good at making money would you rather work at a place where you have to suck up to the right people to get paid, or get paid based on PL?
I have worked at multiple of the large MMs (think Citadel, P72, MLP) and I think what most people dont grasp is that the majority of PMs have small books and do not make any money. This translates into many analysts not getting paid anything other than their base salaries - if the total book prints nothing or negative there is no bonus to be doled around.
That said if you are lucky enough to be in one of the high performing, consistent money making pods, you will probably make in the mid to high 6 figures as a senior analyst. However those seats are few and far between at the big platforms.
I'm at a SM and this is really surprising to me. It just doesn't seem worth it if mid to high 6 figs semi-consistently is the upside. It's far riskier and more stressful than other jobs you could be doing in the industry at that age (VP in banking, PE, etc.).
I just don't see the r/r unless you really think you are going to be a consistently profitable PM.
Agreed, and a lot of analysts at MM are struggling to just keep a job.
Do you see a risk free path at your SM to be making 7 figures? From what I understand from my friends at SM, you need to have one of the senior guys who have been there for 10+ years to leave to have a shot at 7 figures. Doesn't seem very likely. People like to extol SM for their "AUM per head" but in reality most of the fees are pocketed by the founder and the founders inner circle. Coming in as a lemming you don't get much of that pie if any.
People on this forum seem to think everyone is easily making 7 figures in finance when in reality it is very rare to consistently make 7 figures. AVP at BB or a PE principal isn’t clearing 7 figures, probably closer to mid 6
You could argue given the current HF climate, staying at SM is a riskier move. Obviously there is better job stability but if your fund dies it will be much harder to find another job if you’ve never had experience of managing a book. At lease at a MM you have a clear path of managing money from day 1 instead of being under someone forever
I'm not sure I agree here. If you don't make money, you're getting fired (why would MM allocate capital to you? There's an opportunity cost). If u don't pay analysts, u have high turnover (analysts always know PnL and team's cut) and bad rep so it becomes difficult to hire more.
Whats the logic behind allowing that kind of distribution? Is the idea to allow the small non-money making pms 3-4 years of runway (assuming they don't blow up before that) to see if they can get it together and become a superstar, and if not then to cut them?
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