The man who thinks Jain Global's portfolio managers could earn $6.4m each
Today is the day that hedge fund Jain Global starts trading. As we reported last week, some of the salaries it's paying portfolio managers look low compared to the salaries on offer at the larger multistrategy hedge funds. Now, a Twitter account run by a self-described "anonymous restructuring banker turned private equity investor at a mega-fund based in New York" has produced an argument for why bonuses at Jain might be lower than average, too.
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The argument is based on some heavy assumptions and some convoluted calculations and the numbers haven't been validated by Jain. After Bloomberg reported last week that Jain Global has raised $5.3bn and has 42 portfolio managers (PMs) and 215 staff in total, the mystery restructuring guy suggests Jain likely has 21 senior portfolio managers, 21 junior portfolio managers and 63 analysts. This would mean that 105 of Jain's 215 staff are investment staff, which roughly fits with the 50:50 split between Jain's investment staff and the rest at the time of its last filed ADV report (when it only employed 70 people).
The restructuring guy then assumes that Jain's $5.3bn of assets are only levered 5x as the fund is relatively new. This gives $26bn of levered assets, which he assumes are distributed between nine junior pods with $1bn each in assets under management (AUM) and 12 senior pods with $1.5bn in AUM...
If Jain's 5x levered funds are distributed between pods in those proportions and if the pods generate 4% a year in annual returns and if the staff get their 20% performance share, of which the restructuring guy assumes that the PMs take 60% in the senior pods (and 70% in junior pods, although it's not clear why), the restructuring guy says Jain's senior portfolio managers should expect to earn $6.4m each....
We've posted the full Tweet with the workings at the bottom of this article.
The real question, though, is how the potential PM performance pay at Jain compares to other funds.
Performance pay in hedge funds is a function of two things: funds invested and returns as a proportion of those invested funds.
Big multistrategy funds don't all share how many pods they have, but they do share assets under management and their total investment staff headcount (the figures below are from 2023). The higher the AUM per member of investment staff, the higher the bonus potential.
Based on these figures, Jain doesn't look too anomalous: at $50m each, AUM per member of investment staff at Jain are double those at Millennium and Balyasny and lower only than Eisler and Citadel.
Except...pay potential isn't only about returns on AUM: it's also about returns on leveraged AUM. Leverage at established firms like Citadel can be seven times capital (or more), implying that each of Citadel's 1,132 investment staff might have $390m to invest, versus an average of 'just' $247m each at Jain if leverage there is indeed curtailed to five times AUM.
The implication, then, might be that Jain's investment staff are in danger of earning 37% less than Citadel's for the same returns....
By the same calculation, though, Jain's people might earn on a par with people at Verition and may even earn more than investment professionals at Millennium.
On the same premise, and if AUM per member of investment staff are leveraged seven times everywhere but Jain (possibly doubtful), the implication is that earnings potential for investment staff is the highest of all at Eisler Capital. However, Business Insider reported that Eisler was up 0.4% through to May, while Citadel and Millennium were up 7% and 5.8% respectively, so this may unfortunately prove wishful thinking.
4) What is the expected compensation?
The big MMs are generally estimated to lever up their capital 7-8 times. Given Jain has just started operating, it is likely that their infrastructure cannot sustain such leverage and therefore we can use 5x as a proxy for their leverage.… pic.twitter.com/m3b0c3i23C— Restructuring__ (@Restructuring__) June 30, 2024
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