What is the appeal of mega-funds?

Just out of curiosity, would love to hear people's views on this:

So many of us finance guys spend all their time worrying about getting into the top group at whatever bank so they can move to mega funds in private equity or big hedge funds, where the lifestyle can be close to if not just as bad as a banker's.

Personally, I always have seen myself ending up at a small fund with a few hundred million bucks under management...3-5 guys in a room, so to speak just slaying it with no bureaucracy. Outside of the 'prestige' and 'status', which no one outside of finance would even understand anyways, what is the appeal for you guys for ending up at a KKR or multi-billion dollar hedge fund in the first place?

Comments (24)

Apr 21, 2013

you might want to do some more research before you make complete bs statements.

large hf dont work anywhere near banking or kkr hours and bureaucracy is very limited.

    • 1
Apr 21, 2013
leveredarb:

you might want to do some more research before you make complete bs statements.

large hf dont work anywhere near banking or kkr hours and bureaucracy is very limited.

aside from making the assumption that some hedge funds work banking / kkr hours, OPs not really too far off, and his question is still totally valid. so chill out and dont be a dick because he grouped megafund PE hours in with large hf hours.

    • 2
Apr 21, 2013
snakeplissken:
leveredarb:

you might want to do some more research before you make complete bs statements.

large hf dont work anywhere near banking or kkr hours and bureaucracy is very limited.

aside from making the assumption that some hedge funds work banking / kkr hours, OPs not really too far off, and his question is still totally valid. so chill out and dont be a dick because he grouped megafund PE hours in with large hf hours.

Stick to corp fin man.

    • 1
Apr 21, 2013

Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.

    • 1
Best Response
Apr 21, 2013
BTbanker:

Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.

Something about the phrase "per annum" just ruins my day

    • 3
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Apr 22, 2013
BTbanker:

Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.

It's probably pretty close to the same salary and the fact that he is in Chicago means that his purchasing power is likely higher. Working for mega funds isn't nearly as glamorous as it's cracked up to be. A friend of mine who ended up going to Wharton did a year at KKR and couldn't stand it... one of the smartest kids I know, and he decided to start his own hedge fund with a few buddies from B school. He looks back on his year at KKR as a giant brain drain and said it wasn't worth the exhaustion for the pay. What you guys aren't understanding is that the culture of these places is to chew you up and spit you out to b school. Coming back to funds after b school is largely a crap shoot so many ex-Mega Fund guys end up jumping ship to smaller funds as Senior Associates anyway. It is similar to banking in that it provides you substantial opportunities afterward and massive credibility but ultimately, the lifestyle is pretty abysmal. I'm not saying that some people won't enjoy it and I'm certainly not saying it is an impressive experience to add to the CV, I'm simply noting that much of the allure is simply internet fanboi-ism and in the real world the "luster" fades pretty quickly and all that remains are the tangible aspects of the job. Some people love iterating models, working banking hours, and spending all their time in the minutiae. It is great training and will set you up for great opportunities in finance for the rest of your career, but it also bears a great cost, which many who have already been through the battering lifestyle of banking don't want to pursue any longer.

xoxo

Dirk Dirkenson:

Shut up already. Your mindless, reflexive responses to any critical thought on this are tedious. You're also probably a woman, given the name and "xoxo" signoff, so maybe the lack of judgment is to be expected.

    • 1
Apr 22, 2013
Louboutins and Leverage:
BTbanker:

Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.

It's probably pretty close to the same salary and the fact that he is in Chicago means that his purchasing power is likely higher. Working for mega funds isn't nearly as glamorous as it's cracked up to be. A friend of mine who ended up going to Wharton did a year at KKR and couldn't stand it... one of the smartest kids I know, and he decided to start his own hedge fund with a few buddies from B school. He looks back on his year at KKR as a giant brain drain and said it wasn't worth the exhaustion for the pay. What you guys aren't understanding is that the culture of these places is to chew you up and spit you out to b school. Coming back to funds after b school is largely a crap shoot so many ex-Mega Fund guys end up jumping ship to smaller funds as Senior Associates anyway. It is similar to banking in that it provides you substantial opportunities afterward and massive credibility but ultimately, the lifestyle is pretty abysmal. I'm not saying that some people won't enjoy it and I'm certainly not saying it is an impressive experience to add to the CV, I'm simply noting that much of the allure is simply internet fanboi-ism and in the real world the "luster" fades pretty quickly and all that remains are the tangible aspects of the job. Some people love iterating models, working banking hours, and spending all their time in the minutiae. It is great training and will set you up for great opportunities in finance for the rest of your career, but it also bears a great cost, which many who have already been through the battering lifestyle of banking don't want to pursue any longer.

xoxo

I'm guessing all post-MBA associates at PE MFs are BB IBD > MF PE > T3 MBA.

I understand that pre-MBA associates don't make as much as people think, but what's the comp progression for a post-MBA person?

Apr 23, 2013
Louboutins and Leverage:
BTbanker:

Ask a guy who's doing lower MM PE in Chicago what he makes per annum, then ask a KKR associate.

It's probably pretty close to the same salary and the fact that he is in Chicago means that his purchasing power is likely higher. Working for mega funds isn't nearly as glamorous as it's cracked up to be. A friend of mine who ended up going to Wharton did a year at KKR and couldn't stand it... one of the smartest kids I know, and he decided to start his own hedge fund with a few buddies from B school. He looks back on his year at KKR as a giant brain drain and said it wasn't worth the exhaustion for the pay. What you guys aren't understanding is that the culture of these places is to chew you up and spit you out to b school. Coming back to funds after b school is largely a crap shoot so many ex-Mega Fund guys end up jumping ship to smaller funds as Senior Associates anyway. It is similar to banking in that it provides you substantial opportunities afterward and massive credibility but ultimately, the lifestyle is pretty abysmal. I'm not saying that some people won't enjoy it and I'm certainly not saying it is an impressive experience to add to the CV, I'm simply noting that much of the allure is simply internet fanboi-ism and in the real world the "luster" fades pretty quickly and all that remains are the tangible aspects of the job. Some people love iterating models, working banking hours, and spending all their time in the minutiae. It is great training and will set you up for great opportunities in finance for the rest of your career, but it also bears a great cost, which many who have already been through the battering lifestyle of banking don't want to pursue any longer.

xoxo

Thank you for the very thoughtful and informative comment. It concurs with what I have seen and heard from colleagues in the industry.

One benefit of being at smaller firms over the mega funds is that, for the more senior hires, it is possible for one to participate in the fund's upsides via profit shares/carried interests in a much more meaningful way than at larger firms. This makes sense as fewer partners and personnel mean that there are larger slices of the pie to go around, even thou the overall size of the pie is considerably smaller.

This is largely dependent on the corporate structure, culture and personal preferences of each firm's senior management so it may not apply to all firms equally.

Apr 21, 2013

the deal flow?

Apr 21, 2013

Some people want a chance to work on gigantic deals at mega funds. Small PE funds in Lincoln Nebraska aren't working on the buyout of Dell.

Apr 21, 2013

In general,I'd say the reason someone would want to work for a megafund is about the same reason someone would rather work for google than a startup: more name recognition, less chance firm ceases to exist, better pay, better exit opps, larger projects.

There are also benefits to a small firm and I think small HFs aren't really comparable to startups but still, I think the comparison is okay.

I am not trashing small funds I have no desire to work for a megafund but I think those are the reasons you'd likely find.

Apr 22, 2013

cause most people like to say they're a BSD...

Apr 22, 2013

So, the only points that make sense to me so far are job stability and resume recognition. In my view, compensation on the buyside is a function of being good or not. If you're a beast stock picker (for HF at least), funds will compensate you well regardless of 500M under management or 2B...

I'm sure KKR salary is nice, and I'm sure it's great telling your friends you worked on the Dell buyout also but like above mentioned, is it worth the cost? To each their own I suppose.

Apr 22, 2013
sofa king smooth:

In my view, compensation on the buyside is a function of being good or not. If you're a beast stock picker (for HF at least), funds will compensate you well regardless of 500M under management or 2B...

a) Even in a hypothetical world where comp were perfectly meritocratic (pro tip: it's not), a $2bn fund is going to be able to put more capital to work in an idea and generate more revenue for a given return all else equal. A big part of the appeal of hedge funds is that the business model is pretty scalable.

b) It's rare that analysts come straight from banking and start swinging around their own positions-even at the leanest funds there's still at least some amount of apprenticeship under more senior analysts, PMs, etc.

Apr 22, 2013

Bigger funds can and do have better pay structures. Obviously, your employer can pay you more if he's collecting 3 and 50 instead of 2 and 20.

Apr 22, 2013
justin88:

Bigger funds can and do have better pay structures. Obviously, your employer can pay you more if he's collecting 3 and 50 instead of 2 and 20.

Sac really needs the 3 and 50 tough given they have one of the worst aum per head ratios of large funds. SAC is also a bad example cuz it's an extreme outlier and because they make mostly their monies through cheating.

I can see much more of an argument of mf vs mid market (especially if its larger mm shop that pays nearly the same with much better hours) in the pe space.

On the hf side large funds at the entry level will pay better with only marginally worse hours, you get the brand have no fund blow up risk and are sure your pm is somewhat good at what he does.

Smaller funds are interesting if you have experience cause there's more upside if you and fund performs. At junior level straight out of banking no one will let your run investment decisions (also ask yourself do you want to make investment decisions with essentially no idea what you are doing?), so you don't get that much upside and the fund can blow up your pm can suck and your stuck with zero brand name etc.

Apr 22, 2013
justin88:

Bigger funds can and do have better pay structures. Obviously, your employer can pay you more if he's collecting 3 and 50 instead of 2 and 20.

If anything I'd wager the weighted average management and incentive fees decrease as funds grow past a certain size, because they are more likely to offer discounts for very large commitments from institutional LPs.

The much relevant important factor is the increase in what the X and X0 are being multiplied by.

Apr 22, 2013

sofa king: You're overlooking the value of back-office support, which you won't get at your 3-5 person fund. I cannot overstate the value of having people dedicated full-time to all the BS issues like compliance and investor reporting, IT analytics, trade execution, PNL reporting, trade confirmation, end-of-month marking, fund-raising and investor relations, managing the database of all your trades, setting up IT connectivity to data providers, legal stuff, etc. Without a back-office team to handle all that for you, your 3-5 person firm will never find time to trade (or at least, not trade *profitably*).

And don't say "but I'll outsource all that to a hedge fund administration service like Northern Trust or Omnium" -- trust me, you can only outsource so much of that.

Apr 22, 2013
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Apr 22, 2013
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