
How much do hedge fund traders earn? - robertwiblin
https://80000hours.org/2017/05/how-much-do-hedge-fund-traders-earn/
======
osrec
As someone who works in the industry, I have a few issues with the article.
Firstly, I feel the average salaries are inflated, even more so at the junior
level. I find it a common tendency amongst finance workers to exaggerate,
especially since real data is rarely made public, so it's an easy,
unverifiable boast. Also, the finance industry seems to thrive on selling
limitless upside to bright grads, in exchange for their best years and hard
work. The truth is, not everyone makes it to star hedge fund manager status,
and your personal earnings, while higher than a lot industries, will rarely be
spectacular. My experience tells me that most people at hedge funds are doing
just okay - enough to be comfortable, but not enough to quit their jobs for
good. And yes, there is a lot of luck involved; for example, Paulson & Co -
once considered a genius, now a garnering one-trick pony status.

A little message to the intelligent engineers, scientists, mathematicians out
there: don't be taken in by the propaganda of the finance industry. The upside
is potentially good, but on average, nowhere near as good as you are made to
believe (and certainly not worth giving up your passion for). Ditch the hype
and focus on contributing something more meaningful to the world - you'll
probably be happier and perhaps financially better off!

~~~
lordnacho
I second this. Been in the industry for many years now. Typical people you run
into:

\- People who are constantly looking for a new gig. They have a model, they
have experience, but either they can't find the appropriate fund for their
style, or they have a bad streak.

\- People who can make money, but only in small size. Some guys I know sit and
home and trade. Enough to pay themselves, but not enough to even get a fund
job.

\- People who were on the team or near some star trader. Amazing how many of
those there are, and how little it rubs off.

On the whole I'd say don't believe the hype. It's very hard to get a seat, and
hedge fund managers are not smarter at recruitment than tech people. So you'll
spend a long time in that support style role, wondering whether you'll ever
get to be the main guy.

~~~
dave_sullivan
That's eerily similar to the people you meet in startups:

\- most consultants

\- "lifestyle businesses"

\- "worked at facebook, give me money"

So much hype in both industries, for similar reasons. There are always ways
for smart people to make money. _Most_ people with some experience in either
industry are doing better than the national average but hardly wealthy and
generally spend too much money.

I do get the impression there's better pay in finance though. $250k as an
experienced engineer strikes a lot of people as high. $250k for someone w/ a
few years at a good hedge fund is... about right, maybe even low.

~~~
hkmurakami
Sadly the "I worked st google, give me money" angle seems to work pretty well
since there's a lot of dumb money in the valley lately? (Small upstart seed
funds with partners with very little track record / weak deal flow)

~~~
JohnnyConatus
Ugh, yeah, I've recruited a few of these people. They're the worst because:

1) they're used to the benefits that come from a company that is swimming in
cash

2) they didn't personally take any of the risk to create that firehose of cash
but they want you to treat them like they did.

3) they don't realize it, but they're used to working in very protected
environments. Typical career paths look like top-tier college -> Google / FB /
Twitter / whatever. None of this prepares them for sitting in a room with some
shitty Ikea desks and trying to make hard decisions that will have a direct
impact on the companies growth. No, we don't have the time or resources to
build a new JS framework.

I'd much rather higher someone from a second-tier US college or from overseas
that can show me a time when they took significant risk / projects they built
from scratch.

^ All of this is in relationship to < 20 employee companies trying to get from
zero to 1.

------
zimablue
I work at a hedge fund (as a dev for an average Dev salary). The pay for head
manager seems roughly right, and we're 1bn between about five-ten analysts
with one making most of the calls. ( I give a range because some are kind of
apart from the fund proper, working on starting new funds by building a
performance record.

I think the article might have some survivors bias, you can't say "I'm going
to be a hedge fund trader" and equate that to the average income if you
survive thirty years. It's cut throat and people burn out or get unlucky, we
need the drop out rate. Also quant funds are getting bigger and must have a
pretty different compensation scheme.

~~~
headmelted
Right, but isn't the compensation a bit of a waste from a commercial
perspective for what's been proven repeatedly to be a roll of the dice?

Am I seeing it wrong? Is the compensation really for convincing Joe Public to
part with his money for a really terrible deal?

~~~
thisisit
Hedge funds are not open to Joe public rather only the accredited investors.
From wiki - "Generally, accredited investors include high-net-worth
individuals, banks, and other large corporations,".

~~~
bhickey
The high-net-worth bar is lower than you might think. $1m in non-first home
assets or $250k in income. Your dentist is not necessarily financially
sophisticated by virtue of their high wages.

------
allenleein
Obviously, the numbers vary a lot, but most top tier firms will start you at a
minimum of 150-200k usd including bonus the first year. If I had to estimate
the median salary growth from there on, I'd guess it to be around 50% a year,
with the rate slowing down as you get to 750-1mm. After five years on the job,
the median would be around 700k, with the top 10 percentile making more than
2-3mm. At that point, if you're good, you're probably leading a team (or are a
senior quant in an all-star team), and your bonus depends almost entirely on
performance.

An interesting downside to this, especially for young traders who get to the
high numbers, is that they often begin to treat their bonuses as a given. Once
you make seven figures, it becomes easy to assume that your smarts will ensure
financial prosperity for the rest of your life. But bonuses in trading are
very volatile - I think of mine like an NFL player's paycheck, rather than a
software engineer's salary. Competition from different firms, financial
regulation and shifts in market structure often come in the way of long term
salary guarantees. Over the years, I've seen that those who survive through
thick and thin (well, 'thin' in a strictly relative sense) are the ones
genuinely passionate about the intellectual challenges of trading.

From Quora: [https://www.quora.com/How-much-do-traders-at-big-
quantitativ...](https://www.quora.com/How-much-do-traders-at-big-quantitative-
hedge-funds-like-Renaissance-or-Two-Sigma-typically-make)

~~~
vostok
That starting range is approximately correct, but the median is not $700k
after 5 years.

~~~
allenleein
so what's the num?

~~~
vostok
I would guess that the median is around $300k if you consider only PM-track
roles at top firms. It depends on the firm, but the typical breakdown will be
somewhere between $100k salary plus $200k bonus and $150k salary plus $150k
bonus.

If you consider non-PM track roles then the average is lower and if you
consider lower tier firms then the average is lower. That doesn't mean that
nobody makes $700k -- there's a very famous example of someone at a lower tier
firm who took home $10 million.

There are firms where the PM takes the bulk of the money and little filters
down to junior level staff.

There are firms where by 5 years you're either fired or getting paid a lot.

There are firms that hire relatively few people and pay junior level staff
very well. I don't know if I would estimate as high as $700k, but the median
here is going to be very good. These firms make up a small minority.

~~~
allenleein
Like Two Sigma and Jane Street?

~~~
arcanus
Two sigma starts total comp for a recent PhD around 250k.

------
whatok
I'm also here to echo the trader != portfolio manager which seems to be
described in this article. There's a vast difference in duties and comp
between the same job title at a bank, hedge fund, or prop shop and you really
cannot look at only comp and job title for comparison. I suspect some data
points from hedge funds and prop shops got mixed together. A typical trader at
a hedge fund is not making anywhere near the comp claimed in this post and
"senior trader" at most places is like giving you a gold star because they
didn't want to promote you to portfolio manager.

Additionally, 2 and 20 literally does not exist anymore for the vast majority
of funds. Downward pressure on fees has been all over the news for the past
several years and having the inaccurate data point as well as no mention of
recent trends leads me to doubt other data points in this article.

The revenue split also makes no sense and does not account for fund size or
strategy which has a huge influence on costs.

------
soVeryTired
IMO a lot of the information in this article is suspect. Perhaps the
terminology is different in the states, but decision makers tend not to be
known as "traders" in the UK: they're portfolio managers. Traders are middle-
office guys who handle execution. Secondly, there are very few shops that can
charge two and twenty these days. Even in the good days, two and twenty was
the 'sticker price', a point at which to begin fee negotiations. Any client
with a decent-size ticket would pay less.

As a junior / mid-level front office hedgie I made £120k last year. I wouldn't
be surprised if my boss made double that. Not a stunning amount, but easily
enough to be comfortable and save for the future. Unless you're an equity
partner at a hedge fund, that's what you can expect to earn in the uk.

The appeal of asset management is mostly about the lifestyle rather than the
comp: interesting, varied work, with fifty hour weeks and no weekend work. On
a per hour basis, you might do better than someone on the sell side, but those
guys work a _lot_ of hours.

~~~
user5994461
What are the hours and the perks? That's the only question.

~~~
nissimk
It's more than many other jobs. Everyone gets to work early. Many front office
personnel get to work before 8 and the floor is mostly full by 830, but many
people leave at 5 and most by 630. Most people eat lunch at their desk.

There are a lot of extra curricular activities though. You need to do dinners
and events to build relationships.

------
qeternity
Former hedge fund trader here at a big fund: these numbers are correct, but
not representative. There are thousands of funds out there. Some huge and
killing it, but most are small that aren't. The costs to launch and run a fund
are huge, which really eats into the take home of the smaller operations. In
large shops, a PM will often take half of what he earns for the manager (i.e.
not for the LPs). So if he runs a book of $100m and makes 25% (so $25 pnl),
the manager keeps (historically) 20% so $5, of which $2.5 might go to the PM.
There are definitely guys who are making tens of millions, and obviously the
guys that everyone reads about who are making much more. But the vast majority
of front office personnel who are working at funds are making sub $500k/year.

~~~
BugsJustFindMe
> But the vast majority of front office personnel who are working at funds are
> making sub _$500k /year_.

 _cough_ poor them.

~~~
fb03
Can you believe it, sub-500k? Hah!

------
atemerev
Hedge fund traders get some small percentage of what they earn for their
clients. This is not a problem. The problem is that when they fail, their
clients lose money, and they don't (yes, there are some career risks, but they
are minor).

Elementary knowledge of game theory tells us that becoming a hedge fund trader
is a great opportunity. Thankfully, now it is easier than ever — just show
that you can consistently earn money by trading, and you'll get calls.

~~~
vostok
> The problem is that when they fail, their clients lose money, and they don't
> (yes, there are some career risks, but they are minor).

You can lose your deferred compensation, which is very common at both hedge
funds and banks once you start earning more money.

> Thankfully, now it is easier than ever — just show that you can consistently
> earn money by trading, and you'll get calls.

Have you ever tried raising institutional money? It's not that easy even if
you have a good track record. Many times it will come under extremely investor
friendly terms and often it will be a SMA rather than an actual investment. Of
course you can raise millions of F&F money, but the economics for most
strategies don't work out until you get into the 9 figure range.

~~~
atemerev
I have the opposite problem — my strategies are scalable up to some AUM, and I
am constantly looking for ways to raise this limit, meanwhile rejecting new
clients :)

~~~
vostok
I'm in the tech heavy and completely unscalable space. It fits my personality
a lot better, but that's why we're not a hedge fund.

~~~
atemerev
Yep, you are in HFT. I don't have the means to compete in traditional HFT, but
I am trying to be the fastest guy in Bitcoin venues. :)

------
mathattack
Some observations having put some time in on Wall Street between tech
stints...

1 - There are a lot of jobs a few years out of undergrad or MBA that pay low 6
figures.

2 - The hedge fund jobs that are mid to high six figures are much harder to
get. It's not "Graduate, sit and wait"

3 - Most of the comp is in bonus, and there is tremendous job risk. (Base
salaries top out around 100K) If you make $750K for a good year, and then have
2 bad quarters, you're fired without any bonus, and good luck getting the next
job due to the weak track record.

4 - The industry goes through purges every 6-8 years where masses of people
get laid off. (2008 was the last - they're overdue)

5 - The industry is cutting employment over time.

------
jamez1
Trading/Dealing and portfolio management are two very different functions and
this article doesn't begin to touch the distinction. This article is not a
good source of information, especially about the current state of the industry

~~~
atemerev
"Portfolio management" is traditionally the domain of IBs, isn't it?

~~~
losvedir
Finance seems to have a lot of different terminology in different areas. From
my experience in "sell side equity research" (i.e.: we researched stocks, but
didn't own much ourselves, other than our market-making trading desk), I've
come to associate "portfolio management" with the "buy side" \- hedge funds,
mutual funds, pension plans, and so on. Investment banks were something else
entirely; they pitched and ran mergers and acquisitions. They didn't manage
stocks themselves.

It gets confusing since some firms can do both. E.g., Goldman or Morgan
Stanley are generally well known as investment banks, but they also have an
equity research side. But folks who work in equity research aren't called
"investment bankers" and "investment bankers" don't work on the equity
research side. In fact, there's regulations that try to limit the interaction
between the two sides.

But in any case, I wouldn't consider _either_ side to manage a portfolio.

------
j7ake
Maybe someone can explain this to me... how is this different than saying that
professional athletes are one of the highest paying jobs in the world ? There
are a lot of hedge fund traders that blow up and are no longer part of the
statistics of these senior guys who are taking in $10 million.

~~~
BenjaminTodd
Our estimate of the _mean_ is still 400-900k, whereas the mean in
sports/arts/entertainment is only about $70k.
[https://80000hours.org/articles/highest-paying-
jobs/](https://80000hours.org/articles/highest-paying-jobs/) Even the junior
roles in trading are higher paid than this.

You're right that you also need to account for the chance of dropping out of
the role all together, which is hard. (Though drop out rates are high in both
sports and finance.)

------
mailshanx
Can anyone shed light on how an machine learning focussed software engineer or
data scientist might get a piece of the action? Specifically, how might such a
person land a role that has potential to pay say, 300k+ ?

~~~
dsacco
That depends on your degree level. If you have an MSc or a PhD you should be
able to more or less walk onto an interview at many hedge funds, including
relatively well-known ones. With less than that, it's going to be more
difficult (but doable).

Many quantitative funds specifically hire math/stats/comp sci without a
background in finance. The interviews will be very math/stats focused with
coding (maybe algorithms) thrown in.

Don't expect $300k your first year (or second, honestly). Expect more like
$150k. The lucrative compensation will be in bonus, and you (or your team)
will eat what you kill. You should research the industry more so you're not
walking in blind. "Quant" is an overused term and means different things. That
skillset can land you in roles for execution (mostly development), strategy
research (much more math/stats), risk management, trading, etc. There are few
roles that will start off at $300k+ without any time in the industry, and
where it happens those are generally cases of very well-known firms poaching
someone from academia.

------
theprop
What the article talks about is not a typical hedge fund trader, but a kind of
portfolio manager, that's what a prop trader is more like. A trader in a hedge
fund is someone who usually earns $200k plus or minus something...but is more
in executing trades and such, not coming up with investment ideas (so not that
gigantic upside they mentioned there usually).

~~~
eiliant
eli5 a prop shop vs. hedge fund? or hedge fund trader vs. prop trader is
that's any different

~~~
mi100hael
Hedge Fund: an organization that invests client money and keeps some % of the
fund/profits each year as a fee.

Prop Shop: a division within some financial institution that invests the
institution's own money.

------
rootsudo
This website again? I swear it's main marketing pool is just us, the
population of HN.

------
acd
Here is a visualisation of different assests including Hedge funds which
explains the high salaries. Hedge funds are the top of the financial world.
[http://money.visualcapitalist.com/all-of-the-worlds-money-
an...](http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-
in-one-visualization/)

------
headmelted
"can only be used by accredited investors"

"3.6% of assets under management"

Hold on. Let me take another swig of coffee so I can decorate my screen with
it.

How can this possibly be true? This would mean that there is some form of
accreditation for investing that allows someone to qualify who thinks that a
3.6% fee is a good investment. Who are their investors? Do they know this?

I have no special access to the markets (no investor status, no massive sums
under management) and I pay no more than 0.07% in fees, in total. Were I
resident in the US it would be about 20% less.

No wonder they're raking it in.

~~~
Kholo
Their investors don't know what else to do with their cash.

Getting rich and doing something with the riches involve two different skill
sets that most people can't master in one life time.

~~~
headmelted
A lot of people regard it as a solved problem. (Stick it in in an index
fund?).

Obviously you'd never advise someone to put all their eggs in one basket, but
in this case, you're comparing identical baskets - and one of them as a hole
in the bottom.

~~~
pedrocr
How is buying 3000+ of the worlds largest companies "putting eggs in the same
basket"? Buying some bonds and real estate funds can be nice as well but the
diversification benefits are usually overstated. Worldwide stocks are already
incredibly diversified.

~~~
nostalgiac
An Index fund can refer to one of the many many different types of
weighted/diverse indexes that exist.

Dumping all your money into an ASX200 Index Fund is a lot different to putting
it all into Vanguards Total World Stock fund.

~~~
pedrocr
All the advice about simple investing is of the Total World Stock type.

------
vostok
I feel comfortable denying the claims in this article.

~~~
ignawin
Please, do.

------
AdamN
The comments below point out that the numbers or the math may be right or
wrong but one lesson for people choosing a career:

1\. Industry matters big time!

2\. Reputation of the teams your on matters big time!

3\. College (High School..) you go to/went to matters big time!

4\. Moving industries can be done ... but in the more mature industries (like
finance), it's hard to break in 2 years after college.

5\. College really freaking matters (even if you drop out of Harvard).

6\. Your humanity must always be top of mind and any of the prior points are
swamped by the importance of 'to thine oneself be true'.

------
rodionos
How much do poker players earn? Can't answer by looking at top players unless
you take the remaining 99% into account. Survivor bias.

------
geppeto
Thanks, the way reported salaries mask total compensation is very opaque
between industries.

------
6nf
What is this shit

------
yannovitch
I would advise lots of you who have answered here to watch the TV show
"Billions", lots of your answers made me immediately think of this show !

------
wdb
Are we here talking about salary or including bonuses? In my opinion bonuses
should be excluded from salary (especially when discussing your salary).

------
known
20% of profit

------
SirLJ
I am not sure if the salaries are accurate, but today data is very cheap (just
search for stock market data in eBay and you can find 20 years for less than
100 bucks) and with a little python knowledge you can test any trading idea
imaginable, passive ETF investing, etc...

~~~
dsacco
You've mentioned that before. Buying financial data from Ebay sounds insane.
There's all sorts of issues with that recommendation...just for one, what kind
of data is it? OHLC? 1m? 1s? Tick data?

Real historical tick data costs five to six figures per year from a well-
regarded source. There's a price signaling issue here - if you have
legitimately identified alpha, the cost of the data is not unreasonable (just
as a colocated server is not unreasonable expensive if you can capitalize on
it). If someone has high quality data, why would they sell it on _Ebay_ for
that price? It signals several things:

1) They don't care about selling where their customers are,

2) They don't care about leaving (ridiculous amounts of) money on the table,

3) They are probably not going to provide any verification or due diligence
for the data, let alone any support for it afterwards.

What are these people doing, scraping Yahoo Finance, throwing it in a CSV and
selling it? I find it exceptionally difficult to believe that "with a little
Python" you'll be testing anything close to "any strategy imaginable" using
this data. Vendors that sell real data do not share many of the
characteristics of a fly by night operation.

~~~
SirLJ
I am talking about daily data for long term trading/investing, obviously if
you plan to run high frequency or day trading operation and need one minute or
tick data, neither eBay nor python will help you :-)

