Steven Cohen Plans a New Hedge Fund. Investors Are Wary.

Discussion in 'Wall St. News' started by ajacobson, Dec 27, 2017.

  1. toc

    toc

    C'mon pal, $1B at 2% gives $20M a year.

    Allocate $50M to 20 stocks and you might be able to pull it off yourself and an experienced analyst support for $100K/year plus small bonus.

    Bet in $1M/year one can run a very decent HF shop and that too in a big city NY or Chicago.
     
    #11     Dec 27, 2017
  2. sle

    sle

    Admin fees alone will run you that much. My calculations are stale, but I recall that breakeven for an SEC registered fund running a single strategy (read - 2 partners and nothing else) is about $250 AUM (this way, you can cover everything from the AUM scrape). That was assuming that you actually get 2%, cause most people get money from allocators and those guys take 50% of both performance and the scrape.

    LOL. 100k/year is "poverty level" in the NYC. An average secretary makes about that much.

    Couple random thoughts:
    a. Most funds should not be funds, they have become de-facto asset managers and should be paid as such. People should not present themselves as alpha hunters when in reality they are alpha grazers
    b. The industry is definitely undergoing a round of consolidation - I recently was looking though MS PB newsletter and realized that the number of funds they are hosting has dropped to 512 from the peak of 1.5k in 2013
    c. The whole concept of hedge funds has been perverted over the years because of the incentives. Instead of betting the farm on a single smart idea, the funds are becoming asset hogs
     
    #12     Dec 27, 2017
  3. toc

    toc

    $100k/yr for analyst working from some small town in Pennsylvania or even Albany and talking via Skype and sending reports via e-mail or scan. Works just fine and sturdy. If needed, he/she can always take a short flight for some presentation to clients or paperwork etc.

    https://www.glassdoor.ca/Salaries/n...analyst-salary-SRCH_IL.0,13_IM615_KO14,32.htm

    $1M per year is more than enough to run a decent HF shop.

    Just get to the point, the real challenge of HF business is a) to raise AUM b) perform with numbers.
     
    Last edited: Dec 27, 2017
    #13     Dec 27, 2017
  4. sle

    sle

    Unlike the mythical world of ET where people manage to make millions after reading some books on technical analysis, an analyst (quant or fundamental) is formed primarily by his experience. Education and talent help too, but it's the years of industry experience that make or break you (especially for fundamental analysts). People with experience are usually found in places where that experience comes from - the sell-side institutions (aka banks) or other funds. That's why nobody goes recruiting stock analysts in St. Paul, MN or Albany, NY.

    There are, indeed, people at hedge funds who work remotely most of the time. Those people make the same salary as they would if they worked in the office.

    While I am not a long/short PM, I know a little about that business. Analysts are definitely not making 100/year - most of them come from the sell-side and have years of experience. Maybe we are talking about some junior monkeys? Not sure.

    As I said, that's not true. Between legal, admin fees, office space, compliance officer (even if you outsource it) and other crap, that million dollars will not go very far. @truetype would have a better handle on the numbers, I merely work for a fund and have never ran a fund myself

    Indeed. However, expenses matter more than people think. It adds up quickly. I get charged 100+k a year for "compliance services", and that's considering that I share that with some 30 other PMs.

    PS. I am hoping that you don't think I am being condescending - I simply happen to work in this business in a reasonably senior role
     
    #14     Dec 27, 2017
    LacesOut and dealmaker like this.
  5. toc

    toc

    Sorry pal, still can't buy what you are saying, neither for analyst salaries nor for compliance.

    Sent you the link where NY Investment Analyst salaries were quoted at average $80k-100k. Can't argue any further.
     
    #15     Dec 27, 2017
  6. sle

    sle

    Apparently, you believe that ZB trading system dude and don't believe me :) That's fine, you can believe whatever you want.

    In any case, compensation in investment management, especially in the areas where you're responsible for PnL is very fat-tailed. Good people make a lot. They are worth it. Mediocre people make little and don't stick around. If you want some numbers (more detailed, too) that are closer to reality (someone sent me this about a month ago): http://www.businessinsider.com/how-much-people-make-at-hedge-funds-2014-4

    PS. There you go, pretty close to my estimate from a few years ago: https://www.cnbc.com/2013/12/09/new-hedge-funds-need-300-mln-just-to-break-even-survey.html
     
    Last edited: Dec 28, 2017
    #16     Dec 28, 2017
  7. toc

    toc

    Hate to say this but can't believe that sources like BI and CNBC would publish such nonsense.
     
    #17     Dec 28, 2017
  8. sle

    sle

    Maybe, just maybe, there some confirmation bias in that statement? :) unless you are being sarcastic and self-deprecating, in which case I am an ass

    PS. As I said, I do agree that raising funds and actually producing good returns are the hard part. Further more, the more you succeed in the former, the harder becomes the latter.
     
    #18     Dec 28, 2017
  9. ajacobson

    ajacobson

    We are just outside of Chicago and good talent is priced by the Citadel benchmark in this town. Doing EOY bonus calculations now and anyone who actually has trading responsibility and does not earn at least $300K all in - won't be invited back for 2018. Right now really good vol. traders are worth seven figures. Even the convert arb. traders are worth well over 300K.
    The hours and lifestyle are horrible and therefore the compensation. Benefits add about another 10% in hard dollar costs.
     
    #19     Dec 28, 2017
    dealmaker likes this.
  10. truetype

    truetype

    @sle is right on point, as usual. But the whole discussion is silly -- it's apples and oranges. The firm mentioned by OP -- SAC -- has had (per my understanding) ~1000 employees for the last decade and ~500 for the prior decade. With the firm's relatively high turnover, probably >3000 have passed through its doors over that time. Obviously SAC has expenses orders of magnitude greater than $1m. Heck, they must spend >$10m just on employee health care.

    There's one well-known high-headcount firm that charges back employee comp to its LPs, but that's a very unusual arrangement. You could argue that firm has "low expenses" (to the management company, anyway).

    OTOH @toc is talking about a shoestring startup. Nothing wrong with that. "I know a guy" who can put together a serviceable offshore structure for <$100k, with <$100k annual costs (legal, admin, audit). His target market is wealthy ex- Wall Streeters who want an offshore vehicle for themselves and friends/family, but in theory the structure could accommodate outside LPs. In general, the cost of admin is driven by complexity. For the simplest case -- an ET-style manager trading CME contracts a few times a day, clearing at one FCM, and with only a few LPs -- costs will be low. As the customer base grows, and the manager adds equities and OTC instruments, adds FCMs and prime broker(s), and trades more frequently, costs will scale up.

    Of course, institutional investors aren't interested in shoestring. If they take a meeting at all, the result will be "call us in XXX years when you have a track record of managing at least $XXXm and have blue-chip service providers."
     
    #20     Dec 28, 2017