Why do so many PE guys want to move over to the HF world?

Aside from the compensation uplift, I'm curious what is it that the PE guys see on the public side that they're not getting in PE? Do they want to move because they want to escape PE, or because they find the public side to be better? Can those of you in PE comment on what you dislike about your jobs?

Comments (40)

Jan 16, 2015

I would imagine that besides personal interest its the shorter time horizon of the following aspects:

- compensation development
- investment cycle / "pulling the trigger"
- being able to run your own money

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Jan 16, 2015

One thing I've heard from IB analysts going to PE who are interested in HFs is that it's much easier to go PE ---> HF than HF ---> PE, and going to PE first doesn't preclude you from going to a HF, so you get to do both/get additional optionality etc doing it that way

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Jan 16, 2015

Just a point of clarification, not all hedge funds deal with public investments - there's a lot more variability between the HF world than there is in the PE (as it's traditionally defined) world.

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Jan 16, 2015

Ya I have noticed a fair amount of guys (on linkedin at least) who have gone PE -> MBA -> HF or just PE -> HF

Jan 16, 2015

A sizable portion would have gone straight to HF post-banking if they were afforded the opportunity (most are not for top funds). The inherent optionality and structure of PE probably constitutes the remainder.

Jan 16, 2015

One semi-structural reason that I have been thinking about is just that there may be more career advancement opportunities readily available in the HF world (relative to PE). In PE, there are only so many deals to be done, which means there's only so much money to be allocated to PE, which means that from a structural perspective, there's a cap to how many senior guys at PE firms there can be. On the other hand, HF investment opportunities are much less restrictive, which means there's more money to go around and more spots open for promotion. Remember, even a "vanilla" L/S equity fund like Mike Burry's (known from the Big Short) got involved in weird CDS markets (though it's worth noting his investors got mad at him for it). I can't imagine a PE firm wandering that far from their mandate, even if it's a really good investment opportunity, simply because the role of PE is just that much more rigid. Of course, maybe I'm wrong, and I'm open to hearing other opinions.

Jan 16, 2015

It may not be the case that PE people suddenly realized they wanted to go into HF. HF recruiting is much more random (hire few spots on a need basis) and takes longer (weeks to several months) and therefore is a much more difficult path. Therefore, many analysts go the safer route and interview for PE b/c it is definitely more structured and takes few weeks at most and use it as a stepping stone to go into HF. Perhaps the interest was always there.

Why the HF world is more attractive? Many reasons, but some can be compensation, hours, less corporate bureaucracy, less transactional, and more freedom to operate within your area of competency (maybe) are some that people might find attractive.

Jan 16, 2015

After 5+ years in PE I attempted to make the jump to a value oriented highly concentrated strategy because I had gotten tired of the monotony of the PE process. I had been investing my PA for 10+ years along a similar strategy. Ultimately I ended up moving earlier stage PE/VC so that I could get involved in more companies rather than focusing on a few billion $ LBO deals over extended periods. Really a matter of preference but I think the skill sets are highly transferable.

Jan 18, 2015

have two friends who moved from MF PE to HFs, one straight from one to the other, another did SGSB in between. both said the work in PE was worse than banking, very into the weeds with companies far past the point where its interesting and into the point where it gets stupid. liked the idea of investing but wanted to stick to high level information about a company that is available publicly (i.e. HF) rather than getting involved in the useless minutiae associated with PE

This is just an anecdote from two friends; dont know about other peoples views.

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Jan 20, 2015

The main reason is because PE advancement requires a MBA and a $250k investment + 2 years + opportunity cost just to end up back in the same seat ends up being less attractive than a faster paced version on the public side which allows you to keep collecting a high paycheck and get up to the PM spot without bschool.

If 100% of PE firms promoted to VP & MD without an MBA, you will see PE ---> HF transition %'s decrease.

Jan 20, 2015

Having been on both sides both separately and simultaneously I would argue that it's a clear example of the grass always being greener on the other side. Neither biz model is perfect and there are markets in which both biz models are bad (current market is a decent example of this). PE is a lot easier to give up on, however, and I would say that the reason comes down to pace. Whether it's the pace of investment (there are tons and tons and tons of 2-3 year junior people who fail to get a deal done during their tenure despite working 100 hour weeks), or the pace of the career progression (it's like running in mud starting at the senior associate level and ending never), it's a track that requires a lot of patience and staying power. And then at the senior level, depending on how you're structured, it can be like 8 years from when you first hang your shingle to when you get paid your first dollar of carry.

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Jan 20, 2015

All great points above. The granularity of the PE process can be mind numbingly arduous. This ranges from 3 hour calls with tax/legal advisors to discuss structure to hundreds of meaningless iterations of a model. People often fail to realize that you can work countless hours for 3 months on a competitive deal process and lose the deal which is very disheartening. The length of time it took for me to monetize my carry was also much longer than it took for some of my HF friends to gain direct P&L responsibility.

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Jan 21, 2015

Just how much is it a "grass is always greener", though? Are the people who moved from traditional LBO shops to HFs happier now? Seems like if you move from PE to HF it is going to be hard to move back so you better make sure you like HFs.

Jan 21, 2015

Double post, sorry.

Jan 21, 2015

if you think your hours are better at a HF, think again - you'll work a little less (~70ish vs ~80ish), will still pull occasional weekends, and you'll be killing yourself over whether your investments are going to tank the following day. Comp is variable and varies with how well your group performs, and if you make bad calls you're out. It's not easy, especially if your investment horizon is short-term.

Like someone said earlier, grass is always greener. Either way, you'll become an ass in both industries, both in terms of personality and general outlook on life.

speed boost blaze

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Jan 21, 2015
torchic:

if you think your hours are better at a HF, think again - you'll work a little less (~70ish vs ~80ish), will still pull occasional weekends, and you'll be killing yourself over whether your investments are going to tank the following day. Comp is variable and varies with how well your group performs, and if you make bad calls you're out. It's not easy, especially if your investment horizon is short-term.

Like someone said earlier, grass is always greener. Either way, you'll become an ass in both industries, both in terms of personality and general outlook on life.

i missed my pokemon trainer

Jan 21, 2015
HFer_wannabe:
torchic:

if you think your hours are better at a HF, think again - you'll work a little less (~70ish vs ~80ish), will still pull occasional weekends, and you'll be killing yourself over whether your investments are going to tank the following day. Comp is variable and varies with how well your group performs, and if you make bad calls you're out. It's not easy, especially if your investment horizon is short-term.

Like someone said earlier, grass is always greener. Either way, you'll become an ass in both industries, both in terms of personality and general outlook on life.

i missed my pokemon trainer

clear truth - both options beat out being a deadbeat pokemon trainer training up a rebellious pikachu only to have its face smashed in by a 28 foot, 468 lb rock snake at the first gym a couple days later

pokemon facial reconstruction surgery is pretty expensive, ended up moving back home

speed boost blaze

Jan 21, 2015

Speaking for myself:
- Narrow mandate
- Very process-driven (in terms of sourcing deals -- there is no idea generation, everything is being shopped)
- Level of detail is excruciating
- Dealing with management is annoying as shit
- Annual audits/valuations suck (can't just take market prices)
- Overall a lot of banking-type BS

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Jan 21, 2015

I see a lot of words like "meaningless" and "tedious" from comments above. Have no experience in PE but just curious: do those PE shops really need analysts/associates working on those meaningless/tedious work for 80+ hours to be profitable? In other words, do those work really help PE make investment decisions/secure deals? Assuming you have enough resource to start your own PE firm, could you think a way to make your employee less miserable while keeping same performance?

I'm asking because this could be a real difference between HF and PE. HF analysts, regardingless in sweat shop or 7-6 hours, spend most time in research. Research could be done via modeling, meeting with sell-side/executives, on-site DD or simply reading reports.After research process, there is little work to actually execute the ideas. Managing the book is just another on-going research process (except at PM level)

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Jan 21, 2015

Does it matter? Being a PE associate will be a demanding experience, megafund or not. Even at MM funds you could be working 80-90 hour weeks during late stage deals (with no downtime, multiple streams of work that you help manage and you can't let any of 50 requests slip through the cracks). As a result, you spend most of your time organizing data room documents, running model iterations, updating request lists, reading through 100+ pages of legal documentation on whether you should rep to $10k or $15k of material disclosure agreements, rather than "thinking like an investor." I will repeat-the level of diligence you do on small items (e.g. a $100k accrual adjustment to EBITDA for a $500 million deal, a litigation issue from 2011 that caused a $10k increase in costs, and how does that get amortized over time and the tax implications, etc.) is pretty mind-boggling, and there's nothing like formatting and reading tons of lease agreements and expiration dates and summarizing them in a digestible way for your senior associate till 4am in the morning.

That said, I learned a ton as a PE associate, but the work is honestly not much better than banking (if at all)

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Jan 22, 2015
wso_user:

Does it matter? Being a PE associate will be a demanding experience, megafund or not. Even at MM funds you could be working 80-90 hour weeks during late stage deals (with no downtime, multiple streams of work that you help manage and you can't let any of 50 requests slip through the cracks). As a result, you spend most of your time organizing data room documents, running model iterations, updating request lists, reading through 100+ pages of legal documentation on whether you should rep to $10k or $15k of material disclosure agreements, rather than "thinking like an investor." I will repeat-the level of diligence you do on small items (e.g. a $100k accrual adjustment to EBITDA for a $500 million deal, a litigation issue from 2011 that caused a $10k increase in costs, and how does that get amortized over time and the tax implications, etc.) is pretty mind-boggling, and there's nothing like formatting and reading tons of lease agreements and expiration dates and summarizing them in a digestible way for your senior associate till 4am in the morning.

That said, I learned a ton as a PE associate, but the work is honestly not much better than banking (if at all)

Agree with this 100%. Life isn't always better on the buyside.

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Jan 21, 2015

Does it matter? Being a PE associate will be a demanding experience, megafund or not. Even at MM funds you could be working 80-90 hour weeks during late stage deals (with no downtime, multiple streams of work that you help manage and you can't let any of 50 requests slip through the cracks). As a result, you spend most of your time organizing data room documents, running model iterations, updating request lists, reading through 100+ pages of legal documentation on whether you should rep to $10k or $15k of material disclosure agreements, rather than "thinking like an investor." I will repeat-the level of diligence you do on small items (e.g. a $100k accrual adjustment to EBITDA for a $500 million deal, a litigation issue from 2011 that caused a $10k increase in costs, and how does that get amortized over time and the tax implications, etc.) is pretty mind-boggling, and there's nothing like formatting and reading tons of lease agreements and expiration dates and summarizing them in a digestible way for your senior associate till 4am in the morning.

That said, I learned a ton as a PE associate, but the work is honestly not much better than banking (if at all)

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Jan 22, 2015

Agree with the general sentiment above. If you are a deal junkie and enjoy the transaction process then you will enjoy PE. On the other hand, if you prefer to spend the majority of your time making actionable investment decisions then you will certainly find HF more appealing. You can get lost in minutiae of the PE process, particularly as an Associate. The Partners tend to spend their time on business development / deal origination / negotiation and only get involved with the big issues that arise during the process (there is always at least one). Meanwhile the Associate is supporting the Partner in all of that plus handling the mundane things such as a review of the Company's insurance policies to ensure they are adequately covered, or whether the Company any potential tax liabilities vis-a-vis state nexus.

Jan 22, 2015

Dupe

Jan 23, 2015

bump

Jan 24, 2015

The grass is brown everywhere.

"Now go get your f'n shinebox!"

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Jan 26, 2015

Great discussion on the pros and cons. Can anyone point out the comp difference between associate / senior associate level at a boutique PE shop vs. Hedge fund? Thx

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Jan 26, 2015
gknyc:

Great discussion on the pros and cons. Can anyone point out the comp difference between associate / senior associate level at a boutique PE shop vs. Hedge fund? Thx

For the 100000000000000th time, comp varies so wildly at the "boutique"/lower MM level that it wouldn't be helpful for people to start throwing out numbers.

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Jan 31, 2015

This thread has single handedly made me rethink whether I wanna do PE or HF

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Feb 17, 2015

I spoke with an analyst at GSIP a few months back when I thought I wanted to break into PE. He seemed to hate HF guys, sort of berated them saying they didn't work all that hard, etc. He even included his HF "friends" in his angry soliloquy.

Feb 17, 2015
nickstefanolay:

I spoke with an analyst at GSIP a few months back when I thought I wanted to break into PE. He seemed to hate HF guys, sort of berated them saying they didn't work all that hard, etc. He even included his HF "friends" in his angry soliloquy.

Sounds like he's jealous

Nov 11, 2019

He is upset that not everyone wants to work at the Goldman Sachs...

Feb 18, 2015

Isn't GSIP Goldman Sachs investment Partners, which is a large long short hedge fund?

Feb 18, 2015

direct private investment

Feb 18, 2015
nickstefanolay:

I spoke with an analyst at GSIP a few months back when I thought I wanted to break into PE. He seemed to hate HF guys, sort of berated them saying they didn't work all that hard, etc. He even included his HF "friends" in his angry soliloquy.

Sounds like he uses his job to make up for personal shortcomings. Any person that rips on someone in a comparable job because "they don't work all that hard" is a fucking idiot. As long as you are developing the skills needed to succeed in the future, extra bandwidth is the most important commodity.

"For there is nothing either good or bad, but thinking makes it so."

Feb 18, 2015

GSIP also operates a private investment side, I think minority deals. Although most people think of their public side first so it's ironic that your contact has such disdain for hedge fund analysts.

Also I was under the impression that this particular group is no longer called GSIP.

Feb 18, 2015

This particular fellow only analyzes private deals. He said it is more rewarding than public investing, which certainly given the amount of diligence that PE guys go through I can understand why.

His Linkedin profile has GSIP as the header.

Best Response
Feb 19, 2015

My take on this, i.e. why I chose HF over PE

1) Process: I'm at a long term value fund that runs pretty high concentration (i.e. we don't churn our book a lot), so there is rarely ever any time pressure. No rush to trade around earnings and plenty of time to work on ideas, which means very regular hours and no weekend work (unless I particularly want to read some filings or reports about a company I'm interested in, and that's in the comfort of my own home). In MF PE, you are constantly in multi-stage auction processes which are a frigging pain in the ass, because you have absolutely no control over the timing of the process, which is one of the biggest reasons why I hated M&A.

2) Efficiency: I think research in L/S value is generally more pragmatic, especially if you're a big believer in margin of safety. As long as you're comfortable with a big picture that has the potential to produce meaningful upside, and you've confirmed the downside protection in your position, it's all good. You don't get bogged down in bullshit details like however many bps you can save in various interest hedging scenarios on a myriad of financing packages that ultimately impact your IRR by fractions of a percent. I suppose that's the result of virtually all PE principals being ex-bankers though.

3) Versatility: I guess this only applies to L/S strategies, but I like that you can take views to (try to) make money regardless of whether the market is going up or down. I also dislike that the success of PE is somewhat dependent on how favourable debt markets are, just because that simply isn't within anyone's control.

4) Influence: Depends on the fund, but at some HFs, you can get involved in the idea generation process very rapidly, and you can also get P&L responsibility a lot faster than at a PE. In PE, especially as an associate, you still have multiple levels of people above you in the decision making process (which is fair enough since you're making very large, concentrated bets)

5) Creativity: In HF, you are free to generate ideas through your own process, since you have the entire equity market to play in (subject to sizing / liquidity parameters), whereas in PE, a large proportion of investments tend to be sourced, or at least influenced through relationships, which take time to build up. I'm not trying to shit on PE in this respect - there's nothing wrong with using relationships to source deals, but this is simply a factor that is more favourable towards HFs at the junior level.

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Nov 14, 2019
Comment
Nov 14, 2019