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Finishing 1st Year as HF Analyst - Ask Anything
 

DontMakeMeShortYou's picture
HF
(King Kong, 1,977
 
Points)
 on 7/6/12 at 5:00am
hedge fund question and answer thread.png

There have been several of these so I don't know how helpful I can be. Will do my best

Took a pretty traditional route to get the job:

  • Target school
  • Top banking group
  • HF job through headhunter

Not going to give out too many personal details, but I'm sure people could figure out who I am based on my posting history if they really cared/tried. Anyway... I work at a $10b+ L/S fund. I "cover" several industries (co-coverage with a few senior analysts) and while I typically stick to fundamental L/S, I've done some event-driven and credit/distressed investing.

Ask me any questions about banking, HFs, the interview process, the actual job, etc. Try to keep questions public unless it's extremely personal - best for everyone to see so that I can avoid repeats and help everyone at once

Answering these somewhat slowly because I'm pretty busy these days, but I will do my best to get to all of your questions and provide as helpful an answer as I can.

See my WSO Blog

Daedalus's picture

What exactly do you do on the

ST
 
Points)
 on 5/28/12 at 2:04am

What exactly do you do on the job? Do you see yourself continuing in that role? Where do you want to go from here?

brandon st randy's picture

What percentage of your

PE
(Gorilla, 736
 
Points)
 on 5/28/12 at 2:15am

What percentage of your salary does the headhunter take and for how long?

...well, he's no use to us if Detroit is his idea of a small town!

In reply to brandon st randy
turtles's picture

brandon st randy: What

IB
(Neanderthal, 2,961
 
Points)
 on 5/28/12 at 2:40am
brandon st randy:

What percentage of your salary does the headhunter take and for how long?

It's usually around 25% of the base salary but the employee has to be with the company for several months before the headhunter gets a dime

Just saying...

inthe213's picture

How relevant did you find

 
Points)
 on 5/28/12 at 3:09am

How relevant did you find your banking experience in this hedge fund role?
What was the interview process like?

In reply to Daedalus
DontMakeMeShortYou's picture

What exactly do you do on the

HF
(King Kong, 1,977
 
Points)
 on 5/28/12 at 4:37am

What exactly do you do on the job?

Big picture? I am tasked with finding compelling longs and shorts (primarily equities, but can use credit, derivatives, etc--whatever is best for the situation) and then try to convince senior analysts or portfolio managers to put on positions.

In more detail:

When I first started, I was typically told which companies to look at. I had to learn them inside out, assess them as investments, put together a short writeup, then discuss with whoever gave me the task. As I've developed over the last year, I spend significantly more time working on my own ideas and then pitching them as I see fit. I'll usually run my stuff through the senior analysts to get advice, but I now typically work directly with the PMs, versus before where my thoughts were typically vetted before getting to the top guys.

How do I learn about a company?

I like to learn a company's history, so I'll typically read through the following:

-2-3 10-Ks
-several Qs
-minimum of 3-4 earnings call transcripts, but typically more
-event transcripts (conference presentations, etc)
-important 8-Ks and other documents
-Street research
-Speak with analysts (this is typically to get objective info about the company and NOT to get their opinions--there are very few sell-side analysts whose opinions we give any weight)
-Industry experts, consultants, etc
-Management or, at minimum, investor relations

Thinking about a company as an investment:

This is the hard part and why some guys get paid big money. If I had to boil it down to one word, it would have to be "edge." That could mean a variety of things. Because I'd like to keep my career going, I focus exclusively on the legal. In simple terms, "edge" basically implies that your research has led you to have a divergent view.

Maybe you disagree with the logic of a story. Maybe you think the Street is misinterpreting information or perhaps assigning too much or too little weight to the wrong things. Maybe they're modeling things incorrectly. Maybe you understand a technology better. Maybe you think a trend will play out differently. Maybe you think everyone is missing something crucial. I could go on and on. Basically, when you go to a PM, you want to tell him you have a heavily researched and well-supported divergent thesis.

On top of that, ideally you also have a catalyst, or several. Perhaps you have a great long idea, but it wouldn't be particularly beneficial for your job security if you convinced your PM to catch a falling knife (stock with a precipitous fall in price) without having a strong, well-supported view of when the price would turn around. The "ideal" investment is a good business, at a good price, with something that will cause a convergence between your view and the Street view. This could be anything from hard catalysts like a merger, reorganization, etc, or something softer like strong earnings, company/industry tailwinds, etc.

The reason catalysts are important is that most hedge funds are concerned with business continuity. We want to continue collecting that 2%. Most capital isn't committed for extensive periods of time, so we need to show strong performance on a yearly, quarterly, or even monthly basis. We're a large fund so we have the benefit of the doubt from investors, given the extensive track record we offer, but smaller funds don't have that luxury.

Do you see yourself continuing in that role?

Absolutely. I love what I do and I still have plenty to learn. I have no plans of changing companies or roles any time in the near future.

Where do you want to go from here?

To be honest, I don't know. Maybe I'll be an analyst for a long time or maybe I'll eventually make PM. I know kids on WSO interested in HFs masturbate over the thought of being a PM, but it's not for everyone. There's a clear distinction between the skillset of a PM and an analyst.

For example, David Einhorn (Greenlight) and Bill Ackman (Pershing Square) are much more like analysts than PMs. Their funds are built to make focused investments on stocks and they do not build highly diversified portfolios like some other funds.

Steve Cohen, on the other hand, is a PM. He spends his time managing his stable of PMs and also the overall exposures of his fund. He doesn't spend much time getting dirty with specific company details.

A PM focuses on the big picture and doesn't do much work on individual names. He makes money by picking the right themes. An analyst gets deep on companies and industries and makes money on their bottoms-up, stock-specific analysis more than anything else (themes are important too, of course).

How relevant did you find your banking experience in this hedge fund role?

I'd say banking was helpful in the sense that I became a speedy gonzalez on excel, I could model, and I knew my way around a company's financial statements. Beyond that, there was very little carry-over. My banking experience (and I'd imagine pretty much everyone else's) didn't teach me to think critically. I simply took assumptions from the company or my seniors and plugged them in. At a HF, no one cares if I can build a model with a million sensitivities if the outputs have no real meaning. I'm paid to think critically and provide meaningful work/analysis, not to spit out a million pages. For example, I have NEVER put together a writeup longer than 5 pages. They're typically 1-3 pages, actually. I'll get the big picture on paper, then discuss in person. My team doesn't care about the quantity of work I produce, as long as something has been well-researched and I have supporting research/logic for my arguments.

What was the interview process like?

Pretty intense. I had a case study after the first round and had to meet with every single investment professional. You had the good cops and the bad cops. Had to show that I was smart and had a strong passion for investing. I'd sum it up as follows:

-are you a top analyst?
-does talking/thinking about stocks get you hard?
-if yes, why does it get you hard?
-has this been something that's gotten you hard for a long time?
-you don't swing both ways, do you? no, you'd better not... HFs only. fuck PE
-pitch me a stock and don't sound retarded when you do it
-case questions
-ask me some questions to fill the remainder of the interview

See my WSO Blog

sofa king smooth's picture

I'm currently an undergrad

 
Points)
 on 5/28/12 at 6:01am

I'm currently an undergrad Mathematics/Economics major at a university on the west coast. After doing a 10 week internship during school at a top MM investment bank, I realized banking isn't for me and I really don't enjoy the work. Good learning experience and all, but I am honestly much more passionate about investing and the analytical aspect of it (as opposed to the raw stamina job that is IBD).

I was wondering what your thoughts are on getting into HF directly from undergrad, because I know that is where I want to be. How would you go about getting in straight from undergrad? I know you're more traditional route, but any advice for a prospective non-traditional route is appreciated.

In addition to that, would you mind walking us through a typical work day for you? Also, what have you learned after a year that you had wished someone told you when you first started?

Thanks man.

Charles-perry's picture

Great post and thanks for

(Orangutan, 273
 
Points)
 on 5/28/12 at 6:59am

Great post and thanks for taking on our questions. Have a few for you…

When you mean ‘banking’ do you mean IBD or Trading? Or another division?

You mentioned you cover several industries. If you worked in an IBD coverage group or traded specific securities, is it easy to move over to ‘several industries’ because you knowledge is limited? If you worked in ECM/DCM/M&A, how do you know if you’re a ‘top analyst’?

Do you prefer the HF environment, culture, working hours etc to banking? What are you working hours like now vs banking?
Do you get paid better? :D Can you provide estimate figures of the salaries earned? (I’m assuming this will be base but feel free to include any other figures)

You mention you love your new role. What do you specifically love about it? What type of person is best suited to this work?

And the same questions as sofa king smooth – not really into IBD anymore although I haven’t worked at a BB but I’m not convinced its much different…

Thanks!

DontMakeMeShortYou's picture

Out for the day. Will answer

HF
(King Kong, 1,977
 
Points)
 on 5/28/12 at 7:36am

Out for the day. Will answer questions later tonight

See my WSO Blog

rossi99's picture

Thanks for your post. A few

O
(Chimp, 10
 
Points)
 on 5/28/12 at 10:36am

Thanks for your post.

A few more questions:

Did you finish your two years in IB or leave early for HF?

What are your thoughts on 2 years of PE after IB then moving to a HF?

Any thoughts on being a generalist versus a specialist? Would you choose a less "prestigious" fund for the ability to be a generalist?

In reply to turtles
brandon st randy's picture

turtles: brandon st

PE
(Gorilla, 736
 
Points)
 on 5/28/12 at 10:50am
turtles:
brandon st randy:

What percentage of your salary does the headhunter take and for how long?

It's usually around 25% of the base salary but the employee has to be with the company for several months before the headhunter gets a dime

Thanks. For how long do they take a share of your salaries? The first year (after the several months initial period)/2 years?

...well, he's no use to us if Detroit is his idea of a small town!

AndyLouis's picture

thanks for posting

(Almost Human, 6,142
 
Points)
 on 5/28/12 at 12:45pm

thanks for posting

WSO's COO (Chief Operating Orangutan) | My story | Connect with me on Linkedin.

2013 WSO Conference

mhurricane's picture

Does this err on the line of

 
Points)
 on 5/28/12 at 1:08pm

Does this err on the line of a probing question: Salary? Bonus?

If one wanted to become a fund manager for their school's fund (~300k AUM), how would you suggest I go about learning as much as I can about the TMT industry?

Thanks.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

The Phantom's picture

1. What about candidates who

HF
 
Points)
 on 5/28/12 at 1:09pm

1. What about candidates who are not from top BB (aka not MS / GS / JPM)?

I always thought that PE firms care much more about pedigree, while HF put more emphasis on the actual experience (books read, personal trading, etc.)

2. How much of the "edge" do you gain by talking with people outside of your immediate professional circle? I've heard of a case when an analyst called WalMart managers and ask them about the best selling toys.

3. Which blogs & news do you and your co-workers read on daily / weekly basis?

4. Book recommendations? Preferably something not as obvious as Intelligent Investor, Common Stocks and Uncommon Profits, or books with Buffett in their titles

Thank you in advance

BlackHat's picture

Working at a 10B fundamental

HF
 
Points)
 on 5/28/12 at 1:25pm

Working at a 10B fundamental fund, how many PMs/guys who actually manage money do you have? And do you find yourselves "diversifying" just for the sake of putting capital to work? I'm assuming 10B means a pretty decent headcount, so how much exposure as an analyst do you get in actually sizing positions and making decisions? Does your PM trust you enough or does he still spend a lot of time following up on a possible idea you've presented him with?

Sorry that's a lot of questions, answer whichever ones you can. Thanks for the thread bro

I hate victims who respect their executioners

Follow BH & Co. on Twitter: @DumbLuckCapital
twitter.com/DumbLuckCapital

dogboo's picture

What kind of a case question

 
Points)
 on 5/28/12 at 2:07pm

What kind of a case question did you get? Do you mind elaborating?

Thanks!

In reply to brandon st randy
optimus_prime's picture

brandon st

 
Points)
 on 5/28/12 at 2:29pm
WSOusername's picture

Thanks for this, love these

 
Points)
 on 5/28/12 at 2:40pm

GBS

corilla's picture

How are the midwest targets

(Chimp, 8
 
Points)
 on 5/28/12 at 3:06pm
In reply to optimus_prime
brandon st randy's picture

optimus_prime: brandon st

PE
(Gorilla, 736
 
Points)
 on 5/28/12 at 3:19pm

...well, he's no use to us if Detroit is his idea of a small town!

In reply to brandon st randy
cooldurg's picture

brandon st

IB
(Chimp, 8
 
Points)
 on 5/28/12 at 3:25pm
Bonus's picture

Hello, Sounds like a pretty

 
Points)
 on 5/28/12 at 3:48pm

Colourful TV, colourless Life.

tangent style's picture

Thanks for doing this. What

(Baboon, 145
 
Points)
 on 5/28/12 at 4:17pm

"Do not go gentle into that good night"

NewGuy's picture

Comparing event driven

HF
 
Points)
 on 5/28/12 at 4:24pm
Gray Fox's picture

-In one of your earlier

HF
(Gorilla, 518
 
Points)
 on 5/28/12 at 6:02pm
via2329's picture

Have you seen any

O
(Chimp, 4
 
Points)
 on 5/28/12 at 6:11pm
madgames's picture

Can you give us an example of

(Orangutan, 316
 
Points)
 on 5/28/12 at 8:20pm
In reply to brandon st randy
turtles's picture

brandon st

IB
(Neanderthal, 2,961
 
Points)
 on 5/28/12 at 8:50pm

Just saying...

Consulting_Chimp's picture

Thanks for this. How

(Chimp, 1
 
Points)
 on 5/28/12 at 10:19pm
In reply to turtles
brandon st randy's picture

turtles: brandon st

PE
(Gorilla, 736
 
Points)
 on 5/29/12 at 2:12am

...well, he's no use to us if Detroit is his idea of a small town!

In reply to brandon st randy
turtles's picture

brandon st

IB
(Neanderthal, 2,961
 
Points)
 on 5/29/12 at 6:49am

Just saying...

Morice's picture

Hi, First of all, thanks for

(Chimp, 2
 
Points)
 on 5/29/12 at 11:58am
In reply to mhurricane
DontMakeMeShortYou's picture

Does this err on the line of

HF
(King Kong, 1,977
 
Points)
 on 5/29/12 at 12:34pm

See my WSO Blog

In reply to turtles
DontMakeMeShortYou's picture

turtles: brandon st

HF
(King Kong, 1,977
 
Points)
 on 5/29/12 at 12:35pm

See my WSO Blog

In reply to rossi99
DontMakeMeShortYou's picture

Did you finish your two years

HF
(King Kong, 1,977
 
Points)
 on 5/29/12 at 1:27pm

See my WSO Blog

mwgr5's picture

Any suggestions on what type

HF
(Orangutan, 299
 
Points)
 on 5/29/12 at 2:33pm
In reply to DontMakeMeShortYou
brandon st randy's picture

DontMakeMeShortYou: It's come

PE
(Gorilla, 736
 
Points)
 on 5/29/12 at 4:32pm

...well, he's no use to us if Detroit is his idea of a small town!

Bondarb's picture

Thank you for this

HF
(Neanderthal, 2,359
 
Points)
 on 5/29/12 at 5:35pm
andyinsandiego's picture

Nice thread +1

CF
(Orangutan, 333
 
Points)
 on 5/29/12 at 6:56pm
dogboo's picture

Do you think IB is the best

 
Points)
 on 5/29/12 at 7:55pm
SmokeyG's picture

This may be probing, but how

 
Points)
 on 5/29/12 at 8:12pm
balls.mahoney's picture

In the typical week, how many

IB
(Orangutan, 282
 
Points)
 on 5/29/12 at 11:37pm
In reply to The Phantom
DontMakeMeShortYou's picture

1. What about candidates who

HF
(King Kong, 1,977
 
Points)
 on 5/30/12 at 2:48am

See my WSO Blog

In reply to DontMakeMeShortYou
DontMakeMeShortYou's picture

1. What about candidates who

HF
(King Kong, 1,977
 
Points)
 on 5/30/12 at 3:55am

See my WSO Blog

In reply to Morice
Morice's picture

Morice: Hi, First of all,

(Chimp, 2
 
Points)
 on 5/30/12 at 5:53am
Tolland15's picture

Thanks for the post, very

O
(Baboon, 150
 
Points)
 on 5/30/12 at 12:30pm

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.

GutShot's picture

How different is your work

ST
(King Kong, 1,249
 
Points)
 on 5/30/12 at 4:13pm
alpha25's picture

Great Post! Its much

EN
(Chimp, 2
 
Points)
 on 5/31/12 at 5:16am
LiquidDreams's picture

Are there any legal

(Monkey, 60
 
Points)
 on 5/31/12 at 5:11pm
In reply to sofa king smooth
DontMakeMeShortYou's picture

sofa king smooth: I'm

HF
(King Kong, 1,977
 
Points)
 on 5/31/12 at 6:15pm

See my WSO Blog

In reply to Charles-perry
DontMakeMeShortYou's picture

Charles-perry: Great post and

HF
(King Kong, 1,977
 
Points)
 on 5/31/12 at 6:33pm

See my WSO Blog

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