Q&A... 7-year Pod Hedge Fund Analyst
I have worked at two of the big pod funds. I cover TMT with a focus on big tech (global internet), media, telco, and video games.
Did 1 year of banking, and went through that recruiting process... then after a few years at my first pod, I was poached by a competing pod and shopped that offer around. Have been very fortunate to never have a down year (knock on wood) and things have gone relatively smoothly, but certainly have come close a few times!
Here to give back to a community I learned a lot from in college / HF recruiting (particularly that epic SimpleAs Research Process post)!
Thanks for doing this. My main question is how do you find alpha in large cap tech?
Is it just from better judgement and following the companies closely (e.g. buying META sub $100 due to a differentiated view on terminal value at the time)? Are there alt data sets that you track to get an edge?
dude asking for the answers
Bump
Many ways! Using META as an example since you mentioned it...
Short-Term Pair trade: you think GOOGL will outperform META because of a travel rebound (travel = higher leverage to GOOGL + random DTC garbage will struggle that has higher IG/FB leverage) and META facing regulatory scrutiny, so you put on a pair trade for 2 months.
Long alpha longer-term trade: META blew up last year. Talk to a bunch of advertisers and agencies to gain conviction the business is still doing great and providing to of value to advertisers. Check Data.ai or SensorTower data to see the consumer side of the business is still quite healthy. Own it small (don't fight the momentum). Try to build conviction around a catalyst (likely earnings) where others' view will swing back in the other direction, size up a bit into this, and then fully scale the position once you have a confirming data point from the company (strong earnings). When these big momentum shifts happen you can make a lot of money catching that inflection, but the easier money is just owning META for the next 100% outperformance over 12 months (even if you missed the first 2 sentiment inflection points in 2023), even if you missed the first 15-30%.
Long alpha daytrade: META reports earnings at 4:05pm. They don't guide until the call a bit later in the evening. Update your model and roll-forward your estimates in 2 mins, estimate what they are going to guide (once you've followed the biz and CFO for many years you can get a great sense for this). 9/10 times this is useless, but once every year or two the stock will swing 20% after hours and the stock trades hundreds of millions of dollars after hours on earnings nights.
How much of your research/recommendations come from quantitative or qualitative research/analysis?
What is the ideal framework for a pitch (for interview purposes) at a pod? This is coming from someone with a LO duration background.
I am slightly more quality-biased than a typical pod. That said, keep it simple. Using YELP as an example (I don't cover it, not a real thesis)
When possible, pitch a pair trade of similar companies. Don't pair them just because they are similar, but try to pitch two standalone alpha ideas that are related and when paired together, focuses the risk you are taking on your "alpha" (the differentiated part of your idea).
This is great, thanks. I just want to clarify on the catalyst section - should you not mention in the writeup the drivers/steps of how you got to your +10% to EBITDA? Would an image of your EBITDA bridge suffice?
Thanks for doing this. Throughout your time at both pods, have you seen many non-traditional hires (pro athletes, military folks, people from corporate jobs, etc.) or is it mostly people who took a similar path to you? For any of the non-traditional hires, what do you think made them stand out and have they been able to succeed on the job?
Yes there have been quite a few of these, but rare as you'd expect.
Weiss (George Weiss) is a fund that notoriously hires football players. Fund managers generally like athletes/military for their (stereotypical) hustle, teamwork, and grit... and then sometimes I think they just like to be around athletes because it makes them feel cool.
Just take couple of classes online and you’ll get hang of it.
Comp breakdown year by year?
Not comfortable sharing year by year... but it was mid-6-figures the first two years and 7-figures every year since (never above $2.5).
That’s awesome, good stuff! How is your comp structured? Do you have a sleeve/get paid some percentage of alpha PnL? If so, would you mind sharing typical sleeve sizes for senior-ish analysts and typical % take rate?
Also, in a sleeve, do you have a little more flexibility on net vs PM/your pod in aggregate?
Could you also provide some color on idio and target return on GMV for your pod and your sleeve? I know a lot of people talking about 3-5% as the realistic threshold, but I’ve heard some guys at larger pods tell me 5-10% is actually realistic and more of a target (ie they’re disappointed with 3% and run slightly lower idio). What do you target?
What # of years of experience to start getting PM looks and what is the right amount of time to wait?
What are your long term goals? I currently an AN1 in tech IB (ignore title) interested in joining a pod but scared of long term prospects and stability.
1) how do you manage stress?
2) how do you disassociate from work and avoid burnout?
I try... but it is hard. Having social & active hobbies outside of work helps- play a team sport, get into a cycling club that meets up a few times a week, etc.
I had a nice gardening leave between the two pods that certainly helped :)
Ask again in a few years and I may be needing another break.
Do you have market cap restrictions? Who’s this set by? You or your PM or the pod?
Yes broadly but there are always exceptions. Set by the fund.
Focus is more liquidity than market cap (how much $ can we put to work in a name and is it worth covering as a result?).
Can you have a rough size of what is too small for you to look at?
Thanks for doing this. I know this is a broad question but any advice for a college student looking to join a tmt pod after IB? Have a lot of free time now and want to try and learn as much as I can before starting FT
Pick 4 related companies, build models, and update them every quarter. Put on paper trades in excel, write up your theses, listen to the calls, write down questions you would ask analysts, read any industry research or alt data you can get your hands on. Just do the job on paper but treat it like it's real. Will also allow you to figure out if you actually like it or not before you get there.
This is the best advice I have seen on this forum in a long time. Listen up people.
Do you reccomend building quarterly or yearly models for this? and if Quarterly, how do you go about building them in a non time consuming way
Thanks for this! Any best practices for junior analysts at pods? Anything you would have changed from your earlier years? If you were a PM, what would you tell your analysts to focus on? Any external resources you would recommend?
Thank you for this-
1) Can you talk about your process when it comes to researching a quarterly beat / miss?
2) Can you talk about what type of channel checks you do for short term pitches?
Thanks for doing this. I’m an mba ib associate in an industry coverage group that executes its own m&a (owns the model). I have always had a passion for public market investing and would like to try to pivot.
Is this a realistic move if I’m willing to put the time in and network my ass off? If so, how can I best prepare myself to land interviews and an offer?
Any favorite books / resources that were instrumental in developing your investment / risk frameworks? am aware that there's been an exhaustive list shared on this site, but would love to hear your thoughts on the few worth reading cover to cover.
what platforms run event-driven strategies? are these net long strategies?
what are common mistakes PMs that come from SMs and other types of HFs do?
Appreciate the AMA. Any tips for candidates navigating the interview process? Particularly in the modelling/case study sections?
you work at a tmt pod and youre doing a WSO ama during peak earnings season?
Right, I was thinking the same thing. How do you have time for that?
Today and tomorrow will be a busy day for TMT.
How do you come up with quarterly numbers? I get the qualitative (easy comp, new product) but can you maybe give a specific walkthrough how to get to +10% vs -5%, +12% etc?
Normal seasonality of a business plus macro factors effecting the industry.
1) Going into earnings, do you try to have a strong view on every stock in your coverage, or is some of the portfolio just more or less perfectly hedged out, and you are really focusing on a handful of battlegrounds to capture alpha. Of those stocks, how many are simply - directionality is with us vs. some juicier variant perception or delta to expectations?
2) One thing I think I struggle with is being more " valuation agnostic" in shorter-term thinking due to some of my more basic training (bad habits?), and I wonder how pods trade around stocks that have lots of upside built into current valuations already. Ex: this stock has already rallied 100% LTM, and trades at 38x NTM P/E, but my intra-quarter checks say that results are going to be strong for this company. Maybe longer term (like 2-3yr), the IRR and risk/reward looks kinda poor because so much is already embedded in the stock at this level, but because the whole street is already there, any decent marginal beat and raise (to an extent) is likely to push this stock another 5%-10% higher. As a result, you go long since this thing has traded between 40x-45x P/E in the upcycle and you see that direction of estimates and results is likely still going up in the short term. Is that something that you can end up doing, or am I missing some more stuff there?
3) How much of the portfolio construction is manually figuring out exposures and calculating how to hedge your exposures - is there a model that everyone uses that shows them exposures and identifies "hey you need to hedge out xyz". And then some of your portfolio is simply, I like this stock and need a hedge here?
What was your background?
How much of your work involves understanding the long-term trajectory of the business? Is your investing basically trading around various price actions relative to this trajectory? For ex, say we like Mercado Libre and think it has 35% upside this year, but we're 20 days into January and stock is up 12%, effectively pulling forward 4 months of performance into three weeks, now we go short b/c it's due for revision? Is that illustrative of the interplay between LT and ST at a pod? How would you seek to quantify that revision potential? Thoughts?
Hi thank you very much in advance for your time. I’m 25, bachelor in business administration, I start at January an internship in B4 audit, plan to work here for one year and after apply for a MSc Finance at Target Europe. I know that is not a linear path like IB -> HF or others, but it is my situation… am I do things correctly to break in HF world? have u ever seen uncommon path like these? Thank u again
No, it’s possible ! But I would advise taking upper level classes and coding courses.
how old r u and how much do you make?
I didn’t see this question yet. Do you enjoy your work? I’m in a long only and I’m somewhat envious of the potential for high performance based pay potential. On the other hand, I love the work I do now and I’ve heard from some in the industry that they hate the model because it’s not intellectually stimulating. I have an ongoing internal debate if I should make the switch one day.
How did you think about single manager and multi manager roles as you were recruiting?
Are you a quantitative research or dev by any chance ?
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