Title pretty much summarizes everything…
But I’m so confused. At a MM if you’re good then you can quickly manage your own book and make multiples of analyst at SM. The only way you get to that level/spot at a SM is starting your own fund.
Correct me where I am wrong
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Because by definition most people are average and chances are, you’re going to be average. So might as well try to work at a SM with some longevity in your career vs. bouncing around from MM pod to pod before exiting all together. Pod seats are a dime a dozen and much easier to get so it’s always an option on the backend.
Valid makes sense
Would you rather be a big fish in a small pond or a small fish in a big pond? The former is SM and the latter is MM. Most people would still chose MM over very small SMs though, because the chance of scaling the fund is marginal. Things change when it's SM with AUM > $1B. Your chances of getting into a risk taking position/generating actionable ideas is much higher and after a year or two, or sometimes even more depending on the funds size and IPs, you will get a piece of carry. The best part is that if the pond is expanding it makes you an even bigger fish. Economics look good in SMs and so does the longevity, and most of all, if you want an exit somewhere down the line or maybe start your own shop, if your manager is well connected, it sure helps a lot.
Yeah would never choose a sub scale SM HF over MM
What does SM mean
Single manager
Yeah i said this in another thread but its a pretty easy call. $5B+ SM>>>>>$1-2B SM>MM >>>Subscale (Under $500M SM).
$5B+ SM give you all of the upside with more stability than MM. $1-2B SM can be great sweet spots to be a career analyst. MM can be amazing if you do well, most of the young PMs performing well at a MM wouldnt trade it for any SM. Getting to PM is hard and career stability is horrible. Its tough to take a job knowing you could blow up and be out of the industry in a couple years, its just a huge gamble.
Ive never seen a Subscale fund go well for anybody.
Can't PMs who blew up take a job at another fund?
They can, but the economics get worse. A superstar PM could get to keep more than 20%, hell there are threads on this forum and even anecdotal cases where they were taking 50% and up, but that is only if your father is manning the ship or like mentioned, a superstar with stellar history of 'consistent' returns. Consistent is the key word here. If you're Bathwal from BH who's never lost money after joining the firm your economics are different.
If you're just another PM with a history of hit or miss your economics differ, in the grand scheme of things, every PM is risk, in an ideal MM setup, one PM is there as a hedge to the other PM, not just coverage wise, but even sector wise, maybe energy is having a bad year so what, tech covers for it and vice versa.
Think of most HFs like Lizards, and the risk taking seats like Senior Analyst / PMs are the tail, most people when getting into the industry think that they are the head/torso and they are disillusioned very quickly, the tail i.e. the PM and his team will be shed at the very first sign of danger. The only reason another lizard wants an already cut off tail when it can grow it's own with some effort is because it is in the lizard's own interests and it knows that a borrowed tail is easier to shed than the one it poured a lot of nourishment into growing itself.
I understand the appeal of having a seat at one of the huge $10bn+ SMs/Tiger Cubs where the name, experience, and AUM/IP are elite.
But it seems to me that, given the industry trend, working in MM HFs may be better than working at sub-$10bn SMs. If the market is going up and your SM does fine, its a good place to work vs the volatility of MM HFs. But when the market isn't going up, and your SM is losing money, its AUM may quickly shrink, your bonus will be subpar and you may get laid off.
If you work at MM HFs, you will face more career volatility, but you are learning and gaining experience in the platform model which the industry is moving more and more towards. Allocators are overwhelmingly favoring MM HFs these days as the model has been proven to work. Even if your pod blows up, you should be able to ramp up quicker at another pod than someone who only knows how to do SM-style investing. And if you perform well and are lucky, you can become a pod PM and leverage your years of experience in MM-style investing versus someone who has only worked at SMs.
Or am I overemphasizing the transition from working at a SM to working in the MM model?
Agree with the trends, but one anecdote to consider. Over the past few years, I’ve interviewed with several pod shops and was fortunate to get 2 offers. I ultimately decided not to take them for personal reasons, but from time to time, I check LinkedIn to see who landed in that particular seat / team. Both PMs are no longer at their respective firms and the Analysts / Associates have bounced around from pod to pod with a few no longer working for MMs. Mind you, this is within ~3 years and it was at one of the top firms. Given the number of teams at the multi-managers, the average $1B+ SM seat is way more attractive than the average MM pod shop seat. However, if you’re lucky enough to get on the team of one of the top performing PMs, I would take it in a heartbeat and there are few SM HF seats that are better than it. The reality is that most MM seats are for new PMs that are ramping onto a platform and those are difficult to underwrite from a career perspective.
Appreciate the reply. What I'm thinking is, let's say I work for a new PM at a pod, and it gets blown out in 1-2 years. I would then have gained 1-2 years of valuable experience in the MM pod setting, which should set me up for a role with potentially a more experienced and successful PM. All things equal, I would have gained more relevant MM pod experience than someone who has only worked at a ~$1bn SM and have a recognizable HF brand name on my resume. BD at the pod would try their best to find me another seat, and I would likely have made some connections with analysts and PMs at the MM HF.
Tl;dr: everyone knows blow-ups happen all the time at MM HFs, but at least I would have gained valuable direct experience in the MM model, which is the future of the industry. While having a comfortable, well-compensated career at a ~$1bn SM is similarly far from certain (dependent on the S&P, fund performance, etc.)
Re compensation/ lifestyle/ skills / learning
Top MM seat > Top SM seat >> average SM seat >>>>>>>>>>> majority of MM seats
Very true that there is massive self selection in MM seats. Most open ones are for new PMs (most likely suck) or PMs who have turnover in their analysts (because they suck)
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