Why do Top PE analysts / associates go to Tiger Cubs?

I have noticed that most PE analysts / associates at top funds go over to the public markets side at firms such as Viking, Tiger Global, Maverick etc. etc. 

I was just curious if there is a reason for this? PE seems to be more stable than HF and in general is growing more while the HF space seems to be an industry in decline. 

Any thoughts would be appreciated. 

Many thanks. 

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Comments (33)

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  • Associate 2 in PE - LBOs
Jun 6, 2021 - 4:23pm

My .02 as someone considering the same (and so obviously this will be a biased answer) but had never really thought about HF before:

  • PE is not very intellectually stimulating for a long time: at the junior level, it is accounting, and at the mid-level, it is project management, two of the most unfulfilling tasks possible. In any other profession, these are considered gross. It becomes more fun at the senior level (sales) but that can take ~10 (grueling) years. The work in public markets roles on the other hand is much more focused on securities analysis, where less time is spent mired down in accounting trivia (based on the limited nature of public information) and there is little to no "process work" to be done
  • Additionally, people who are strong performers are willing to "bet on themselves" by entering the public markets - the inherent idea is that you feel capable enough to perform in the public markets, where performance is marked daily, and you can't spend 5 years with your positions underperforming. On the flip side, at many private investment firms, there are plenty of investors who, because of the nature of private fund lifecycles, can hide for a long time without actually having good investment acumen. And it usually takes spectacular blow ups for people to be forced out of their seats once at the partner level.
  • I don't think anybody seriously considering the move does so on the basis of compensation or speed to compensation. If you're considering a career in investing, you're going to be juuuuust fine no matter what you pick, and I think most people realize that. 

I think to myself: I can spend all day focused on generating ideas, testing them by building simple models, doing industry / supplier / competitor calls, and using my brain instead of just spreading data rooms and herding cats (advisors) all day? Yes, sign me up. I would do that for 1/5th of typical 2+2 1st year Analyst salaries. That actually seems like a decent job.

  • Associate 2 in PE - Other
Jun 6, 2021 - 9:09pm

You make a lot of good points, particularly the mark to market nature of public vs. private. To play devils advocate, there are a lot of public investing roles, across all fund types including Tiger Cubs, where analysts (including hired from PE) are not hired in an idea generation capacity or have P&L linkage. Analysts at plenty of hedge funds only process requests and run down ideas from senior analysts / PMs, or worse, just maintain and update models, for several years or until independent idea generation capability is proven. Lots of people also stay in public markets for longer than their prime with questionable investment acumen. Hedge funds can have their own ranks of partners, principals, etc. that can make career progression from analyst to PM difficult or impossible, not unlike any large PE firm or other business. The quickest path to the upper levels will either be at a MM or start up fund, but it seems you probably have more the MM model in mind. There is a lot to like about public markets vs. private investing, but there are also plenty of private positions that offer good career progression while being close to the action (via putting your own risk on ("owning" a position) or involvement in rapidly changing situations) which is what seem to be the most important job attributes you're considering. 

  • Associate 2 in PE - LBOs
Jun 7, 2021 - 9:45am

Very informative. Thanks. Can you say more what you mean about the belwo?

but there are also plenty of private positions that offer good career progression while being close to the action (via putting your own risk on ("owning" a position) or involvement in rapidly changing situations) which is what seem to be the most important job attributes you're considering

Jun 6, 2021 - 5:21pm

I think it also has to do with the recruiting model. Most of these funds recruit nearly exclusively from the buyside. If you are interested in making a move to one of these funds chances are you will go to PE as first step anyway

  • Research Analyst in HF - Other
Jun 7, 2021 - 10:30am

An obvious thing here others haven't mentioned is the salary. Look at funds like Lone Pine, where they have $1bn+ AUM per analyst, now apply 2 and 20 fee structure to that to see how much the average analyst makes... yup, over $60mm a year. Sure, this is not accounting for operational costs and the distribution would probably be top heavy, but it wouldn't be unfathomable for the new hire to be pulling in mid-seven digit salaries. Not to mention that the growth trajectory can be insane if you do good work. 

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  • Prospect in PE - LBOs
Jun 7, 2021 - 10:34am

A 1st year at Lone Pine does not make anything close to mid 7 seven digits. Are you insane? 

There are several things wrong with your calculations. The 2 and 20 fee structure does not apply to their full AUM. The senior Investment Professionals take the lion share of fees. Sure there is a ton of upside if you perform well over a few years there, but I think it's wildly misleading to say that the fresh new hire would be pulling mid-seven digit salaries in their first year. In either case, I do agree that the upside at a place like Lone Pine (all else equal) would be better than your standard MF PE job. 

Jun 7, 2021 - 10:46am

"A 1st year at Lone Pine does not make anything close to mid 7 seven digits."

Do you know this for sure? Have you talked to any Lone Pine analysts? Guy from the thread below was making $1mm+ at an unspecified L/S by age 25. Top tiger cub hires tend to be closer to 30 like the prev guy said, so to pay them top competitive salaries, it would likely have to end up somewhere in the low to mid $mm's. If you have hard evidence though I'd reconsider my position.

https://www.wallstreetoasis.com/forums/qa-hf-analyst-5bn-fund-breaking-…

  • Analyst 1 in IB - Gen
Jun 7, 2021 - 6:13pm

Ok but here's the thing. Last year, Lone Pine was a $40bn fund that was up 25%, with only 10-15 IPs. If the ~7-10 analysts (not the 1st year ones, but even them you could make the case) at a $40bn fund up 25% didn't get paid $1mm last year, then they would leave to a place where they would, as that would be absurd. And the thing is, they're not leaving, as Lone Pine has extremely low turnover. Lone Pine has like $27bn in public mkts, maybe 2bn of that is Mandel's, so call it $25bn. If they're up 25%, apply 2 & 20 fee structure, and carry pool is $1.25bn. Not so unrealistic for an analyst to make $1-2mm and an MD to make multiples of that...

Like what do you expect this is arguably the greatest fund out there, analysts are going to make 7 figures in a good year if they perform well, that's how it works there and that's why everyone wants to work there

  • Associate 2 in PE - LBOs
Jun 7, 2021 - 11:33am

Is there a real distinction between general top fund compared to a tiger cub? How would a big lean fund that is not a tiger cub compare? Think third point, soroban, darsana etc. 

  • CEO in IB - Ind
Jun 8, 2021 - 2:46pm

I can't believe someone in the industry actually asks this. Any reputable public markets firm blows PE out of the fucking water by a huge margin. PE as an asset classes is completely ridiculous and I would not put a single dollar into this. The illiquidity and waiting game is beyond joke.  MAYBE if you have an access to top deal flow. But even then, you wait, wait and wait. 

Juniors going to top HFs are among the smartest individuals in finance who noticed that being a PE modelling monkey can give you a brain damage instead of professional growth. Nobody cares about face time, politics, etc. at tiger cubs - performance is the only thing that matters. 

You are actually paid to think and execute, not dance around with bankers and copy paste files from data room to another data room. 

HFs are THE ballers in finance and anyone who is saying that PE is mOrE StAbLe aNd GrOwInG is, no offence, retarded.

  • Intern in IB - Ind
Jun 8, 2021 - 9:23pm

you clearly seem to have an extreme opinion on the matter. In response to your point about why you'd want to allocate to PE vs HF: a) PE outperforms the public markets (including HFs) on an IRR basis and b) LPs in PE are generally endowments and pension funds that have longer time horizons, so the waiting game isn't an issue. Maybe it is a negative for high net worth individuals. 

Plenty of analysts at HFs that basically do grunt work for their PMs...maybe not dataroom B/S, but you're not calling the shots early on anyways. 

The exciting thing about PE for me is that you have access to deals and companies that the public doesn't. You could still invest your own money into the stock market and generate more alpha than the best HFs while you're at it to tap into the HF skillset. There will be pros/cons to both industries and the only way to come to a conclusion is by taking into account individual preferences.  

Jun 8, 2021 - 11:07pm

I agree with most of your points, but would point out that the returns PE generates in excess of market returns can mainly be attributed to leverage: most PE (especially large cap) is just levered beta without the mark-to-market that would destroy a hedge fund running a similar strategy.

Big value add comes from operational improvements at the LMM level, but these funds tend to pay far less and are much less prestigious than the megafunds of the world.

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