BS. I almost had a heart attack working in banking, and I know several people who got stomach ulcers. Multiple divorces. A woman who fainted as she hadnt slept for three days. And crazy bosses who think personal life is for losers. I guess you havent been in a senior position in I-banking in a financial center.
Hedge funds guys top NYC Salary Guide
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BS. I almost had a heart attack working in banking, and I know several people who got stomach ulcers. Multiple divorces. A woman who fainted as she hadnt slept for three days. And crazy bosses who think personal life is for losers. I guess you havent been in a senior position in I-banking in a financial center.
Danm Right! A real job an't nothing but work!
Yes I have actually. I have had experience talking and knowing people in IBD, flow S&T, risk management and the buy side. I understand that that can happen due to the ridiculous hours. But do you really think their stress is that much. A trader has to undertake ridiculous stress. His entire position is in constant jeapordy. There is actual job security in ibanking unlike in trading. Most of the work undertaken by IBD is bs and can be winged. Trading is one field where there is no room for BS. Its basically a payoff. Either work for 90-110 hours a week but know that you have at least marginal job security. Or work around 50-60 hours a week and know that tomorrow may be the day when you blow up.
I wrote this for my column in The Financial Times a few weeks ago and it applies to this thread. Please forgive the size of the post:
A few days ago I was having breakfast with a friend of mine who runs
a successful long/short hedge fund with about $60 million in assets.
He seemed stressed. "Its hard to make ends meet in this business," he
told me.
"What do you mean? Your business has been doing great," I said, "You've beaten
the market every year. Your business is growing."
"Listen," he said, "lets go through the breakdown. Lets say you have
$60M in assets and you charge 2 and 20." He's referring to his 2%
management fee (a fee taken as a percentage of all assets) and his
20% performance fee (a fee taken as a percentage of profits). "So
thats $1.2M in definite cash flow for the year. Plus another $1.2M if
I return 10% on the year. So $2.4M. About half of the money I've
raised was through a third party marketer. The deal is I give the
thirdparty marketing firm 20% of the fees I make. So thats $500K out
the door. I'm down to $1.9M. I have three professionals working for
me. One does admin, client relations, etc. Thats a fulltime job. Two
help with stockpicking, trading, risk management, due diligence, etc. They average out at $150K each plus insurance so thats about $500K out. By the way, don't print my name. I don't want them to know what the average salary is between them. So now we're down to $1.4M.
"I have to have a good office. I bring clients up here, show them
around, everyone hard at work, nice views, etc etc. Fifth Avenue
address. Thats $10K a month. Then a secretary, office supplies, etc.
Somehow or other adds up to about $80K. Lets round it to $100K after including travel expenses and so
now I'm down to $1.2M. Well, I have a partner. The guy who helped
bring in the initial $15M to get us started and he meets all potential clients that the third-party firm sets up and he also finds new clients. He's on the road all the time trying to raise more
money, going to conferences, and so on. So my partner and I split
50-50. Now I'm down to $600K for me."
"You realize, of course, that this puts you in the top 99.9% of
income for the global population," I gently reminded him.
"Well, let's go through it. First off, taxes
take out about $250K for me. So now I'm down to $350K. Mortgage
payments on my 2200 square foot apartment are about $8K a month.
Property taxes another $2K. Now I'm down to $230K. Two kids going to private
school plus all the expenses that entails - supplies, piano lessons,
religious stuff, etc. thats about $50K bringing us to $180K. Where am
I going to stay in the summer? All my kids' and wife's friends are in the Hamptons. Hamptons house is going to cost me
another $50K at least. I'm being generous here. Camp for kids - lets
say another $15K. Now we're at $115K left. Lets add up basic household
staff: nanny for kids plus housekeeper adds up to about $60K. Now I have $55K left. Well, now between my wife and me we probably average about $1K
a week on everything else: food, entertainment, furniture, HBO, travel - two
vacations a year are going to cost me about $10K each one - and so
on. Again, I'm being very generous. I don't even think I'm counting
clothing or drycleaning costs here. But this takes me to right about
$0K.
"And lets not forget," he adds, "this assumes I'm up 10% this year.
Right now the S&P is down about 1/2% and all the hedge fund indices
are hanging out around flat. I'm up 4.8% on the year so I'm killing
all of them. But here we are 8 months into the year and I'm on track
to do 6-7%. Being up 7% instead of 10% would lop about $90K off my
yearly take. So in a year where I am totally killing it I'm not even
doing as well as in the scnerarios I just described where I can't
even make ends meet.
"And further. What happens when this SEC regulation kicks in. I have
to hire a compliance officer. Right now, today, as we sit here,
compliance officers are making between 200-500K a year. What happens
when funds are required to hire a compliance officer. There's about
3000 funds that are going to have to hire one. Do you think there are
3000 unemployed compliance officers out there? Whats this going to
cost?" My friend threw up his hands and I just didn't have any answers for him.
This conversation reminded me of the excellent 1980 book by Andrew Tobias, "getting by on $100,000 a year" which I highly recommend which details similar scenarios albeit in pre-hedge fund days. All of this is to say, I think the hedge fund business, just like the Internet business, is quickly becoming institutionalized, and only the big players will ultimately survive, with the rest either disappearing or getting acquired through roll-ups of funds. I think an excellent business plan now is to raise money to buy stakes in small to mid-tier hedge funds that have decent results but are having a hard time breaking out to the next level. To some extent this is done by public companies such as Affiliated Managers Group and the Man Group. But I think we are just at the beginning of this consolidation.
A few days ago I was having breakfast with a friend of mine who runs
a successful long/short hedge fund with about $60 million in assets.
He seemed stressed. "Its hard to make ends meet in this business," he
told me.
"What do you mean? Your business has been doing great," I said, "You've beaten
the market every year. Your business is growing."
"Listen," he said, "lets go through the breakdown. Lets say you have
$60M in assets and you charge 2 and 20." He's referring to his 2%
management fee (a fee taken as a percentage of all assets) and his
20% performance fee (a fee taken as a percentage of profits). "So
thats $1.2M in definite cash flow for the year. Plus another $1.2M if
I return 10% on the year. So $2.4M. About half of the money I've
raised was through a third party marketer. The deal is I give the
thirdparty marketing firm 20% of the fees I make. So thats $500K out
the door. I'm down to $1.9M. I have three professionals working for
me. One does admin, client relations, etc. Thats a fulltime job. Two
help with stockpicking, trading, risk management, due diligence, etc. They average out at $150K each plus insurance so thats about $500K out. By the way, don't print my name. I don't want them to know what the average salary is between them. So now we're down to $1.4M.
"I have to have a good office. I bring clients up here, show them
around, everyone hard at work, nice views, etc etc. Fifth Avenue
address. Thats $10K a month. Then a secretary, office supplies, etc.
Somehow or other adds up to about $80K. Lets round it to $100K after including travel expenses and so
now I'm down to $1.2M. Well, I have a partner. The guy who helped
bring in the initial $15M to get us started and he meets all potential clients that the third-party firm sets up and he also finds new clients. He's on the road all the time trying to raise more
money, going to conferences, and so on. So my partner and I split
50-50. Now I'm down to $600K for me."
"You realize, of course, that this puts you in the top 99.9% of
income for the global population," I gently reminded him.
"Well, let's go through it. First off, taxes
take out about $250K for me. So now I'm down to $350K. Mortgage
payments on my 2200 square foot apartment are about $8K a month.
Property taxes another $2K. Now I'm down to $230K. Two kids going to private
school plus all the expenses that entails - supplies, piano lessons,
religious stuff, etc. thats about $50K bringing us to $180K. Where am
I going to stay in the summer? All my kids' and wife's friends are in the Hamptons. Hamptons house is going to cost me
another $50K at least. I'm being generous here. Camp for kids - lets
say another $15K. Now we're at $115K left. Lets add up basic household
staff: nanny for kids plus housekeeper adds up to about $60K. Now I have $55K left. Well, now between my wife and me we probably average about $1K
a week on everything else: food, entertainment, furniture, HBO, travel - two
vacations a year are going to cost me about $10K each one - and so
on. Again, I'm being very generous. I don't even think I'm counting
clothing or drycleaning costs here. But this takes me to right about
$0K.
"And lets not forget," he adds, "this assumes I'm up 10% this year.
Right now the S&P is down about 1/2% and all the hedge fund indices
are hanging out around flat. I'm up 4.8% on the year so I'm killing
all of them. But here we are 8 months into the year and I'm on track
to do 6-7%. Being up 7% instead of 10% would lop about $90K off my
yearly take. So in a year where I am totally killing it I'm not even
doing as well as in the scnerarios I just described where I can't
even make ends meet.
"And further. What happens when this SEC regulation kicks in. I have
to hire a compliance officer. Right now, today, as we sit here,
compliance officers are making between 200-500K a year. What happens
when funds are required to hire a compliance officer. There's about
3000 funds that are going to have to hire one. Do you think there are
3000 unemployed compliance officers out there? Whats this going to
cost?" My friend threw up his hands and I just didn't have any answers for him.
This conversation reminded me of the excellent 1980 book by Andrew Tobias, "getting by on $100,000 a year" which I highly recommend which details similar scenarios albeit in pre-hedge fund days. All of this is to say, I think the hedge fund business, just like the Internet business, is quickly becoming institutionalized, and only the big players will ultimately survive, with the rest either disappearing or getting acquired through roll-ups of funds. I think an excellent business plan now is to raise money to buy stakes in small to mid-tier hedge funds that have decent results but are having a hard time breaking out to the next level. To some extent this is done by public companies such as Affiliated Managers Group and the Man Group. But I think we are just at the beginning of this consolidation.
Isn't life a just a killer when you can't afford all those needless luxuries. He says he has no money to spend because he's spent it all - durh! I hoped you slapped him in the face and told him to wake up to the real world! What a whinging tosser, my heart pours sympathy.
He has to get rid of the leach that takes half. go farm it out to a fund of funds.
Vishnu,
That was a great piece. I think the New Yorker magazine did something similar for life on Park Avenue for an investment banker not too long ago. The bills for nannies and private schools for little girls is staggering.
That was a great piece. I think the New Yorker magazine did something similar for life on Park Avenue for an investment banker not too long ago. The bills for nannies and private schools for little girls is staggering.
Good article ... a couple of observations. One, $60M fund is considered quite small, and he still have 3 staff? That is quite extravagant by my count, I know of a couple of funds that have 250-400M, and only 6-8 people in total. In fact, most funds I know that only have 50M or so are run by 1-3 people (not 4).
Two, it is true that 600k income won't get you much in Manhattan. There was an article in CNN a while back indicating that making $1MM won't get you very much left over, circa late 2004?
Meanwhile, I know a couple that makes 200 in total in denver, and lives happily like a couple of clams.
Two, it is true that 600k income won't get you much in Manhattan. There was an article in CNN a while back indicating that making $1MM won't get you very much left over, circa late 2004?
Meanwhile, I know a couple that makes 200 in total in denver, and lives happily like a couple of clams.