Would you go into a $40 mil long-only equity fund after college?

If you had a choice between these 3 offers right out of college:

Working for a $40million AUM hedge fund (3.5 years old) under 1 PM (very reputable and experienced guy--he knows what he's doing):
Starting Salary: 65k - 90k (depends on bonus)

or
Working at Deloitte Business Valuation
Starting Salary: around 70k

or
Working at Houlihan Lockey Valuation and Advisory Services
Starting Salary: around 70k

Which would you pick?
Which would give you better exit opps, career path, etc.??? If I didn't like the HF life after say 2 years, would it be possible to get into valuation afterwards?

 

I spent some time at a long-only shop of similar size but different model.

If you think you're going to learn a helluva lot without as many resources as a larger place would have, go for it; you'll have less hand holding, so you're going to either swim or down. Frankly, the PM I had wasn't great and seemed on the cusp on retirement so he was more about the long lunches and the social club - I didn't learn much that I couldn't do myself. I was, and still am, hungry so, thankfully, I knew the writing was on the wall pretty quickly. It sounds like the scenario you describe is very different. Also, how many people are there? If you are going to be involved in admin as well, then that'll take up some time.

I can't speak to exit opps should things don't work out; I'd just be wary of the pitfalls as you think about working at a small HF such as investor concentration, etc. It's just part of the DD process.

 

Thanks for the response. I have full faith in the PM (he's had a very successful HF career so far), and obviously if the fund does well and I do well, everything works out. But if things don't go that way--where do I exit? Would it be possible to move to another analyst role at midsize Asset Management firm, mutual fund, etc. with the investment research skills I would've gained????? Would getting the CFA be a good "hedge" against the downside?? I should also mention that I'm coming from a lower-tier ivy league school in finance.

Would it also be too late to move to another field, such as valuation???

 

I'm in another country so don't have any knowledge on neither other fields nor the tiers of schools; in any case, the buy-side was all I've wanted to do so I didn't consider anything else. That mentality doesn't work in lean times though. In my case I was able to lateral to a large mutual fund...but that was after a fair few rejections (mostly due to inexperience after a year or thereabouts at that place) and, mostly, sheer dumb luck. So yes, it is possible to move - don't forget sell-side research - but definitely have a contingency plan if things don't work out because stuff happens overnight.

The CFA program is worthwhile as signalling. But bed down yourself in the office - perhaps for 6 months - before putting yourself down for the pain that is studying for the exams. Don't burn both ends of the candle, so to speak.

 

You say the PM is experienced and successful, but only 40mn AUM for past 3 years should be a concern, especially as a LO in a great bull market.

I know everyone on here jerks off to the idea of the buy side, but something to consider.

 

I would just go for the HF offer. At the end of the day, why not? If it blows up you'll be fine and your career will quickly recover - take some risk while you're still young. Valuation isn't going to get you a HF offer if thats what you want, youll probably have to take an IB offer so you would be at a minimum 3 years away from any buyside offer. That being said if you are like most on this site and are super risk adverse for whatever reason then just take HL and try to lateral to a BB and then a HF.

 

Wouldn't personally touch a 40MM fund out of school, but that might just be me. I would also assume your comp will be at the low end of the range at 65k (not sure what fee structure is, but doubt he is taking in > 500K in base fees annually). Put it this way...you're not going to close the door of going into a 40MM fund if you take any of the other 2 jobs -- sure, you may not open additional HF doors since neither are super poised for HF, but you will earn some money, learn how to work in a corporate job, and have something solid for the resume.

 

Brand name IMO is incredibly important early on in a career - it would be one thing if this HF was a $2Bn place that people in the industry had heard of and had good connections despite not having a true brand name -- it isn't. Should also realize that few people 'want' to work in investment banking in their career - most go into it these days recognizing they want to move to a buyside role and know that it will open doors for them so that they can move into the best role possible. Circumventing that by going to a $40MM fund isn't a smart move in my opinion. If this was your only offer I would say go for it - I'm sure you'll learn a bit, and with the markets the way they have been the past month you might even have a job 4 months from now, but you have other pretty solid options to choose from. Worst case scenario you do 2 years at HL and hate it and go to another $40MM HF -- you'll quickly realize that there isn't the longest line in the world trying to work at HF performance has been lately.

 

Lots of red flags. 3.5 years with minimum startup capital doesn't make any sense. Also, it's just my opinion but long only is a shit strategy. Even the smartest revolving door fund out there with that strat has its issues (SPO Partners). He should've netted 100% in the past 3.5 years from this insane bull market. Start-up funds are make or break by year 2, when large institutions start looking at you. He's clearly in the latter bucket, take a different offer.

 

I generally agree with the points raised on this thread, but I would argue against the idea that $40 million of AUM after 3.5 years is a red flag. I think the median hedge fund has like $15 - $20 million of assets, and if you've ever raised money for a blind pool, you know how hard it is to get people to hand over discretion of their sheckles, esp at anything approximating 2/20. A lot of the legendary hedge fund guys who started in the '90s didn't have $40m of AUM until they were 5-10 years in, and it's only gotten harder for the non-tiger folks to make it as an entrepreneur in this space. If the guy has $40m of fee paying assets, a good track record, and staying power, then there is no reason why this couldn't be a huge fund in t+10 years.

 

Not saying you're wrong but I'd love to see a source for that median AUM #.

IMO, no legit shop starts with less than $25mm of seed nowadays. Plenty of funds around me get up to ~$100mm within two years and then it's make or break after that whether you go to $0 or you're up to $300mm-$500mm.

Not sure why you bring up stuff from the 90's but they did not need 5-10 years to get to $40mm even back then.

A red flag means it's a red flag. It doesn't mean it's a huge no. I'd still take a reputable IBD shop over this, which is what the OP has as alternative options.

 

Past 3.5 years has been all-time best conditions for long only equity funds. Do you have any idea what the PM's track record is outside of this time frame, if the PM has one?

Also, chill the fuck out with the excessive punctuation marks.

 

$40 million after 3+ years sounds to me like it's all internal capital and he's been unsuccessful at raising money or "hasn't tried" yet (basically unsuccessful at raising money). Before accepting an offer I'd really dig into why such a reputable person hasn't raised more assets yet and his plans going forward.

[quote=patternfinder]Of course, I would just buy in scales. [/quote] See my WSO Blog | my AMA
 

Update: most of the capital is internal capital (his own, for example), and that's why it's at $40 mil. I asked him and he said that he plans on expanding by, lines of 50%+ additional capital, next year from outside capital since he's been running primarily on internal capital so far.

 

I'm working at a fund similar to what OP described (except I wouldn't really consider the three at the same caliber and I really wouldn't say Point72 since it's a multi-manager model) except from day 1 instead of year 3.5 so here's my take...

1) Raising money in this environment is very hard. There's a lot of promise but actual conversion is very tough unless you are willing to accept lower mgmt fee and a hurdle.

2) Not sure why suddenly this guy wants to raise capital. There are different expectations out of a fund that just started, 1 year in, 3 years in, etc. This guy better have a very good track record with this fund and I'm assuming it's currently a 1 man show with that kind of AUM. You can't sustain a CFO and an analyst with that capital base (I would know and it's not hard to do the math anyways). I'd be really surprised if the back office functions were clean and institutional quality given above information. Who is verifying what the admins send. I have to help my CFO do things such as trade reconciliations and trade processing since he can't do everything a CFO/HR need to do alone. There is a ton of recordkeeping done to make sure #s are accurate and the books are clean. Last time I checked, it is really hard to have even a bank account in this business since most of the typical suspects like Bank of America or JP Morgan do not want hedge fund money as they can't leverage it due to regulations.

3) Given you grouped the above funds together I'm not sure you actually know which funds are great and what they actually do. I think as another user posted, you named a bunch that are mentioned often. Not sure if you are evaluating this correctly. It's really easy to impress a kid from college...

I think some people above have asked the right questions (esp verified). It's really not easy to be at a small hedge fund like this. The only reason we even got looks in the first place was because my boss did come from an extremely well regarded shop. The AUM is certainly a huge red flag after 3.5 yrs and saying he plans to expand is not really assuring since this should've been done long ago. No one just gives money these days.

 

If my ultimate goal is to be on the buyside and as a PM--wouldn't it make sense to take the HF offer? Option 1: Valuation -->IBD-->Buyside Analyst-->Buyside PM Option 2 :Buyside Analyst-->Buyside PM

I realize, sure, I may not have the brand name company starting off my career, but at least, I'll get good buyside experience and mentoring directly from a proven-track-record and successful PM (whos worked at one of the very top hedge funds)...

 

Your track to PM is usually determined by your shop.

My buddy was a top tech analyst @ SAC during mid 2000s and he's just started running his own book after years of following his boss through SAC seeded attempts.

IMO, that shop won't lead to running your own money BC it seems like your future boss can't raise money, what makes you think you will?

 

this is the time to take some risk imho. you don't have any responsibilities yet and the HF opportunity could turn out huge if the PM is as good as you say! You'll learn a ton and will be able to transfer you knowledge to equity research, Asset Management or valuation if it doesn't work out. Also, since it is a small team, you'll be in on all the meetings, so you'll meet a ton of analysts who could help you out if things don't work out and they like you.

 

I'm not sure how much value there is in a long only hedge fund after a 7 year bull market, but that being said, I would take the HF job. This is why. I worked for years building a career in a company that does financial service work and while I am not in the business valuation group (I am in another valuation group internally), I work with BV people all the time. They know nothing about market mechanics and they are just "workers in the coal mine." You'll get small raises after many years, and yes you will make an above average income but it won't be remotely close to what your potential is in the HF world. That is why after many years of trading on the side and learning market mechanics, in addition to building a very good career in traditional financial services, I decided to pursue a startup HF with a close friend of mine. We are real small, and we are more of friends and family fund PLUS some others (including an initial investor who works at a big wall street hedge fund), but we've made good headway in a short amount of time and we continue to have our "day jobs." That being said, I could work for many years in the financial service industry and earn a good well paying income, but it doesn't have the potential to dramatically change my lifestyle. In all honesty, the hedge fund thing IMO is easier than say a job as someone slaving away writing reports in BV and that is why it is easy for us to run it on the side because both my partner and I are used to working exceptionally long hours, nights, etc. in the traditional sense. That being said, there is a long learning curve, but once you are strong in your niche that will carry you much further because in BV you'll have to continue to produce product in order to get paid and keep your job.

 
wow321:

I'm not sure how much value there is in a long only hedge fund after a 7 year bull market, but that being said, I would take the HF job. This is why. I worked for years building a career in a company that does financial service work and while I am not in the business valuation group (I am in another valuation group internally), I work with BV people all the time. They know nothing about market mechanics and they are just "workers in the coal mine." You'll get small raises after many years, and yes you will make an above average income but it won't be remotely close to what your potential is in the HF world. That is why after many years of trading on the side and learning market mechanics, in addition to building a very good career in traditional financial services, I decided to pursue a startup HF with a close friend of mine. We are real small, and we are more of friends and family fund PLUS some others (including an initial investor who works at a big wall street hedge fund), but we've made good headway in a short amount of time and we continue to have our "day jobs." That being said, I could work for many years in the financial service industry and earn a good well paying income, but it doesn't have the potential to dramatically change my lifestyle. In all honesty, the hedge fund thing IMO is easier than say a job as someone slaving away writing reports in BV and that is why it is easy for us to run it on the side because both my partner and I are used to working exceptionally long hours, nights, etc. in the traditional sense. That being said, there is a long learning curve, but once you are strong in your niche that will carry you much further because in BV you'll have to continue to produce product in order to get paid and keep your job.

This has to be one of the most ridiculous things I've read here. If you're at a major financial services firm that does valuation for clients, how could you possibly get compliance to allow you to run a "hedge fund" on the side?

Even if you did, what investor would give money to someone who needs pre-approval before making any type of trade and is restricted to using an approved broker?

 

Lol why is everyone hating and throwing MS at my ivy league degree comment--fact of life is that I'll have that degree for the rest of my life which is pretty attractive in the eyes of future employers to say the least

 

Hey sorry to hijack this thread, I actually have a very similar situation but in a different context.

I'm a senior from a non-target, with a 3.9 GPA. I got an offer from a $100m 1 year old HF w/ lock in terms of 5 years, so this indicates some job security. Additionally my boss is extremely thoughtful and a great mentor that teaches me as much as possible.

I was wondering if I could use this opp and then eventually an MBA (to rank up w/ networking/connections.... Also for LT fund raising) then recruit to a more prestigious shop/Family office and then eventually spin off a HF of my own one day.

Is this a good choice? Obviously we all want to dodge IB, but are worried for the prestige that we give up. I just can't imagine myself working on a fucking slide deck all day for some deal, when my heart is in public markets. I want to be on the front lines asap, and I think this offers that... but there is significantly more career risk/crappy exit opps possibility. I'm truly just trying to weigh risk reward here.

 

Took the HF offer. Was able to negotiate salary to 105k all-in potentially, and yearly increases thereafter. Also have opportunity to become a Partner down the road if I'm value-additive. Sure, I miss out on brand name, but this is what I'm more passionate about. Graduating with no debt, so I'm positive all the way down. We'll see where I am in two years....

 

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