Start up hedge fund or good long only?
Hi monkeys,
Currently I'm a junior analyst a L/S hedge fund in the states but plan to move to Asia due to family reasons. Now I got 2 offers:1) A start-up HF, launch with 150mm AUM. The fund is a subsidiary of a top tier fund and majority of the AUM is seeded by the parent fund. PM does not have a relevant track record as he will be operating a new strategy, but he was good with his previous strategy. PM responsibility is up to the fund's growth and my performance.2) A prestigious local Long only fund, the team manages 12B. Track record has been good. Clear path to PM.Pay wise, the start up HF pays higher base salary. The LO has historically pays 1x base salary (or can be as high as 2x in 2020) as bonus thanks to its large AUM. So total comp can be higher if the HF does not perform well. But if the HF fund ramps up, there should be much bigger upside.UPDATE: HF guided parent fund to pay bonus part as long as the performance is above market so total comp in HF is 30%-50% higher. Reputation wise, the parent company of the start up fund is better than the long only fund. So even if the fund fails, probably it won't be too difficult to jump to another HF. Which offer should I pick? Not sure if I should bet on the start up HF. Any advise will be highly appreciated! Thx everyone in advance.
Number 2, every day of the week
- $150m AUM is nothing, my guess is they won't pay you much at all unless AUM grows quite substantially from here
- PM does not have his own track record?? So you don't know if the guy is good, and to grow AUM he/ she will have to establish a track record that is credible to institutional investors. So probably no asset growth (and so no pay) for several years, and you are basically gambling if they are a good investor or not?!
- $150m funds fail/ don't scale all the time. Base case is probably that it folds and you are out of a job.
- Not sure how easy it would be to transition to a better HF from a no-name start up.
LO offer sounds a lot better -
- 12bn is a decent amount for a team to run in LO, especially outside US (US fund sizes often larger).
- Great track record - this is hugely important.
- Clear path to PM - not many jobs offer this nowadays, so is a big plus.
Only way first one is better is if for some reason you scale to $1bn+ and then the founder is generous to you (ie. doesn't just take everything himself). But then that probably won't happen, and if there is no track record this is more of a gamble from your side than a calculated risk..
Thank you very much. Appreciate the insights.
I think I need to clarify a bit - the start up HF is a subsidiary of a top tier fund (majority of AUM is seeded by the parent fund) with a new strategy. And that’s why I said he does not have track record bc he will operate a new one. I guess the likelihood of failure is prob low as long as the performance is okay. But there is risk that the fund won’t ramp up fast.
OK, that changes things a lot.
If he has a good track record from the previous fund in the same/ similar strategy, then thats fine. I would ask a lot around how quick AUM can scale if performance is good - you may find that the parent hedge fund agreed/ is likely to scale AUM fairly quickly if performance is good.
If his track record over career is strong, and there is some soft agreement with existing backers to scale AUM fairly quickly, it can be a decent gig. You probably won't get paid though as long as AUM remains at $150m, but can once it starts to scale.
I would say it depends on your risk tolerance/ who you like more/ if longer term you want to do HF or LO. But there are probably people on here more qualified to comment over the pros and cons of each in this particular case.
Number 1 easily. All day every day. You have the option to work for a well capitalized hedge fund and you're just considering it?? Where are your balls?
The hedge fund, has much more potential, pays more now, and even if it fails, you can easily move to another hedge fund given the prestige of the parent firm. Plus you're already in a hedge fund - if you move to a long only it creates negative connotations about your commitment to the industry long term.
Haha, thanks for your insights.
The HF does not necessarily pay better if the performance is not extremely good. They gave no guidance on bonus and I guess probably very performance driven and could be zero. The LO fund has been paying 1x - 2x base salary as bonus in the past, so actually quite completive vs many HF in Asia.
Another concern for me is localization - Asian markets trade differently from the US market. And investors there tend to rely on different resources like local connections. The LO fund has been operating for decades and has good track record so I can quickly learn how to invest in the Asian markets.
Someone threw monkey shit at me for telling the truth? I now feel like a true member of WSO!
Surely you cant expect to get paid well if you don't deliver. Asian markets are extremely different but a good investor can adapt to different markets. But the way you invest in a LO fund is different to HF, whether in Asia or USA or anywhere else. .Its your call: only you can appropriately price the risk premium of the fund vs the stability of the LO.
Thank you very much for your thoughts! Really appreciate it!
I chose #1 (well didn't get the offer for #2 yet), but you should choose #2.
Interesting. Any pitfall in #1? Or just evaluation based on risk/reward?
Go #2. In the public markets, longevity is the name of the game - getting a good seat at a decent LO is the risk-adjusted play.
Agreed on longevity. The LO fires 10-20% analysts and PM every year so prob hard to describe it as stable...They normally have multiple analysts cover the same stocks and pick the best ideas..
LO as if you make it to PM you won’t even care about the comp figures your speaking of now
Isn't LO PM making similar $$ as HF senior analyst?
On average the LO PM is going to make more; emphasis on average
LO PM’s can make 5M+ depending on fund size, strategy and the economics etc. I highly highly doubt and can almost guarantee a Senior HF analyst isn’t going to clear that
I wasn't aware of such a high $$ haha
LO. For HF option, at your level, you bear a lot more risk than reward.
Yeah, Right.
What if the all in comp 30% higher than the LO? Just got guidance the parent fund will pay the bonus part as long as we have an above market return when the fund is small.
Go with the LO.
My friends and I have all been pitched the sub $200mm startup HF many times and it's never been a path to 7 figures - you need all 3 things to align
1. The fund has to grow and perform well
2. You have to contribute to the fund growing + actually contribute materially or else #3 will happen 100% of the time
3. Once you have #1 and #2 concurrently, you hope the founder isn't an asshole and takes everything or reinvests the money to expansion - which is likely. And pays you your fair share.
1 + 2 + 3 happening at once is usually in the single digits.
Great points.
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