Ever wonder what the pursuit of wealth might do to you?
Not too long ago, a friend asked me to talk to his daughter…
Having recently graduated college, she’d developed a jones for the financial world, with a focus on hedge funds. In my past life, I was a securities and hedge-fund lawyer, so knowing that I knew how it works from the inside out, I was tapped as the go to guy for information about how to break in.
I know what your saying…
“Dude, now is not the time to be looking for a job on Wall Street.”
Which was one of the first things I said to her. Not so much to truly dissuade her, but to throw up a very simple to dismantle barrier and see if she’d knock it down or back away. She knocked it down.
So, I asked her, “what is it about hedge funds that makes you want to work there?” Her answer, “honestly, it’s the money!”
For those not in the know, here’s how “the money” in hedge funds work…
Hedge fund managers put in 0.25% of the money in a fund (sometimes more), then get other people to entrust them with the other 99.75% to invest on their behalves. So, if you raise a $100 million fund, you might put in $250,000, and take in another $99,750,000 from other investors.
Now, as the managers, you take a yearly management fee, anywhere from 1 to 5%, so that’s $1-$5 million a year, regardless of how the fund does. Then, you take 20% of the gains on the entire amount, that’s called the “carry.”
So, if you manage $100 million, the fund generates an average 20% return/year (which is the expectation in many funds) and the fund is in place for 10 years, before it’s fully liquidated, the net gain is $200 million. You get 20% of the $200 million gain or $40 million.
If the fund was a $1 billion (many are), you’d get $10-$50 million management fee and $400 million.
Is the carry guaranteed? Of course not, but, you can see pretty quickly why, for so many people, becoming a hedge fund manager has been the holy grail of Wall Street jobs (barring the last few months).
The only people that make anywhere near the same level of income are movie stars and pro athletes.
But, here’s the problem…
Along with the opportunity for extraordinary wealth comes often gut-shredding, never-relenting levels of stress, anxiety, non-stop work and a whole lot of sleepless nights. Because, you are the final word on hundreds of millions, if not billions of other peoples’ money. You are putting their money, their pension funds, their savings, their investment portfolios at risk…a lot of risk. If things go South, it’s all on you.
And, that’s a whole lotta stress to live with.
Because of this, most of the hedge fund principals and managers that I’ve known have been hardcore cowboys. Not all, but most.
They not only can handle, but thrive on extreme stress. They are huge risk takers, because the greatest rewards very often go to the those who take the greatest risks. And, very often, they are completely and utterly defined and consumed by their businesses.
So, after sharing this with my friend’s daughter, I asked her four questions…
- Are you ready to handle that?
- Are you the type of person I just described?
- Do you WANT to be that person? And,
- Do you have a genuine passion for that type of work, beyond the money?”
Her answer…”theoretically, yes.”
Why “theoretically?” Because, she was 22 years old, fresh out of college with a degree in business. Whether she could handle it was largely a giant guess. And, for her, the only way to really know, was to try it (again, getting a hedge fund job is a whole different discussion).
But, what about the rest of us who may be a bit further down the career and life path?
Whether you launch your own business or work for someone else, fact is, most business adventures that offer the promise of extraordinary wealth, from hedge funds to entrepreneurship, require risk.
Generally, the bigger the potential payout, the bigger the risk.
And, the bigger the risk, the longer you have to live with it, the greater the toll it can take on your health, your sanity, your body, your relationships and your life. I’ve learned this the hard way, blowing through my “healthy” risk tolerance levels and suffering everything from anxiety and sleeplessness to hospitalization.
Over the years, though, largely through trial and error, I’ve gotten better at structuring my business ventures and various professional pursuits around not only what I want out of life, but around what I know I can handle from a risk/stress standpoint.
I wonder, though…
How many people pursue financial wealth or a particular field without ever really considering the toll success in that field will likely take on every other aspect of their lives?
I’m not actually suggesting that you NOT go into a particular field or pursue something deeply desired.
What I AM wondering, though, is how many of us do it without opening our eyes to and consciously choosing to accept the pound of flesh it’ll take to get what we want.
Dunno, as usual, just thinking out loud here.
So, what do you think?
What am I missing?
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