Why Did You Choose AM Over HF?

joppo's picture
Rank: Senior Baboon | 210

Hi guys,

If we compare AM to Hedge funds, how does compensation structure, as well as compensation potential, differ between these two groups?

Which role is easier to maintain? Does stress differ much between the two?

Your views on the longevity of each role in the next 10/20 years..

What about AM enticed you to choose it over HF? All I would like are some opinions and experiences.

Comments (15)

Feb 21, 2020

Both the AM label and the HF label are way too broad, so anything I say will have a million exceptions.

But very generally speaking: your long-term success in HF will depend on your individual performance and your long-term success in AM will depend on a variety of other things.

If your life's mission is to generate alpha, and you're willing to put in a shitload of work to accomplish that, and tolerate the pressure of racing against thousands of other smart folks to seize opportunities that often disappear because you were a day too late, join a HF. Understand that a lot of HF roads lead to unhappiness if the alpha doesn't materialize.

AM is closer to a normal job where you do a variety of different things and work with a variety of different people and can have a long-term career without specific pressure on your alpha generation capabilities. Your upside will be lower but your downside will be much better protected too.

Now before any AM guys come at me with "I generate alpha too!" please re-read the part where I said there are a million exceptions. General questions get general answers.

I've long said on WSO that the AM career label is overbroad to the point of being useless.

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Feb 22, 2020
PteroGonzalez:

I've long said on WSO that the AM career label is overbroad to the point of being useless.

I agree with this. Technically speaking, HFs, PEs, hell even a regular corporate are all in the field of managing assets on behalf of other people.

Most Helpful
Feb 21, 2020

I've worked at a $5B+ HF and a $500B+ MF...

Comp potential is higher at most HFs but so is comp volatility. MF comp is more based on multi-year alpha generation rather than that year's performance.

The MF role is easier to maintain and generally lower stress. I also believe that a large MF will present superior longevity versus most HFs.

I chose MF over HF because of the investment philosophy which promotes thinking more like a long-term owner of a business. Rather than trying to find stocks that will go up next week, I try to find companies and management teams that can allocate capital in a way that can compound value over 5-10 years.

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  • Senior VP in HF - Other
Feb 22, 2020

Good insight. HF salaries/comp too varied to find averages and to your point have more volatility. I'm curious what you've seen in term of both salary/total comp progression at MF. I'm not talking jr level rather Sr. Analyst and up? Do you know if this varies by asset/strategy - equity/high yield or by sector growth/value?

Feb 22, 2020

There are generally two main drivers of comp - the AUM of your geography/strategy/etc. and your alpha contribution. If the majority of AUM is in US equity, then it's logical to assume that the US analysts get paid more than international equity or domestic fixed income. That's simply because AUM drives the bonus pool in a management-fee model like a MF. Your individual alpha impact will then determine the difference in comp between you and your peers within the same group.

At a post-MBA analyst role at a top MF, comp will generally scale to mid six figures within a few years and likely hit seven figures in 5-7 years, assuming solid performance and growing AUM.

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Feb 22, 2020

Agree with everything above however want to point out as well a lot depends on your strategy.

As you know active management is under pressure, so while the longevity of specific roles in an an asset management firm are reliable, the amount of these roles will face pressure as the industry continues to pile into passive management.

Meanwhile hedge funds have more volatility but if they are mega fund level (I.e. a DE Shaw, citadel, Bridgewater) - arguably the competitive advantage is there.

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Feb 22, 2020

If you mean long-onlys (though MFs start to have L/S products), AM firms are much more stable. HF is such a broad term that is hard to generalize. Some HFs are just structured that way but really employ long-term oriented philosophy that focuses on quality of a business and buy it at a reasonable while on the other extreme, the multi-managers all think alike and trade around the quarters based on their view of any rate of change / events.

AM people tend to be nicer and more humble (because of the long-term orientation) while some HFs are filled with ex-Ivy League athletes who have not even seen one bear market and think they rule the world. HFs compensation definitely has higher upside.

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Feb 22, 2020

HFs tend to overperform AM firms in bear markets, so your comment about the bear markets is misleading.

Clearly you have a trauma with HFs. Did a HF employee fuck your mummy?

Array

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Funniest
Feb 22, 2020

Monkeys - this is Exhibit A of an HF asshole ;)

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Feb 22, 2020

Sadly yes, that employee is my dad.

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Feb 22, 2020

Yes and no. Its misleading in that a HF tend to our perform. While said with a bit of a salty vibe, its definielty true that people that graduated 2007-09, or later, and entered the buyside 2009 and later, so having up to 10 years of experience with some in decent mid-career seats, have never seen a real market turn. Setting aside how HFs as a whole perform (often led by PMs that have experienced multiple cycles), not having been through a market cycle and knowing how to manage said cycle is totally different than participating in one of the biggest bull markets ever. Its a very fair criticism of pretty much everyone early 30s and younger. No doubt some will continue to do well in a down market but many will get blown out and/or experience a whole new kind of stress. There is a reason real money LPs stress long term and multi cycle returns when doing diligence.

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Feb 23, 2020

Surprised that people are saying AM for longevity. As noted above, there is tons of variance in both fields but for the purposes of this post, I'll refer to HFs as market neutral L/S (yes I know there are a ton of levered beta "HFs") and AMs as your typical large cap growth long-only.

If we assume that passive investing is the largest risk/competition to active management, it's unclear to me why an LP would choose an AM overweighting APPL by 50 bps vs. an index while a market neutral HF is legitimately offering a differentiated, uncorrelated product that should supposedly produce steady returns over a full market cycle (which to my knowledge, LPs prefer). Of course, this assumes one can produce "real" alpha by being market/factor neutral, which is a lot easier said than done.

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  • Analyst 2 in HF - EquityHedge
Feb 23, 2020

Have you even worked at a LO/ HF before? Equity market neutral strategies offer perhaps the least career stability / visibility out of all options out there. It is also losing capital at an incredible pace unless you are a mega MM platform. You don't see many SM shops doing this stuff anymore.

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Feb 23, 2020
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