Investment banking vs Hedge funds
Investment banking sells advice on transactions and pays a bonus set by the firm. A hedge fund takes positions with its own capital and pays a bonus set by the book. A fund pays more at the bottom of the ladder and banking more at the top, but the averages hide the real difference: banking pay is predictable and a fund's is not.
The honest version of this comparison is that one is a training programme with a salary and the other is a job where you are expected to already have a view. Very few people go straight into the second, and that is the real reason banking sits in front of it.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
Side by side
| Investment banking | Hedge funds | |
|---|---|---|
| What you actually do | Build the model, write the book, run the process. The output is a document that helps somebody else decide. | Build the view, size it, and live with it. The output is a position. |
| How pay is set | A discretionary bonus benchmarked against your class. Two people at the same level and the same bank land close together. | A discretionary bonus tied to the book. Two people at the same level and the same fund can be several times apart. |
| What is being taught | A great deal, deliberately. Banking is the best structured apprenticeship in finance and that is most of its value. | Little, formally. You are expected to arrive able to do the job and to improve by being wrong in measurable ways. |
| How you get in | Spring week, internship, full-time offer. A defined pipeline you can plan around years ahead. | Off-cycle, opportunistic, and heavily weighted to the quality of the stock pitch you walk in with. |
| Downside | The hours, and work you do not control the timing of. | A bad run can end the job, and the same seat can pay very differently two years running. |
| Bottom of the ladder (total, midpoint) | £80k (Analyst 1) | £135k (Junior Analyst) |
| Top of the ladder (total, midpoint) | £1.2m (Managing Director) | £1m (Portfolio Manager) |
| What the cash leaves out | Bonus is the whole story above analyst level and it is discretionary: two people at the same level and the same firm can be a year of base apart on total. Names vary at the top. What is shown here as Director is Executive Director at JP Morgan, Morgan Stanley and Barclays, and Director at Goldman Sachs and Citi. | Every rung on this ladder is funded by P&L rather than by a bonus pool. The pod keeps a contractual share of its net profits, the portfolio manager takes theirs from it, and the analysts are paid out of the same pool at the manager’s discretion. That is why a good year and a bad year in the same seat differ by more than the entire base salary, and why a sustained drawdown usually ends the seat rather than shrinking the bonus. |
Pay figures are midpoints of aggregated, rounded bands. Full ladders: investment banking and hedge funds.
Which one to pick
Investment banking
Take banking first if you are early. It teaches the mechanics a fund will assume you already have, and it is the single most common route into one.
Hedge funds
Go to a fund when you have a view worth defending and the appetite to be measured on it. Arriving with a pitch matters more here than any part of your CV.
Other comparisons
For open roles and deadlines across every one of these, see the opportunity tracker.