Q&A: Former hedge fund junior trader/analyst

I recently got laid off by my employer, a larger credit focused hedge fund. I though I'd create an Q&A to clear up questions anyone may have regarding the hedge fund industry. I traded multi-asset classes included ig, hy, cds, clo's, mbs, and specialized in tech and healthcare industries. My background includes trading, research, and mergers and acquisitions.

 

It means an investor pulled out a big chunk of money from the fund. This is a common problem when you have a high concentration among the clients, let's say your fund consists of 3 investors distributed as 70%, 20% and 10% from total assets under management. If the first guy pulls out 70% of the total AUM the other guy's may need to leave also due to compliance reasons. Usually compliance in big banks prohibits holding more than 10/20/30% from total AUM in any fund. So when 70% are pulled out the remaining 20 and 10 become 66 and 33 and need to leave also.

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
 

I found the operational tasks (trade management etc..) the most difficult because I hated doing them (we didn't have an operations division, and so we had to do the ops stuff ourself).

Redemptions - Arti nailed that question.

Reports - Yes. Since I was the most junior trader, and since we didn't have an MO or BO, I had to submit the PnL (profit and loss) reports, as well as valuation reports, daily trade reports, daily market summaries etc.... I also did investment research specifically for TMT companies (I have an extensive background in research); had to build models and report investment ideas/trading strategies etc... Since we were a small fund, we had to cover numerous roles.

 

Hi, sorry but what do you think about product control in BBs? PnL reporting etc as a first job out of uni. Non target but strong profile & CFA Level I. People here hate it but what do you think about it as a career move?

 
Best Response

Here is my story: right before graduation, I overheard someone talking about a BB recruitment event happening at a nearby hotel for shortlisted candidates. I knew that I could not get into the event through the front door (it was invite only, and the candidates invited were the top 5% of finance students in my state), so I dressed up as a waiter (carried a suit and name tag in a bag) and I snuck into the conference hall through the kitchen entrance. As soon as I got in, I went to the bathroom and changed into my suit and slapped on my name tag. I went back to the conference hall, walked up to the Managing Director and introduced myself. I ended up getting his contact information, and emailed him asking for a potential interview a week later. Eventually after a hectic interview process, ended up landing a job with the BB.

While at the BB, I networked with HF clients and traders, and maintained a relationship with them (it helps by feeding them with important information e.g news articles etc..., as well as finding ways to make their lives easier e.g teach a trader how to automate a task). Eventually, I mentioned to a trader that I was interested in working for a HF in NYC - he fwd'd my resume to some of his buddies on the street. My resume eventually got a hit, and I ultimately landed an interview, and a job.

I am now jobless, and contemplating what to do next with my life (if anyone is interested, I am currently available for hire!).

 

Np. Great question; if I had the answer I'd be running my own hedge fund (jk). I think CLOs are rather interesting, and would expect some impressive returns, particularly on equity tranches. With Trump in power, and taking in his fallacies on diplomatic relations, I would expect immense volatility in the Aerospace and Defense industries. I would also expect financials to hit the ground running, especially with deregulatory rumors across the street. We should also expect immense volatility in the energy sectors (non-renewable) as well as industrials. I also think that pharma and tech firms will experience near future sluggish results, and we should expect a correction in valuation.

The low fees environment are going to kill a large majority of funds the industry. I expect M&A activity to be immense; large players will acquire smaller counterparts. Large players are also starting to implement technological advances to reduce overhead (automating BO/MO/Trading functions, as well as outsourcing resources to Bangalore/Buffalo/Jacksonville/SLC etc..).

 

Thanks for the informative reply, what you said about CLO was interesting. One follow-up question: When you're looking at a potential investment in a tranche of CLO, do you look at it from a quant/macro perspective (Interest rate movement prediction, use of algorithms) or from a more fundamental perspective such as analysing the financials of this CLO's underlying companies?

Observe. Learn. Share.
 

I'd like to remain in the HF industry. I think the work is lucrative, and I'm passionate about the fast paced investment culture. I think it would be neat to work for a startup hedge fund (i'm actively looking), or eventually start my own hf (if you guys have some extra money you don't want, please let me know). Alternatively, I have also considered going into Investment Banking, PE, working for a family office, or Corp Dev (the work hours are attractive) and eventually getting an MBA.

 

1) know how the credit markets work 2) know your accounting like a boss 3) learn about credit products 4) learn about interest rates 5) learn bond fundamentals (valuation, risks, structuring etc..) 6) learn financial modeling 7) read, read, read. Most of these should be covered during your training. To get up to speed, Fabozzi's handbook of fixed income securities is a great starting point (I also liked the schweser's fixed income book for the CFA 1) . Everything you need to learn is already posted on the internet for free. You might also want to check bank primers on FI

 

Thanks for doing this. What is your previous background (banking/trader at bb/investment analyst)? Also would love to know more about the skill set for trading/investing in clo's, mbs type products at a fundamental shop. In addition to accounting and the typical bank modelling skills set, do you need to be able to model structured products/cash flows using say VBA. At the analyst level, how quantitative do credit products get (i.e. required math background)?

Thanks once again and hope things get better!

 

Np. I worked as an Investment Research analyst for a BB prior to my most recent gig. Structured products aren't as complicated as people make them seem. Most credible primers (Bain Capital, Wells Fargo etc..) on MBS and CLOs will get you up to speed (I also really liked the CFA 1 material that covered MBS). I modeled 99% of mbs/clos using Intex (basically a software that projects all your cash flows. The user just needs to input his/hers assumptions e.g Prepayment, interest rates (it helps integrating an interest rate credit curve model) ets...). MBS specifically, are extremely math intensive; but thankfully we have software/pre-built models/and quants to help us out.

Skills required - definitely know your bond basics including valuation, interest rate risk (including duration and convexity), as well as corporate finance etc... (knowing about derivatives helps too! Especially when it comes to hedging - think IR swaps)

 

Tough question - it really depends on the team executing the strategy and not the strategy alone (although, I'm particularly fond of relative value arbitrage in the CDS market). I'm a big fan of Marathon Asset Management's Loan Opportunity fund - I think their management team is the best in the industry. They also have a great investment approach (don't believe me, talk to their analysts - they'll blow your mind with their knowledge).

 

What is the best way to anticipate / understand the different ways in which a company can loophole around the covenants protecting you? I'm starting to see all these deals where IP streams in the retail space are being placed into unrestricted subs via investment or restricted payment to be taken away from guaranteeing first lien credit. Not sure how I could have figured out this was possible before actually seeing it happen and bumfk me/related credits once.

I guess somewhat related to this... are there any particularly interesting cases you can link me to as my working history in HY/distressed is only ~2yrs or so (only part of what I look at so probably equivalent experience to 0.5 - 1 yr credit only analyst).

 

We tackle these situations in two ways 1) forward the convenant over to our external legal counsel to disseminate the data and advise us with their interpretation 2) don't invest in companies that are trying to find dodgy loop holes - if they're doing this kind of shit, imagine what other shady stuff they might be up to (I'm big on management transparency).

Unfortunately, I have no case public case studies. But would be more than happy to provide you some insight offline.

 
  1. We don't day-trade/speculate - it is more of a value investing approach on the equities side of things
  2. We were heavily overweight on a company that was on the verge of becoming distressed. One day, the value of the bonds deteriorated so severely that our investors started to panic. Over the course of the month, a macro-economic commodity factor triggered the company to normalize/stabilize their profit margin, essentially causing the price of the bonds to jump up significantly. We made a savage return on that trade but nearly cost us the fund.
  3. I lived on the Bloomberg Terminal - a lot of our CDS, MBS and CLO trades were done via voice and bloomberg chat
 

Very cool story and some much appreciated thoughtful industry insight. Thanks for starting this thread. Very good to see someone from a non target breaking in. I myself come from a non target and got my start at an IB in the back office supporting Equity and FX OTC derivatives. Really took an interest in derivatives and found a passion for the markets. But the back office was incredibly stifling and I wasn't getting to put my interests and intellectual curiosity to work. So I resigned, decided to pursue a goal I had of traveling and so backpacked Europe for three months. I've since returned and am on the job hunt. Looking to take any role that gets me heavy exposure to the type of work you were doing but my non target background/ back office work is hurting my chances for sure. Would like to connect and network with you if you are willing. Or anyone else on this thread for that matter. Thanks again for the post. And good luck with the search for your next endevour.

 

I understand where you're coming from. As a junior trader, I had to cover multiple BO tasks which I hated doing. The best way to get yourself out there (while in a BO, and move into a FO role) is and not limited to: 1) showing intellectual curiosity 2) find investment ideas 3) utilizing technology (show traders/pms/research analyst how to automate tasks etc..) - all while networking and maintaining healthy relationships.

The biggest piece of advice I can give is: pick up a VBA & macro/JavaScript/VBscript book and learn how to code. 99% of the population lacks basic programming skills, and I think that having coding skills sets you apart. Some of the projects I helped build at my fund, that also helped me develop relationships included 1) teaching the MBS PM to write a script that automatically pulls data from a particular database (think Freddie Mac), import the data to excel, filter the data, and add the data to his/her personal database. That task basically saved the PM from doing an additional 2 hours worth of work per week - and he was forever grateful.

Definitely send me your contact info. I would be more than happy to stay in touch/exchange networks and ideas.

 

Thanks for the feedback and your willingness to network. Much Appreciated. I'll be looking into some of those books for sure. And reaching out to you privately shortly. Quick question: I totally see value in educating myself in the coding stuff. But in what ways can a self education in the coding be reflected on a resume? Can't exactly claim "experience" and can't claim course work in the subject with regards to a resume. Appreciate your feedback.

 

I'm sorry to hear that you got fired, but thanks for doing this AMA. Hopefully you'll find a new job soon. 1) You mentioned that you worked in investment research at an IB. Was this in equity research or fixed income? 2) Roughly what proportion of your work is building relationships with investors? Or does your work as an analyst solely focus on analysis with no client interaction? 3) Rouhgly how long do you expect to wait until your next job?

 

laidoff ahem

1) I was a credit research analyst on the buy side at a BB 2) Other than PMs and Investor Relations, not many people speak to our investors. Privacy protocols prevent internal employees from knowing a large majority of our investors. In fact, we just see Cayman incorporated numbers rather than investor names on our investors lists. 3) I wish I knew that answer - realistically, I would say 1 - 12 months. I've been getting interviews here and there, but hopefully I can solidify things sooner than later (wish me luck).

 

Hello - First of all sincere thanks for offering some really great advice to the readers. I read your story about how you broke in the the industry and I must say very commendable. I am 100% sure that you will soon land something that you would enjoy.

Very interestingly, I myself have a background in Corp Credit Derivatives. I was a Senior Desk Strategist (mainly focused on RV trades in IG space on both single names, indices as well as on tranches and credit options). Very briefly I also worked on valuing Non-Agency RMBS by looking at the collateral to refine value estimates. Would you be open to PM me your email-id. Would be great to stay in touch.

I am currently working in the Research and Modeling group of the Buy Side arm of a major BB. Though my focus has been much broader now and not just credit derivatives. Also, are you based in NYC?

 

anonymoushedgefund123 thanks for the AMA. Posted this same question to another AMA, but would like to see if i get a varying opinion.

I am from a non-target and currently an analyst in the Commercial RE Finance group at a top 10 US Bank. I have been looking to leverage my CB experience to transition to an S&T or IB and ultimately land on the buy side. I have networked into a potential opportunity at a small distressed RMBS shop (25 employees). The firm purchases whole loans, collateralizes & tranches them, and sells. The size of the firm would give experience to the entire process. Would a few years of this type of experience be attractive to a distressed HF/PE?

 

If you can land that distressed RMBS role, then I think that it would be a great stepping stone towards an MBS analyst position at a HF (the experience might not be as relevant towards a PE shop). On another note, take some time and think if going into MBS is something you want to do - most people I know hate MBS after getting involved with the product.

 

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