What to pay attention to when signing a contract?


Hi guys!

I am looking for advice here when signing a contract.

Graduated in 2019, didn't have a good resume, so currently doing an unpaid intern for half a year. Working in a small L/S hedge fund, but the fund has its issue with raising capital, so I understand there was not enough money to pay me. But last week my boss told me something is coming next month and I think we will probably talk about a formal employment contract soon. Just want to know what are some of the basics to pay attention to here?

I know I probably don't have any leverage to negotiate, but I have turned down some of the other offers (not hedge funds, wealth management) along the way and I have already worked for free for 6 months. My boss seems to be nice so far and I believe he's satisfied with my works. Wondering what are the things that would be on the table to be discussed? Which one is the most important that I should manage to insist on to protect my interest? Should I worry about things like non-compete agreement?

Comments (12)

Most Helpful
  • Investment Manager in HF - Other
Jun 22, 2020 - 1:39pm

What are you doing for the fund? Are you researching ideas and proposing them? Or are you more in a “back office” type role?

Things to think through:
1) signing bonus - will the fund acknowledge your work to this point and throw some money your way as a “thank you”.
2) base compensation - I think this is clear
3) bonus - depending on your role, what can you expect from bonus, will they give you a range or leave it totally discretionary? As much as possible I would try and get an idea of what this might look like, clearly in writing is best but that may not be possible
4) non compete - will the firm enforce one? If so will they compensate you during that period? If not how do they treat you being laid off/fired without cause? You generally want clarity on this, clearly getting advice from an attorney will make sense here, but you don’t want to be in a position where they let you go because of fund performance AND try to restrict you from working elsewhere. Also check if it is for competitors, more general (I.e. banks), or even extends to clients (doubt it if this is a smaller fund)
5) what do benefits look like
6) any other restrictions? Trading your account? Compliance? I imagine as an intern you are covered by a lot of this but just confirm

Of course read through it, have an attorney help if anything seems non standard. Basically read it, if you don’t understand something get clarify, if something seems non standard ask about it (forum, attorney, your firm), and make sure you understand what you are agreeing to.

  • Intern in HF - RelVal
Jun 23, 2020 - 10:55am

Thanks for the input!

Yeah I am an analyst so I research ideas and propose them. I have never really talked to an attorney before, but I think you are right maybe I should consult one this time when actually signing the contract.

A quick follow up: what is the mechanism to negotiate for my base compensation each year in general? Or does it vary by firms? Should I sort of have a grand plan for that at the beginning, so I could be prepared when my boss intend to raise/not raise my compensation/benefit/bonus?

  • Investment Manager in HF - Other
Jun 23, 2020 - 11:09am

Not sure if you are asking if you negotiate yearly increases now or if you are just asking in general how to handle negotiations on comp every year.

You definitely can’t negotiate any raises now (that would be very rare), most firms (outside of some exceptions) won’t give you in writing what raises will look like.

What I would ask about is what a career and development path looks like, what compensation along that path would look like, what future opportunities look like (invest in fund? Cut of PnL? Etc).

Negotiating for a smaller firm can be tough, in general I would say to look at market comparables, but the smaller the firm the harder that is (the “economics” of the firm become much more important). I will flag that in general firms that don’t pay and can afford to pay themselves AND don’t have agreements on what a future payout could look like if conditions improve, etc tend to be places that will undervalue you for long periods of time. You are working for free, while you are getting something from it (experience), you are at the mercy of your boss right now, they have no obligation to give you anything if they raise a ton of capital or have outsized returns, that is usually a red flag. I don’t know anything about the firm, but that would raise questions for me.

That being said I don’t know what your options look like and know very little about this place. For your employment agreement I would make sure to ask for a relatively standard base (do you think your firm will pay you at least what a first year in banking makes?) and probably benchmark to other opportunities you might have (banking, other funds, etc).

The risk is generally much higher at a HF so you also want to have the upside (so ask about payouts if fund outperforms), because if not you are taking on risk without any potential reward.

  • Quant in HF - EquityHedge
Jun 24, 2020 - 7:57am

To those working on quant strategies. How common is the below setting and are there any red flags?

  • Bonus is entirely discretionary
  • Not allowed to know the PnL and performance of the team
  • Not allowed to know the PnL of the strategies you developed or if it is even used at all
  • Not allowed to collaborate with teammates or share ideas with them, only with the PM
  • Investment Manager in HF - Other
Jun 24, 2020 - 8:58am

Unfortunately that is relatively common although not as much on the well known and larger funds (well known in that they have a good reputation).

The bonus part for a new hire is a bit of a red flag, top firms will give some guarantee or ranges around this.

Not seeing PnL overall is another thing I would be concerned about, that isn’t very common from the large funds I’ve seen.

Not knowing your PnL is pretty common at the places that are silos and that is many of the quant funds now a days.

  • Quant in HF - EquityHedge
Jun 24, 2020 - 9:21am

To be frank, this is most definitely not a top fund. It is a well known one, but neither top in performance or compensation.

I can understand the restriction on sharing the overall PnL (prevent poaching, investor and media relations), but why would they want to stop analysts from knowing if their ideas work?

Jul 6, 2020 - 12:27am

Quant in HF - EquityHedge:

To those working on quant strategies. How common is the below setting and are there any red flags?

  • Bonus is entirely discretionary
  • Not allowed to know the PnL and performance of the team
  • Not allowed to know the PnL of the strategies you developed or if it is even used at all
  • Not allowed to collaborate with teammates or share ideas with them, only with the PM

I have a friend who lives in the country, and it's supposed to be an hour from 42nd Street. A lie! The only thing that's an hour from 42nd Street is 43rd Street!
Jul 6, 2020 - 1:31pm
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