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My miserable pay as an analyst in a hedge fund

If you don't work for a hedge fund, you probably imagine that everyone on the buy-side is well paid. As an analyst in a hedge fund I can assure you that this is not the case.

On the buy-side, compensation is all about the team. If the firm does well and the team does well, so should you. In theory, it's all about sharing the wealth - at least that's what they will tell you at the start of the year.

At the end of the year, it’s a whole different story. As an analyst, you are not the one deciding how to allocate the compensation. It’s the portfolio manager (PM) that decides compensation.

Everyone on the buy-side is very greedy. And PMs are the greediest.  Whenever I’ve had a bad year, no PM has ever paid me more than what they were obligated to. None of them ever said, “You didn’t have a great year, but I’m going to pay you more, because we’re a team.”

However, this doesn't work both ways. If you’re an analyst who has outperformed the rest of your group, you know the “team” speech is coming. “Yes, you generated the majority of the profits this year. But you can’t look at it like that. We’re a team, so we need to distribute it evenly. Don’t worry, you’ll appreciate it when you have a bad year.” 

But when you've had a bad year, they pay you down more than ever. 

As analyst you are generally underpaid in every situation: when you outperform and the group, and when you underperform the group (in which case you'll be underpaid even more dramatically).  This is why portfolio managers drives Ferraris, and you drive the Corolla.

Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.

Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com in the first instance. Whatsapp/Signal/Telegram also available.

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Photo by Vasilios Muselimis on Unsplash

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AUTHORMarginofSaving Insider Comment
  • Dr
    Dr. Hankapus
    29 July 2021

    So what is a low salary for a hedge fund analyst? Give me a number.

  • RR
    RRRR
    27 July 2021

    Nothing new. Junior investment bankers at least as far back as the 1980s knew that the bonus reflected the worst of how you did, how your "group" did & how the firm did.

  • Hr
    Hrdnitlr
    27 July 2021

    Yeah, it's so true about pay. Whenever you hear about "typical" salaries for almost any role, that's an average with a ton of spread around it, especially to the downside.

    As the author says, "compensation is all about the team. If the firm does well and the team does well, so should you. In theory, it's all about sharing the wealth - at least that's what they will tell you at the start of the year."

    The best definition I heard of this, and it is a cultural phenomenon in some organizations around pay, is "sounds like an organization that is run for the benefit of a very small group of people."

    It is *really* hard to detect from the outside whether an organization is like this, or is more of a meritocracy. I mean no place is a total meritocracy, but but some places have a culture where they think it'll be better for their brand and morale (and ultimately for business) if they consistently pay people better than the bare minimum it takes to keep them.

    Other places - - to be avoided, if possible, but it's hard to know in advance - - see everyone except the "in" group (which might, you know, include the founder's dumb-as-rocks nephew, or whatever) as dispensable, and figure that when people quit from being underpaid, they'll just pay whatever they need to in order to replace them. (They'll sort of cross that bridge when they come to it, they figure.)

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