HF vs AM Comp and Fee Structure
So, I know it used to be considered that HFs paid much better than AMs, but I also know that their are less and less firms charging 2 and 20. Are HFs still paying much better than AMs, and are HFs even making more than AMs in general considering the reduced fees? Wouldn't it be better to work for a top AM like Goldman or JPM than most HFs? How would the pay differ?
IMHO it's a question risk tolerance / volatility.
Absolute #s in any given year can be higher and lower at a HF, but over the last 10-15 years, AM have been more of a steady growth in comp model. Would you rather buy a growth stock or a value stock? Neither is inherently better than the other - just has to do with personal preference.
Most succesful HFs have "pricing power" and have maintained their fees. Some outliers like Element even raised them to 40% performance fee. I think they pressure on fees is more prevalent at start-up or struggling HFs.
The career prospects havent changed much. You generally go into HFs expecting to earn much more, but then there's years you dont get paid or are in between jobs because your fund shut down or you or your PM got fired. AM is more resilient and stable, but very unlikely to make it big as you would at a succesful HF. Net net, it's not an obvious call. Depends on your risk appetite, skillset, and on a ton of things tou can't control (luck).
BB banks are generally not the best AMs to work at.
There's generally a ceiling limit to comp and it ramps up much more slowly being at a mgmt fee only asset manager (especially the big guys but there are outliers like Ruane or Capital) vs a HF where your starting comp after banking is well into the 300k and goes up quickly as you perform. I have friends in asset management that still haven't broken 300k 6 yrs into their job.
Can you switch from HF to AM or is that frowned upon?
Interested as well
I probably wouldn't count on it. However, strangely, within the past 12-18 months, 3 people within my personal network made the transition. 2 were from MM and 1 one was from well-known SM. All 3 have A+ professional and educational backgrounds (meaning any firm would be lucky to hire them).
As per above, but generally HFs will think AM background guys don’t know what they’re doing and AM guys will think the HF guys are just in it for a quarter and don’t think like real investors. Basically, everyone thinks their background is the best.
Yes, absolutely. My AM firm has a number of analysts who came over from HF's... and I get calls from HF recruiters often and have known people who have left sector coverage at an AM to work the same sector at pod-style HF's.
I'd say most of them made the move (to my firm from a HF) because AM typically offers a better lifestyle and more stable employment situation. If you work at a HF there can be a lot of volatility in your pay and funds/teams/PM's get shut down often, which leaves you searching for seats potentially often. When you're young it's easy to roll with it all, but if you end up supporting a wife/husband and kids with your comp, then that's a hell of a lot of stress.
As you move up in experience it gets a little harder to go back and forth... particularly going from AM to HF, that's almost impossible if you've been long-only too long.
Could you provide more color on what makes funds like Ruane or Capital different from the big guys? In terms of comp, career trajectory, stability, etc.
Also how is Capital not a 'big guy'?
Ha, yes, everyone always thinks they are the smartest.
Another point too, is the jobs are fundamentally different, which can make it harder to for the transition. In AM your coverage universe will be a lot larger. If you're in HY/LL you'll be constantly looking at new deals many of which are drive-bys that require a same day decision. Whereas in a HF you might spend 6-12 months developing and monitoring an idea before you get involved. An AM PM might be concerned that a HF person isn't used to following as many names and making decisions as quickly. A HF PM might be concerned an AM person doesn't get deep enough into the weeds - though if you cover only 1-2 sectors you likely now enough to make quicker decisions but clearly not with the same conviction as a concentrated position.
Thats interesting. Do you know, generally, when somebody works their way up to PM in AM are they given more aum that a beggining pm at a mm HF? Or vice versa? I get that AM covers more names, but which PM would be given more responsibility typically at first as a beggining PM?
Too broad to answer, too many different team structures of funds.
I was in the AM space at a BB AM, junior PM. After about 3 months on the job I realized mutual fund PMs are more so "traders" than investors (at least at BBs, I think fund PMs at MFS, Putnam, Fidelity are more of the "investor" type).
Can be worse. Can be neither "traders" nor "investors", and instead just be an asset gathers, rolling out same product over and over under different branding (ie. slice it across market-cap and style to generate more fees but owning the same stocks in all the products)
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