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Aug 12, 2020 - 2:36am

While the number of analyst positions in PE is small, the number at HFs are even smaller. Outside of Point 72, D.E. Shaw, and Citadel, there aren't really any funds that take large classes (off the top of my head). Even Citadel won't put you in a true L/S role, the most fundamental you'll be in is a trading role that still requires some level of statistics skills to get through the interview. Most of the bigger HF names aren't hiring analysts (outside of Silver Point).

  • Associate 1 in PE - LBOs
Aug 12, 2020 - 10:59pm

Thanks. Could you elaborate on the Citadel structure? What about the folks in Asher, Surveyor, in positions where they put "L/S Equity" on linkedin?

Aug 12, 2020 - 3:11pm

There was a good post on this if you search for it. It was an AMA on someone who made the switch from UMM PE into a HF after a number of years.

Assuming one has been successful in PE and has moved up from Associate to Senior Associate/VP and then moves to a HF, there tends to be a couple of major reasons for the switch.

  1. HF and Public Markets move much more quickly. In PE, especially as deals get bigger, deals can take years to come together. That's why at some MF Associates leave their two year stint without having closed any deals. I think mid-level PE employees get tired of this cadence. At HFs and the public markets, it's a much faster cycle even in longer holding funds.

  2. I think some could argue that HFs have more of a pure investment mentality in the sense that all day everyday you're focused of generating investment ideas, thinking about investment thesis, using some sort of analysis to figure out what companies to invest in etc. In PE, I've found that as I've moved up the chain, I actually don't focus as much time on investing as one might think. Portfolio company management takes up a lot of my time, even as someone on the investment side. During deals, thesis is part of the process, but again, in big PE the strategies for PE are fairly limited and few are really novel. What that results in is that PE folks become great project managers during deals and honestly porfolio project managers after deals as well. Some people like this, others realize they'd rather be reading research reports all day and trying to identify Alpha in certain pockets of the market.

  3. HFs are more volatile, but you can make more money and much quicker if you're good. Imagine if you had been short the market in March and/or long in April/May when the Fed started intervening...If you were a PM that did research, got conviction around some plays either broadly on the market or even in a handful of stocks, you could be massively up on the year. Apply a 2/20 rule to the profits and who knows, it could be a multi-million dollar year. In PE, big money can be made, but it usually takes a lot of time, with carry vesting, hurdle rates, restrictions on distributions, share lockup, etc you'll need to be in PE for ~5 years until you even get carry and perhaps for at least another ~5 or so until you start receiving it. At a HF, I could have levered up and gone long on Tesla when it was at $350/share sold at $1600/share and I'd be retired haha, I'm being facetious, but you get the point.

I'm sure there are other nuanced reasons but investing focus and quicker liquidity tend to be some of the big reasons I see/hear.

Aug 13, 2020 - 11:38am

To the first point, I can attest deal closed in 2.5 years across two firms despite the long hours. It starts to massively eat into morale (see it with my colleagues too). Often a positioning issue, which would not be such a problem in a HF. You see people try to move lateral into a more active firm with multiple deals per year but this is not always a winning strategy.

On the 3rd point, absolutely correct. If there's no partner track and clear phased carry path you can kiss the big bucks goodbye, whereas in HF it is earned today, in cash+bonus.

Would also add that its more andrenaline led (high intensity) so for many who like competition, this fades in PE as you get more senior, whereas in HF's everyone is analyst or PM (i.e. no real benchmark other than alpha...).

Lastly, if you achieved the ivory tower of PE, the prestige whores amongst us will try to go for the other unobtainable goal, which is a HF. Won't be the case for all, but its again measuring yourself through logo's and "accomplishments" because that's what your world revolves around...since you don't have enough freetime to have a to do other things with.

LBO-modeling companies on a Corona-adjusted normalized proforma run-rate EBITDA basis since 2020.
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  • Intern in IB-M&A
Aug 12, 2020 - 11:02pm

Contrary to what people on here might make it sound like, most 21 year olds do not have a clearly defined career path when they graduate, and even if they do, the vast majority will deviate. People hype up the HF exits from MF analyst programs because it just shows the great optionality (either stick with PE or can move to a HF if you don't like PE), and you get to experience PE and then decide if you think it's a good fit or not. The same is probably true in banking to a certain extent, but buy side recruiting is such a shit show that I think it's just easier if you're already in PE

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Aug 13, 2020 - 7:21am

I think a lot of good points on here. The optionality point probably holds the most truth from what I've seen -- people like to do the GS > Blackstone PE and then decide either to join a Viking or apply to business school, and even post MBA may end up moving into a HF role. Essentially you're just adding 4 more years of work experience and delaying joining a HF from banking.

I don't think there is a huge overlap in skill set from public to private markets -- specifically, the PE process / structure of investing in privates is extremely different (way in which deal teams are structured, investment committee, etc). I also don't think the level you would enter at having done 2-3 years of PE is very different (if at all) from someone entering directly from IB. If you want to invest in public markets / work at a hedge fund, the best way to do this is to join directly from a bank. The vast majority of the top funds hire associates / research associates from banks, even the Vikings, Coatues, Tigers, etc of the world. They might only have 1 seat per year hiring, sure, but there is also probably 1/4 or less the number of people gunning for those roles (most mid-sized BB groups I've seen of 6-8 analysts have about 1 person looking to do HF recruiting, 1 person confused altogether and the rest all PE). PE as a process you can also sort of half-ass your way through, to some extent. Sure, you need to do some practice modeling, but a lot of the interviews are talking about why PE, deals (though less now given how early it is) and similar types of questions you've seen having recruited for IB. The job itself at a junior level also has a lot of similarities. The people I've seen succeed in HF recruiting from IB are absolutely passionate about public markets, have extremely well researched / in depth stock pitches and live and breathe markets (talking about L/S specifically), most of them trading in actual or paper accounts for a few years by the time they started as bankers. Seeing some of these candidates (who ultimately landed in roles at some of the aforementioned funds), was one of the quickest ways for me to realize that I wasn't recruiting for the right category of roles.

The reality as others have mentioned is that 22/23 year olds don't know what they want to do. PE is equally as prestigious and doesn't pigeon-hole you at all -- you still keep doors open from an MBA, corporate strategy, and other role perspective, so it is the best way to continue not committing to a career path while also not giving up any 'prestige' so to speak. When you're in banking everyone will tell you that HF will close doors, since the skill set doesn't necessarily lend itself to a broader set of roles; this is true and likely a big reason why so few bankers recruit for HFs, despite the compensation being about the same (or better) compared to PE and the hours generally being much better. I've seen loads of blow ups in HFs and people 2-4 years out of school scrambling to find a new role; this is particularly common within MM pods. It's less stable and the potential of that scares a lot of people (myself included). With PE on the other hand, you rarely hear instances of blow ups or associates being asked to leave, at that level, it is way more stable

Once people have spent a few years in PE and banking, they have a better sense of what they like and don't like and can be more comfortable moving into a HF role at that stage, with less likelihood of regretting it later on. They also are older at that point, potentially a bit burnt out of 70+ hour weeks after slogging for 4-5 years, and the attractiveness of a HF lifestyle (from an hours perspective) becomes even greater.

More of an aside, but in my current role, we have a small side-vehicle to invest in public equities (some of the LPs requested this, it isn't the core strategy), not very concentrated, few million per position. Watching life-long PE guys evaluate public stocks has really highlighted for me the difference in public vs. private market investors and the evaluation process. I can give you 10 examples of names we've worked on for 3+ months, done full diligence, 50 page memos, etc and watched the price double during the time we were "building conviction."

  • Analyst 1 in IB-M&A
Sep 1, 2020 - 3:07pm

Is this route of pe->hf as common as the typical going back to b school / lateraling to other pe firms. Have seen it talked about occasionally on wso, but not discussed much in person. 

Sep 2, 2020 - 2:10pm

Thinking through this as well right now. Curious if anyone knows - would a credit role at a MFPE shop (either public credit or private credit) provide the same optionality to L/S equity HF after a few years vs. traditional PE?

Sep 7, 2020 - 5:38pm

I went into banking because I could not find the correct public equities (fundamental L/S) role for me directly out of undergrad and banking was a way to defer decision-making. I then did PE because recruiting was literally 3 months in and I hadn't gotten any more clarity on how recruiting for L/S worked and so I elected to defer decision-making again. I don't think you learn anything in PE you don't learn if you are a good analyst in banking, so I think if I did it again I would have just waited until second year of banking and gone straight to public side

  • Senior Consultant in Consulting
Sep 9, 2020 - 5:55am

Sometimes I read on this forum that people want to go to top groups at PE (even at the analyst level) so they can exit to top HFs. Why does this happen? Why don't people recruit.

  • Principal in PE - LBOs
Sep 9, 2020 - 9:05am

If you could lay out two comparative distribution charts it would be very eye opening for many people on here.

1st set of charts: distribution chart of lifetime earnings, chart 1 PE, chart 2 L/S equity HF

PE -- would show that fat part of bell curve sits somewhere in the $20-50mm ball park.  Would not look totally normal, i.e., would skew to the right since anyone that is on the career track has a reasonbly lucrative career.  Average might be $35mm (i.e., >$1m a year across a 30 year career).

HF -- would show fat part of the bell curve skewing much lower than $20-50mm.  Would skew to the left because getting on a career track at a HF means absolutely nothing.  You need to renew your lease every year, just sticking it out doesn't ensure anything, much easier to get fired, much easier for fund to blow up.  There's ton of people who just end up getting churned out of the system.

2nd set of charts: distribution chart of # of firms worked after age of 28 chart 1 PE, chart 2 L/S equity HF

PE -- 55% at 1, 35% at 2, 8% at 3, 1-2% at >3

HF -- 50% at >3

There's no actual data on this, but this is what I would expect to see if there was.  If nothing else, it's directionally and comparatively accurate enough to get the point across.  If you're following up with a million questions about the #s and additional percentile splits, you're missing the actual point.

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