Size matters, but does performance? Large activist funds ;)

Elliott, Third Point, Starboard, ValueAct. All have billions under management, and run pretty lean (to the best of my knowledge). Let's take Elliott for example: what like $70+bn in AUM, and put up ~13% last year (good given their size, but not top notch long-short good). I never really understood what makes a seat at Elliott so coveted. They're a huge fund, but the returns are OKAY, and sure I guess there are a few number of investment professionals (if that's even true). But the Elliott analysts and PMs are smart, and are capable of working at better performing and higher paying shops. What can a PM or analyst at Elliott rake in during a "good" 13% year? I feel like that number is no where near what that same PM/analyst could rake in at a tiger cub. Elliott turnover is really low from what I hear, which says something I guess, but I'm still confused. IDK, just my 2 cents. 

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Comments (17)

Mar 31, 2021 - 1:02am

It's much easier to invest smaller amounts and deliver high IRR....  13% is nothing to scoff at given how much they are managing. 

  • Intern in HF - EquityHedge
Mar 31, 2021 - 1:58am

but the point is even though that is objectively impressive on a 70 billion asset base, why don't LPs pull money from these funds when they get so big that they can't really put up their previous 20%+ numbers and returning 13% becomes a very difficult accomplishment?
especially given a lot of these funds (e.g. tiger) have very high beta/factor exposure so the 13% isn't uncorrelated like what citadel/MLP are delivering

if you want market beating returns and are fine w somewhat high beta/drawdowns, seems like you would want to allocate to funds w a few billion w strong performance on good trajectories instead 

is it just a problem of incentive alignment (ie no one gets fired for maintaining an allocation w elliott/tiger global and allocator career time horizons are much shorter than that of their endowment)?

  • Associate 1 in PE - Other
Apr 6, 2021 - 12:17am

I see your point, and am curious about this as well. Though, consider the fact that if those 20% funds you described gain an additional 2, 5, or 10 billion in AUM, they likely won't be returning 20% anymore. 

  • Research Analyst in HF - EquityHedge
Mar 31, 2021 - 2:58am

13% Elliott return is uncorrelated... they have 2 or 3 down years in history.. most concentrated L/S are not, and thus required rate of return (and volatility) is higher. Tiger Global and most of the other large Cubs have put up 20%+ returns over the past few years. Elliott is a good gig because (1) pays well, (2) is very stable and (3) track record of promoting high performing analysts to PM 

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  • Associate 1 in IB-M&A
Apr 2, 2021 - 8:16pm

iamironman99

How much do you think an analyst and PM made at Elliot in a 13% year like last year? I feel like the analysts at Tiger Global, Lone Pine etc are just as talented as the Elliott guys, but are compensated much more generously. Is this false?

No one here will know. I doubt even the people at Tiger and Elliott know how much their peers are getting on a like-for-like basis so not sure what you're looking for. Someone to say their friend got paid $1.5m at Tiger versus their other friend at Elliott who only made $1.2m? I'm sure they both pay the people who are making money very well. 

  • Analyst 1 in HF - EquityHedge
Mar 31, 2021 - 8:31am

Ignore the others, elliotts returns have been dog shit recently. 13% is a decent year but still they are a clear example of an lp trap where people leave money with them cause ~prestige

On the other hand working there is incredible, probably one of the best funds you can possibly work at.

An important thing to realize is that the best fund for lps is the not same as the best fund to be a gp at. This definitely has changed a bit over the years, but I imagine it will still be quite a few years before lps get smart enough to create an efficient allocation market

Mar 31, 2021 - 9:25am

You've made the cardinal sin that returns means better fund. It's important to remember not all LP's aren't looking at absolute returns when picking a fund to invest in. Without knowing Elliots' full investor mandate ie what they promise to deliver to clients then you can't possibly comment on whether they are doing well as by definition if they are keeping to the mandate they told their LP's then why on earth would they leave. If there mandate is to deliver SP500 like returns with half the vol and the LP's are happy with that type of IRR for that level of risk then they'll happily park their money there. Of course some are just attracted to the name given that its familiar and well known however most LP's aren't idiots and would take their money out if Elliot weren't sticking to the mandate. To assume performance is the sole drive when allocating capital is almost as silly as saying a fund with more AUM is better than a smaller one IMO

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  • Associate 1 in IB-M&A
Mar 31, 2021 - 9:31am

There are always going to be people who want exposure to certain strategies. For someone who wants exposure to activism and more event stuff - Elliott would be pretty high on your list of funds. Like above mentioned, I'm sure there's a lot of sticky capital so long as they don't blow up.

As to why someone would want to work at Elliott vs Tiger - who knows? Some people might not actually like investing in growth/tech, maybe some people don't have the right background for Tiger, maybe someone thought they wanted to do event-driven post IB and then got stuck in that space, maybe someone got lucky and Elliott was their only offer. Just so many reasons and the number of seats are too low to generalise anything in my opinion. 

  • Works at Citadel Investment Group
Mar 31, 2021 - 11:52am

This was mentioned above, but it seems like people are very confused on what a hedge fund is supposed to do - the word 'hedge' is right there in the title, i.e. returns should be uncorrelated with traditional equity/fixed income markets. If a fund can return 10% year after year with a ~0% correlation with the S&P, that's an incredibly impressive feat and will have LPs drooling.

I'm sure someone will respond with the question 'wElL thEn WHy dOn'T inVEstoRs OnlY InvESt in pRivAtE eqUItY' if you look at PE returns, the industry is essentially a levered bet on equity markets - the opposite of what I mentioned above. Great for some investors, but completely different return profile than (most) hedge funds.

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