I need some advice from you guys. So 2 of my good friends have just raised capital for their own funds and want me to join them. Friend A raised about $2.5 million and wants to focus on equity trading. He is going to allocate roughly $500K for first-year compensation for the people he hires. The money he has raised is actually a “gift” from his family friends, so the plan is to do well for a few years before turning to investors and resorting to the typical hedge fund fee structure. He is willing to write me a check upfront for $100K, which will be my total compensation for the first year (no bonus). The job will be in Chicago. Friend B raised $13 million and is putting 5 million of his own capital into the fund. He’s a very successful fixed income and commodities trader. He’s offering a base of 85-90K/year and a discretionary bonus. The job will be in NYC. IMO, there are pros and cons to both. The pro of option B over A is that the fund is better capitalized and the friend has a long proven track record. The pro of option A is that my initial base salary will be higher in a city with much lower cost of living, and i will have A LOT of responsibilities (my official title will be managing director and he’s going to give me almost complete latitude on trading strategies). Moreover, if I stay in Chicago, I can work and do a part-time MBA at Booth. I still have a lot of time to make a decision. But advice and thoughts from you guys will be very much appreciated. Thanks.
Something sounds fishy. How does Friend A pay out 500k in salaries if that is 1/5 of total funds raised ? He’s willing to eat a big loss by paying people? or is he guaranteeing some kind of 20%+ return? And that’s not including expensive back office functions which he is likely outsourcing.
ksc1940 Wrote: ------------------------------------------------------- > I need some advice from you guys. > > So 2 of my good friends have just raised capital > for their own funds and want me to join them. > Friend A raised about $2.5 million and wants to > focus on equity trading. He is going to allocate > roughly $500K for first-year compensation for the > people he hires. The money he has raised is > actually a “gift” from his family friends, so the > plan is to do well for a few years before turning > to investors and resorting to the typical hedge > fund fee structure. He is willing to write me a > check upfront for $100K, which will be my total > compensation for the first year (no bonus). The > job will be in Chicago. > > Friend B raised $13 million and is putting 5 > million of his own capital into the fund. He’s a > very successful fixed income and commodities > trader. He’s offering a base of 85-90K/year and a > discretionary bonus. The job will be in NYC. > > IMO, there are pros and cons to both. The pro of > option B over A is that the fund is better > capitalized and the friend has a long proven track > record. The pro of option A is that my initial > base salary will be higher in a city with much > lower cost of living, and i will have A LOT of > responsibilities (my official title will be > managing director and he’s going to give me almost > complete latitude on trading strategies). > Moreover, if I stay in Chicago, I can work and do > a part-time MBA at Booth. > > I still have a lot of time to make a decision. But > advice and thoughts from you guys will be very > much appreciated. > > Thanks. KSC, send me an email, I’m actually in Chicago. TheCaymanIslands@gmail.com
The situation with friend A sounds kind of sketchy. What sort of fund commits 20% of its capital to compensation without even looking at results? Also, why would they pay you all your compensation up front? Doesn’t this mean that there is no further incentive to do well for the rest of the year? Also, the fund is $2.5 million. If I had to guess the success rate of funds of this size, I would not be very optimistic. Fund B sounds a lot more credible. By “credible” I mean that at least a rational person might possibly consider investing in them, rather than handing over their bank account number to exiled Nigerian royalty. In summary, Fund B > exiled Nigerian royalty > Fund A.
^lol
I like posts like this lol
Obviously B is the answer. I would take A in a heartbeat if B doesn’t work out . Worst case scenario: the A fund goes bust after a year. You re out of a job but have a pretty cool story. The risk - reward is great on the A fund. That is if the salary is really paid upfront before you quit your current job. I mean unless you have a top job now. But in which case you wouldn’t be posting on AF.
sounds like a scam brother option A. These guys wouldnt happen to be Chinese?
or nigerian?
wait a sec. OP posted the same thing at wallstreetoasis http://www.wallstreetoasis.com/forums/2-friends-are-starting-their-own-funds I want to say we as a group are FAR smarter than those people over there. It took 13 people over there to notice the absurd payout (20% of fund assets), where the 1st and 3rd reply to OP noticed it here. AF forum >>> wallstreetoasis
we are awesome.
how good a friend is “friend A”? if it’s all upfront why not take it, then immediately jump to fund B? is that wrong? is this why i don’t have any friends?!
kmm1486 Wrote: ------------------------------------------------------- > how good a friend is “friend A”? if it’s all > upfront why not take it, then immediately jump to > fund B? > > is that wrong? is this why i don’t have any > friends?! He’s a good friend. I’m definitely not gonna wrong him like that. I personally don’t think friend A really knows what he’s doing, which is why he’s resorting to this bizarre compensation scheme and is willing to give me almost total control over the daily operations of the fund. My official job title will be “Managing Director.” Worst case scenario with A, the fund implodes after 1 year, and I have the money in my bank account, and I can them jump ship to B or work somewhere else.
Maybe the OP is in reality this “Friend A” trying to convince someone from the Internets with the classic here-is-your-annual-salary-upfront scam.
^^^ Oh, I don’t know this classic scam. Can you explain ? If it’s really “upfront”, where can be the scam ?
No offense, but if you have to seriously consider option A, you are not cut out for finance. A won’t work because he is going to spend $500K a year for “a few years” (assuming compensation doesn’t decline in years two and three) before *possibly* growing assets to a sustainable level. ASSUMING he is successful over the next 3 years, he will have burned through 60% of his starting capital, pre-gains (if any) and pre-tax. It’s hard to think of many business models that are more retarded than that. If you sign on, you will get a fancy title and marginally more compensation than option B. When option A fails (which it will), you will be out of a job. Given the way things are going, there is a very real possibility we are going to see a double dip recession. Now is absolutely not a good time to be launching a new fund in the US, period. But worse than that, if we do have a double dip, a lot of people are going to get chucked from the industry. Many of those who get chucked will NEVER get back in. Wall Street is in the midst of a long-term secular contraction and there is an over supply of labor (including highly skilled labor), a supply which is likely to increase in the next few years. Careers are a long tailed game – in order to win, you must first not lose. Option A is essentially placing all of your “career capital” on red 22 and spinning the roulette wheel; if the wheel doesn’t land on *exactly* the right spot, you are a zero. I certainly wouldn’t ever consider hiring anyone who was quite that dumb, and I imagine others would feel the same way, so you might never get back on to the Street. Option A is even scarier if he is giving you control over the fund when you don’t know anything about investing or running a fund. Even if he had a real business model, this would be an enormous red flag. Option B doesn’t sound that much less risky. $13M is not a real fund – if that’s all he could raise, he is not really “a highly successful” investor. Why don’t you go with Option C and skip both and keep working in whatever you are doing now, and then go destroy capital on an MBA. It’s not a great option, but you’ll be further ahead than with options A and B.
Bromion, I completely see where you’re coming from with this and it’s a good post. But my view is opposite of yours. Assuming no scam, both A and B provide him with a sick learning/life experience even upon failure. I don’t know what OP is currently doing, but it can’t be that great. Otherwise he wouldn’t be considering such “exotic” opportunities. Sure he can stay warm inside and be another one of these million dudes doing an MBA to move to something better. But everyone is doing that. I think there are risks in life that are worth being taken. Assuming OP doesn’t have a family to feed.
That’s exactly my point. The OP has been doing something that apparently is not that great. He’s now considering throwing his career away on a couple of hail mary opportunities. When those fail, he won’t have the experience or credentials to get back into a highly competitive field that is in the process of getting even more competitive. And I think you overestimate how useful the experience would be. Option A is obviously a joke. B we know less about, but also does not look promising based on the details provided. Speaking from experience, there are good risks and there are bad risks, and these are the latter. When I took my current job, I was promised six months of pay, and that’s it. The deal was that if I added value, I could stay, but otherwise I was going to get cut. That’s pretty risky, especially since the decision coincided with the Lehman shock. The difference is that it was at an established fund with $200M AUM at the time (way up now), all of which was the founder’s own personal capital earned over a ~15 year time horizon, a track record that was both audited and verified through the firm’s prime broker. Sometimes in life you have to go for it and take risks to get where you want to be, but joining a start up fund with tiny capital and no track record is an unnecessary risk. When you read the news, you hear about the handful of people who made it to the top, and not the multitude who got burned or had bad luck and never got another job on Wall Street. Think about it.
^ I agree with this. Imagine you are at some ho-hum job, a stellar “Managing Director” opportunity comes up, you jump on it. It collapses in utter failure a year later, and you got “MD of investment group” on your resume for a year, which was way beyond your prior experience. The good shops look at it with suspicion and dismiss it, shops with entry levels position say you may be overqualified, and everyone in the middle is like: wtf. now what do you do?
ksc1940 Wrote: ------------------------------------------------------- > I personally don’t think friend A really knows > what he’s doing, which is why he’s resorting to > this bizarre compensation scheme and is willing to > give me almost total control over the daily > operations of the fund. Don’t you find this unethical? You would be taking on the responsibility of managing a fund that is voluntarily starting at -20% without any plan (outside of hiring you) to get it back. You should tell friend A to pull his head out of his ass and give the capital back to his clients. Is he from some super loaded family? Are you not worried about his future when he pisses all the money his friends and family invested in him?