Early in my finance career, I was invited to a very nice dinner. The occasion was to celebrate the firm passing the $1,000,000,000 mark for assets under management. In the early 90s, a billion dollars was a lot of money…
Roll forward 25 years and a billion dollars has become a salary for the best hedge fund managers. What an amazing industry.
In my article on fees, I introduced the concept of a “two and twenty” fund. The partnership received 2% of the assets under management (annually) and 20% of the gains. I didn’t run the numbers at the time, but the partners were celebrating ~$400,000,000 of fees and potential profit sharing. Huge sums of money created by the smartest room of people with whom I’ve ever shared dinner.
I can’t remember much about the dinner but I probably drank too much. I had some bad habits in my early 20s and the partners warned me to dial down the boozing! I wouldn’t discover the medicating effect of exercise until five years later.
Fortunately, I had good habits that balanced the bad.
Always make the needs of your boss your #1 priority. The only exception to this rule is if your boss’s boss makes a request!
When I started in London, they carved off a piece of hallway to create a cubicle for me. My chair was the only desk that could be seen from the Managing Partner’s office. When my boss had a task for me, he’d lean forward and yell,
Yes, I was treated like a dog.
And I loved it.
I’d stop whatever I was doing and scamper into his office for instructions.
The other habit that served me well was saving 50% of everything I earned between 12 and 30 years old.
My parent’s divorce left me with a deep fear of running out of money. As a result of my fanatical savings, I had capital to invest later in my career. In fact, I invested so much in the partnership that the regional heads changed the rules to restrict the investment of junior partners! Envy is part of the finance game and it worked out well for everyone.
With the size of the numbers bouncing around, you’d be forgiven for thinking that I’d retired a wealthy man. I made good money but decided to leave most of it on the table to try my luck at triathlon. It was a decision which, rightly, seemed totally bizarre to my family. I left the firm with a net worth of 20 years living expenses.
Always compare financial wealth to spending and remember life’s about time, not money. I didn’t become a wealthy man until I cut my spending, moved to a low cost location and began to pay attention to what gave me satisfaction.
Far more valuable than money, perhaps the moral of today’s story:
- Save as much as you can, and work your tail off, early – the freedom later is worth it
- Everyone needs to learn basic financial accounting and the time value of money – in a world dominated by greed and envy, financial literacy is invaluable. I use these skills every day.
- Getting paid a lot didn’t satisfy me. I had no idea what motivated me until my life was reset via divorce, unemployment and massive financial loss. I could have made a ton of money sticking with the status quo and that would have been a mistake. Finance could have cost me my health and turned me into a dick.
The best advice I received on my career was from a man, now gone, that was at the dinner that night (link is to my blog about my mentor).
Learn, make money, remember to leave.
When most everyone was telling me that I’d make partner if I stayed in London. An honest man took me out to breakfast and shared advice about living a good life. A good person in an amazing industry. He wasn’t the only one and I miss the team from my early career.
To my friends in Private Equity, thanks so much for the good times and memories we shared.