The sell-side has become pretty boring and just like other industries. Everything interested has moved to the buy-side, in which bonuses as primary compensation is still alive and well.
Another is cagey about what he earns but it's stipulated he earns more than the number above.
Meanwhile another friend at a different hedge-fund had a budget over ~20k USD to decorate his personal office at work.
The excesses of finance are absolutely still alive and well but somehow the buy-side has managed to escape the public eye (presumably because they're mostly private)
So less a term used as a value judgement and more a term with contextual meaning in this topic (IMO).
Presumably these organizations have worked out that they can afford to pay their staff this and that it is profitable to do so, in the same way that FANG can pay their engineers pretty well too.
Meanwhile, the median US household income is $56,516 for two adults...
The goal of hedge fund is to reduce volatility and/or to generate uncorrelated returns. Some people are ready to pay a premium for that (in the form of under-performance compared to an index). Hedge funds are more an alternative to fixed income than an alternative to equities, if you think about it.
So it's evidence that fund managers take an unequal share of their outperformance, not that they don't outperform the market/benchmark (of course, not all do that either).
Is it a case of spending your 20s 8am-10pm in the office, no weekends, no vacation, etc?
Or, if not, then what's the path into a job like this? Are they simply 0.00001% level brilliant people, lucky, well connected?
I have 5 friends in that bucket. And none of them had the "right connection".
Some are immigrants, some are minorities, some were dirt poor and came from nothing.
But all of them had some of the highest drive and grit and sometimes intelligence out of my friend group. These guys would have done well in absolutely any industry.
8 to 10pm x 7 days a week would be an absolutely pleasure. It's hard to convey how hours longer than that weigh on you with multiple back to back subsequent years of "service".
But finance isn't special. 27 year old top attorneys make 300k. And suffer similar pain.
Even in consulting like BCG comp is not as high but you get weekends off. But you're still elbow to elbow with ambitious people.
But heres the rub. I did the math once. My calculation showed there were 4,000 private equity professions in the US. Maybe that's changed. That's an absurdly small number. How many bariatric surgeons are there? Like when you compare these very small knifes edge type quantities, sure, you see excess.
So finance used to be 7% of GDP, up from 4%, so for a period you had the ratio of people to GDP skewed so smart people rushed to normalize it. And it normalized. Now you see the equilibrium hit. But that doesn't mean sometimes the equilibrium is high. There's no 28 year old making 500k in silicon valley? Or spending 20k decorating their office?
Like it's just a matter of perspective.
Sorry for the rant. But the connection thing drives me crazy. I'm sure the silicon valley guy has really hard to obtain skills and didnt network at a bar into his top engineering job.
Edit: didn't mean for this to be combative. I've long believed humans are sort of fungible. You take a partner at an accounting firm and throw him in a consulting firm (and somehow roll back time) that same person will sort of get to the same spot. I believe when you're 14 or 16 or 18 or 20 and you sort of pick what you want to do you are so impressionable that it ends up being partly passion and partially luck.
I know I like to hire based on personal recommendation of people I trust, it removed a lot of risk for me in dealing with random people. Hence “right connections”.
Recruiting has these crazy dance steps. Unless you know in October of your sophomore year what the door knock is on this special process it can be hard to get in. But you can get in later. Its just much much harder.
I've been trying to figure out for a few years what that's called. It's not wealth, because knowing to apply is some sort of social/human capital, and its intergenerational. But I wonder like in the area where I volunteer...how much of the difference in outcome is related to just not knowing how the process works?
Some wealth you’re born with, or you come by from circumstance (many times relating to who you’re born to). Some wealth you can work on obtaining yourself.
Or you can "just" get into a top 5-10 MBA. Still hard, but at least you're an adult at that point
Also, I did not go to Harvard, which typically sends more people to the buy-side then the other top-tier programs (but is somewhat self-selection, because HBS tends to accept a lot of pre-MBA buy-side people from top firms)
[1] I think its more accurate to say that the field requires lack of significant adversity more so than "connections." The median family income at Harvard is $168,000, the 80th percentile. These kids aren't working all summer to help their parents make ends meet. At the same time, their neighbors are engineers, doctors, government employees, etc., not hedge fund managers.
I'm not being facetious. With anything trading-related, a big part of having the ability to make three million dollars more-or-less "on your own" is to have tens of millions of dollars to sling around, plus a good idea of the manner in which to sling it. So a firm will give their people a couple million in buying power and then tell them to go make an X% return. Those that can do so are compensated.
The downside, as I have it, is that the "work-life balance" is, as you mentioned, non-existent and also immensely stressful. Plus, having that kind of money in your 20's can be a problem all on its own.
>what are the kinds of tradeoffs involved in these jobs that pay so extraordinarily well so early in one's career?
>Is it a case of spending your 20s 8am-10pm in the office, no weekends, no vacation, etc?
You'll be in the office for the bulk of the trading day. You will need to be available/online though not necessarily "working" around open and close (possibly from home, many employers are flexible about butt-in-seat hours). Early mornings are rare. Late evenings will be commonplace if your employer does not have their end of day routine down.
If the team you work with is on their game this business is basically a money tree and predictably with that comes a very good work life balance. I have no idea how much vacation these people take but things get very, very quite around basically every holiday so I don't think they're lacking.
>Or, if not, then what's the path into a job like this? Are they simply 0.00001% level brilliant people, lucky, well connected?
Some combination of all of the above and being in the right place at the right time. These are smart people who understand finance, understand tech and understand the implementation. The algorithmic arms race isn't all that fast but the competition is stiff enough that you need to have all your T's crossed and you I's dotted to make money. Have you ever considered buying a microwave link because the fastest fiber money can buy is too slow. That's the level to which everything is built. People roll their own implementations of protocols because the off the shelf ones aren't optimized for what they want to do. Some of these firms reverse engineer the topology of the exchange's computer systems (by sending various orders and carefully analyzing the responses) in order to gain a competitive edge. This stuff can get crazy.
A lot of these firms need to stay under a specific headcount for legal/compliance reasons and when you need to cram that level of competency in all those skills into very few people they obviously wind up being exceptional (in the literal sense) people and they are compensated accordingly (because supply and demand).
If you survive 4 years, then you get into the really well paid positions with 300K bonus a year being common. I have seen 2 scenario unfold: either the 4 previous completely ruin your value system, so you are either a complete asshole or addicted to a life of excess that keeps you in the system. A few will get promoted to hire levels yet and enter a weird world of mostly networking.
In rare circumstances, generally the one lucky to have a good and sane social circle before going into the grinder, you retire at 30 with several millions in your bank account.
And honestly the wash out was a mix of things: quit, got fired, suffered too much took a random job, suffered too much held out and got an amazing job....etc.
I believe the ratio is better at other banks and also better in current times.
I had drinks with my old boss a few months ago and I warned him he would kill a kid one of these days. His answer was "oh culture is fixed, we give one Saturday off a month now. Morale is much better".
Granted this is a tiny skewed example. But your message is spot on.
Edit: source: https://www.google.com/amp/s/www.wallstreetoasis.com/forums/...
I have not seen any of the typical sell side grind common to investment banking among hedge funds. New grads hired to reputable hedge funds typically work comparable hours to their friends who work at Google/Facebook. They might earn 20 - 100% more though.
Being an associate in mergers and acquisitions at an investment bank is famously gruelling - long hours, terrible work culture - and as far as i can tell pretty menial, low-skill stuff most of the time.
Being a quant at a hedge fund can be pretty fun.
My general impression is:
1. Smaller companies are better, on all axes, than bigger ones
2. Trader/associate/etc > developer in all of hours, stress, and pay
3. Front office > back office in all of hours, stress, and pay
One of his teen daughters said, when asked how she felt about her dad retiring and being home all the time, that it was ok because he is “nice” now. She went on to explain how her primary memory of him over her youth is that he was always “mad”.
When you're fresh out of grad school I can imagine the thought process of grinding it out for a couple of years to get to the higher pay brackets. But when there's a wife and kids involved... not so much.
Trading/Sales is normally 6.30am start to 5pm-ish in the evening, which possibly drinks/client entertaining some nights after that. You probably have to spend a few years as desk gopher - coffees, doing the trade reporting admin no-one else wants to do etc. I don't think trading or sales typically work weekends. I think some may trade out of hours as well, but I think (in large IBs in the UK) that they are in the minority.
I also know another new grad recently hired at Hudson River Trading, and another new grad recently hired at Jump Trading. Both are earning over $400k per year, but they work 45 hour weeks. And since RenTech has been mentioned in this thread: the people I know there have wonderful work life balance.
I have found that most popular conceptions of bad work life balance in finance apply to banking and sell side, not to the buy side. Working as a developer at a bank usually sucks, both financially and culturally, in my experience. Not always, but commonly. Working at a hedge fund can be very nice both financially and culturally.
As an aside, i love that the names for things vary so much across the industry. Where i am, "research development" means things like building historical market data archives that other people can use to backtest algorithms etc.
A lot of it is about jumping through hoops but also I think a lot of people who "overachieve" just started young.
I knew people who knew they wanted to be lawyers from age 12 and were finding ways to do work experience from that age.
Similarly, I know many people who were coding from <small age>. (Maybe on the BBC micro, or learning BASIC or learning Java for Minecraft, take your pick).
I have also known people managing personal investment portfolios, and pianists sinking 50 hours per week practising when they were 8 years old.
My personal favorite (because it concerns people close to me) are two people who have instinctively honed the skill to sell and have been selling in some shape or form since they could essentially talk.
When it comes to these "prestigious" type jobs, I think a lot of the people who did well and got the jobs had been prepped a long time in advance. Quite a lot of it is worldview/personality grooming that happens from the high school you go to and your parents but less about direct connections because there are very few grad-level people who get blatant nepotistic hand-me-outs at the big companies you've heard of. Though coaching and interview prep probably does probably abound.
That's not to say it's too late in life to try learn something new, but inevitably life takes over (relationships, and kids).
These sort of perks are common in senior management in several software companies as well. Especially if your job involves some sort of client/customer facing responsibilities.
Indian IT outsourcing firms give their top management a very lavish budget to spend. Typically 5 - 7 star hotel stay, business class travel, thick daily per diem to spend and the best meals money can buy. Plus they also get paid to spend what it takes to impress clients to win contracts. Office furnishing budget etc. I even know one person who bought a fairly expensive bose sound system, and even took it to his home over time. No one really audits these things, and money once given is large aggregated in a group by statement in a report somewhere, and since its already sanctioned, no one cares how its spent either.
This is one of the biggest motivations for me to move into management as a career upgrade.
It's buying real estate to secure your family's future for generations instead of living hand to mouth.
It's sending your kids to good schools or doctors in the West as opposed to hoping to scrape together enough cash to educate or send them to doctors at all.
It would be really hard for a first world person to understand how big the chasm is in less privileged parts of the world.
You do not want to be on the wrong side of the wealth divide.
It's not about speakers.
Case in point air and water. Just air and water. Like try breathing the dusty, polluted air. Or drinking water which gives you and your family throat infection every two months, and outbreaks of dengue killing family and friends every 6 months or so.
I'd literally do anything at this point just to breath good air. And that's just starting with the most fundamental requirement of life itself.
RenTech and TGS had a spectacular year as always. But even if you don't work at a firm like that, being on the right team at a strong second tier firm can be extremely lucrative.
Long short are having a hard time since 2018 for instance, doesn’t mean directional funds have too.
Also, we are in a high deleveraging in L/S environment, so the last 2 years should not be taken as benchmark IMHO.
When the S&P500 is up 25+%, there is a staggeringly large amount of money paid out in bonuses.
Buy-side == hedge funds, proprietary trading companies, high-frequency market makers, maybe also VCs, PEs, investing (their own or other people's) money, buying financing / market access / financial instruments from the sell-side.
Basically the buy side try to be smarter/better/faster/stronger than everyone else, the sell side try to provide an essential service to the buy side, whether that’s a good platform or liquidity or whatever.
So as others have said, sell side typically is the investment banks and brokerage houses, while buy side is your asset managers.