Imagine this… You land a lucrative job at an investment bank, work your tail off for two or three years and count the days until you finally get to start your buyside gig. Your last day finally comes, you go on vacation for a few weeks and then you finally start that amazing role you always dreamed of.
Now what if I told you that after a few months into your new role, your excitement and happiness will wear off and you will be soon start contemplating whether this is what you want to do for the rest of your career.
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The #1 misconception of the buyside life
Practically everyone in banking believes that life is significantly easier and less stressful than their two years as an analyst. The mentality is that you get paid more, work better hours and actually get to work on interesting investments instead of pitches.
Nothing can be further than the truth. Of course, it all depends on where you end up working and who you end up working for. However, in most cases, people with such high expectations end up surprised once they start their new gigs. Working at a multi-manager is a very stressful job with one of the worst work life balances amongst finance careers, depending on your team.
I was literally ecstatic when I got my offer at a large multi-manager hedge fund. Given I believed all those misperceptions, I had really high expectations before starting, which ultimately led to me quitting after just one year. I had developed a false reality in my mind about how I thought the job should have been and the work did not live up to those expectations.
There are many questions I should have asked before joining a multi-manager hedge fund. Understanding what the work and lifestyle is actually like is extremely important when determining if this is the right career path for you.
What is the work at a multi-manager actually like?
When I first joined, I was given ~60 names that would end up being my coverage list. These are the names that I was supposed to know inside out and build investment ideas on. Since I came from banking, I did not have any experience at a sellside equity shop like some others due. The industries I covered were completely new to me and I had to learn them as quickly as possible.
I started out building full three statement quarterly models on ~40 of the names, including revenue/cost drivers, I/S, B/S and CF statements. This sounds like a hefty task initially, but I was able to get models that were already built from sell-side shops. I mostly just reformatted and added in anything important that was missing from the filings. Building models practically took up most of my time during the first two months on the job.
Once the models were built, then I started to learn about the companies that I covered and think of investment ideas. Each quarter I would meet with management teams, meet with sellside equity analysts, talk to buyside analysts and go to various events/conferences set up by sellside firms. I would read most of the equity research that comes out every morning and night to make sure I was up to date on all the news for each company in my coverage.
Every day I was pretty much left alone to focus on whatever I wanted. I had my own coverage so there was no teamwork involved when coming up with investment ideas. You would think that there would be a lot of collaboration that happens with you and your PM since you are investing hundreds of millions of dollars, but there is not. I would basically come up with various ideas, pitch them to my PM, and then he would in most cases put money behind the idea. The entire discussion would literally be just a few minutes before millions of dollars get put to work.
I did not realize how important teamwork was to me until I started working at a multi-manager. Going from a banking culture where you work with multiple people on various projects to a culture where it is just you and your ideas was a harder transition that I would have ever thought.
Teamwork was definitely one area of banking that I truly missed. Additionally, the lack of collaboration before investing large sums of money really made the whole job seem extremely speculative.
There are a ton of people who transition to a multi-manager and end up burning out after just one year. I ended up quitting and leaving the multi-manager industry despite having the potential to make $500K+ in a given year.
Speaking of large sums of money…
Yes, there is actual real $$$ on the line. And depending on where you end up, it could be hundreds of millions or even billions. People underestimate how different the job is compared to banking. In banking you are in the business of giving advice to other people, not actually the one making the final decisions at the end of the day. If you made an error in an analysis or helped put together an M&A deal that turned out to be a horrible deal over the long-run, your ass is not on the line.
On the other hand, every investment decision you recommend at a hedge fund has the potential to lose millions of dollars. You may think that this is all a game, but losing large sums of money is one of the worst feelings ever.
One of my first investment decisions was to short this company because I had strong data points showing that they were going to badly miss the quarter. Turned out I was completely wrong and I lost my portfolio manager close to $1MM in just two days. If you have read My Life Story – How it All Started, then you would know I did not come from a family of means, so losing $1MM just like that when I thought I had a lot of conviction was EXTREMELY painful.
What are some of the benefits of working at a multi-manager?
- Independence to work on whatever you want – even though your PM may ask you to look into a few things here and there, you get to decide what to work on the majority of the time
- Objective work environment where everyone knows who is generating the most P&L – since you are the only analyst that covers specific names, it is very easy to tell whose positions made money and whose did not
- Amazing access to C-Suite executives with in person meetings each quarter – I probably met with dozens of management teams each quarter when they visited the fund or at conferences; all the big multi-manager platforms have an unparallel level of access to management teams
- High level of responsibility to help manage hundreds of millions of dollars – You have a big say on what positions you want in the portfolio as long as you can get your PM to believe in your thesis
- Flexibility in hours if you have an event outside of work scheduled – the job can literally be done anywhere in the world as long as you have access to the computer / internet; you do not have to worry about getting blow up on a Friday night like in banking
What are some of the downsides of working at a multi-manager?
- Speculative investment style where you invest based on upside/downside to earnings and not longer-term fundamentals – you are basing your decisions on your view over the next three to nine months, so it is very important to have a view on where you think earnings are going to be relative to expectations; longer-term business fundamentals do not matter at all
- Very high levels of stress due to the short-term nature of the investment style – every day you have a P&L and the market can be extremely irrational in the short-term; most PMs and analysts lose sleep due to the high stress nature of the job (especially during earnings season)
- Never ending workflow – you have to constantly keep up with the daily news of each of your companies that you cover, so can feel overwhelmed at times
- Extremely repetitive job – after a few earnings seasons, you will realize how monotonous the job really is; it is really all about updating models, reading sell-side research and talking to companies each and every quarter
- Lonely work environment with little team collaboration
- Zero job security – if your team breaches the drawdown limits, your whole team is let go
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Make sure to read The Basics of Working at a Multi-Manager Hedge Fund to learn about compensation and how multi-managers are structured.
Hi Buyside Hustle,
I have the following questions:
1) I understand long-term fundamental investing, where you look at various factors and decide whether or not the company will perform better than what the market is pricing in. You said that multi-manager HF investing has nothing to do with that. So how do you generally predict whether a company will beat or miss earnings there?
2) I am most interested in the TMT sector, as I enjoy learning about the latest technologies and analyzing which companies are best-positioned to succeed. If I work on a TMT team at a multi-manager HF, would that not be a part of my job for the most part?
3) I am someone who is not good at making quick calculations in my head, and I sometimes make mistakes when under pressure to perform tasks under a tight time constraint. Is that a red flag that I may not be suitable for the multi-manager style?
4) As someone who is figuring out what investment style I prefer the most, and interested in trying out the multi-manager HF experience, would you recommend for me to work at a mutual fund for 1-2 years first, before the multi-manager HF? That way, if I find, like you did, that the multi-manager style is totally not for me, I may still have a chance of moving back to a mutual fund (assuming I explain my story right)?
5) How big of an advantage for your investment management career would you say it is to have gone to a school with significant alumni representation (undergrad or MBA), whether for the mutual fund, single-manager HF, or multi-manager HF industry?
Thanks a lot for your time and amazing content!
1) Investing at a multi-manager is all about risk management and less about fundamental investing. The investing horizon is 3-9 months usually and PMs usually decrease or increase their positions before quarters depending on whether they think a company will miss or beat earnings. You predict whether companies will miss or beat based on conversations with management teams, changes in commodity prices, credit card data, competitor commentary, etc. There are PMs who may be longer-term oriented, but given multi-managers have tight risk limits, the investment horizon is usually pretty short.
2) Maybe VC is a better path for you. You get exposure to a ton of different companies and industries and make long-term bets depending on what you think will succeed. At a multi-manager, you will cover 20-60 names and you will follow the same companies day in and day out. Your job will be less about figuring out which company is best positioned to succeed and more about how external factors affect a companies performance in the short-term.
3) Nah, you don’t need to be great at quick math for the job.
4) Possibly. Although I would say you should still be able to move to a mutual fund with a multi-manager background. Multual funds are much less competitive than trying to get a job at a single manager hedge fund.
5) If you have a good network, it will be easier to get different jobs because your friends will go to bat for you. That said, as long as you go to a good school, don’t think it is that big of a deal.
Thanks! Very helpful.
Have a few follow up questions on some points:
1) Everyone gets into the multi manager game with the dream of potentially making it big. And if you are at the big platforms, your access to management/information should be as good as anyone else’s. So from your experience, what separates the investment professionals who achieve success in the multi manager industry vs those who do average/poorly?
2) VC is quite interesting, and a lot less stressful than multi manager HF, but the financial compensation trajectory is also not on the same level. While I agree with you that money is not everything in life/career, the opportunity to potentially make millions while making calls on how well internet companies will do in a 3-9 month time frame (even though I don’t get as involved in the long-term tech trends) seems quite attractive to me. Happy to hear a rebuttal on this if any.
4) I get that the tiger cubs and a select few brand-name single manager funds are harder to get into than mutual funds, since they have a smaller headcount and tend to be more picky about your pedigree, but for the rest of the single-managers and mutual funds, it should be a similar level of competitiveness to get a job, right? Is the compensation potentially significant higher at a single managers if the fund has a strong year?
5) Curious about your take on getting an MBA from Dartmouth Tuck/MIT Sloan/Northwestern Kellogg for an investment management career. These are all top programs, but seem to have less representation in IM than more finance-oriented programs such as HBS/Wharton/Columbia/Chicago Booth. Do you think recruiting/lateraling would be harder if I went to one of those schools?
1) Those that are able to fail and fail and fail and keep chugging along learning from their mistakes / what moves stocks are the ones who do well. The ability to handle failure is one of the most important parts of the job.
2) Stop worrying about the money. I will promise you that you will stop caring about money once you make $200K+ and have some savings. What is way more important is figuring out what exactly you love doing. If you are good at VC, choosing successful cofounders and love what you are doing, then you can make millions doing that.
3) Larger funds that have good returns are more competitive to get into, regardless of if they are tiger funds or not. Compensation varies signficantly depending on returns of a fund. Every place is usually the same 125-150K base with the rest in the bonus.
4) Think MBA is a waste of time for most people. Read my post on getting an MBA.
Got it. Thanks so much!
Hi BuysideHustle, thanks for sharing.
I was wondering how you keep track of all the news for the equity names that you cover. Trying to figure out the best way to stay informed about the significant news events for my watchlist companies without having to sift through irrelevant articles. Thanks!
If you are at a buyside shop, you will likely have access to Bloomberg and/or CapIQ. I usually set news/filing alerts on all the companies that I follow and have sell-side research sent to me.
It is hard not to receive irrelevant articles when you are following dozens of companies.
I have tried getting news alerts from Bloomberg sent to my email but it seems these emails don’t have links, just the headlines in text. Or do you view them on the Bloomberg terminal app?
Also, there are dozens of articles for each company every day. Surely there is a better way to filter for only the more important articles on your coverage companies to save you time?
Unfortunately if you are following big, well known companies then there will be a ton of BS articles from BB. Would limit the news to just filings / press releases and sellside research, nothing else really matters.
This is a great and extremely transparent take – I’m assuming you worked at either Point/Baly/MLP where I’ve also received an offer as well.
How difficult do you think it is to transition to a more traditional single manager HF later down the road? LO route is probably out of the picture bar some very special circumstances, but do you think the Tiger cub funds will consider a platform guy?
In most cases, it is hard to transition to a single manager after working at a multi-manager for some time. That said, it all depends on what stocks/sectors you know very well. There are still a lot of single managers that have short term investment horizons, so they will hire people who have expertise in an industry from the large multi-managers.
Tiger cubs – it is unlikely. Investment style is completely different.