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Hedge Fund Guru Answering Inbox Questions Here. Thanks Mr. Pink Money
 

Mr. Pink Money's picture
HF
(Gorilla, 642
 
Points)
 on 10/15/12 at 2:00pm
hedge-fund-advice-giving.jpg

Some of these messages are very old but I'm going to answer them anyway b/c I’m in a helpful mood.

Question: How would I know what the career path for [this particular hedge fund]?

Every fund has their own "career path"...it just depends what the founder thinks. Some give a shit and want to develop junior people. Others don't care at all and will churn and burn you. A good proxy for a quality career path is employee turnover. Are guys sticking around or not?

Question: Also, how do you tactfully talk about salary?

As long as you’re at a quality fund (which doesn’t mean high AUMs), don’t worry about salary for your first buyside job. LEARN. Honestly, most new guys are useless for the first 1-2 years and are basically highly compensated apprentices. Realize the skill sets and mentorship you get early on will materially compound your value over time.

Question: I saw that you mentioned you were going to post a case study awhile back and was wondering if you could possibly send that to me? I am trying to read and learn as much as possible about the industry before the recruiting process kicks off in April

Sorry about the delay. I’ve been buried in a bunker the last 12 months. I hope you got a gig after the April recruiting process. Don’t know if I have time to put together a case but generally I put together scenarios that require candidates to think about what a company is trying to accomplish based on the financials and supplemental information. Can you figure out a company’s strategy based on deconstructing the financials and supplemental disclosures? What’s the catalyst that will drive value creation? This requires looking at the segment data, incremental ROIC trends, changes in capital intensity, etc.

Question: [Paraphrasing] Should I (first year analyst) jump to HF after first year or wait until the second year?

It’s up to you. I’ve seen people have success leaving after 1 or 2 years. It actually might be helpful to go through the process your first year with some funds to get a feel for the questions you’ll be asked and see if your modeling/finance skills are competitive. If you get an offer…great. Otherwise you have another year to focus on areas to improve in order to be a competitive candidate the second year.

Question: What key areas would you focus on to determine if you should take a long position on the target in a merger arb position?

I really don’t do merger arb situations. I’ve been fortunate enough to be invested in a few companies that were acquired and I usually always sell on the day of the acquisition announcement and don’t bother waiting for the deal to close to get the incremental cents/dollars. I let the merger arbs deal with that lol. That said I’ll take a crack at the question…I’d key in on:

1. The size of the target relative to the acquirer. Obviously a bigger deal takes longer the close.

2. The financial health of the acquirer. Can they close the deal without relying heavily on the capital markets? Is it a cash deal or does it require debt financing?

3. The structure of the acquisition. Are you getting cash or is a portion of the buyout some random security/warrant (which may or may not be an opportunity)

4. Regulatory issues. Are these companies playing in a highly concentrated market and would get a lot of scrutiny from regulators?

Question: What do you feel is the "best" route to be a PM and why?

This is going to sound really broad, but a good route is to find a role where you are given a lot of responsibility and freedom to find names/investment situations (or at least a role that eventually leads to this kind of responsibility). I started out analyzing specific names curated by senior people but now am responsible for a bunch of sectors and pitch/find my own names. You learn very quickly that you must pitch ideas in the context of the whole portfolio (is there already a ton of exposure in an existing position, etc.).

Question: Can you be a value investor and utilize an event-driven investing strategy?

Yes. Value stocks without a catalyst are value traps.

Question: How do I transition from non-brand IB (with non-brand school credentials) to HF?

This is a challenge if you’re trying to go through a headhunter. They act as filters and would honestly get run out by a HF manager if the resume book had a bunch on non-brand name people (i.e. “What am I paying you for?!”) . It is what it is. If you want to make the jump, expect to put in some leg work. Identify funds you’re interested in (smaller is probably better since the bigger institutional places can be snobby) and start sending quality pitches or critiques of existing positions. Great analysis/ideas coupled with hustle trumps brand.

Question: Are there any books that will prime me on capital structure theory at different stages of the business cycle?

Not that I know of. I learned on the job. Although you an learn a ton reading investor letters from smart investors.

Question: Do you know of any other blogs that are written in the spirit of Distressed-debt-investing.com?

Nope. That site is solid. You can always check out valueinvestorclub to get some flavor on equity analysis (some of those write-ups suck though)

Question: If my ultimate goal is becoming a PM at a Hedge Fund, would the BB Analyst Role or Buy-Side (Traditional Asset Management) serve me better?

Depends. You can learn a ton analytically at the right asset manager, but the modeling skills that many funds are looking for is best found at investment banks. Also, many headhunters are given a clear mandate to look for BB analysts. And to be honest, the recruiting pipeline is already very established between the banks and headhunters…why put in the effort to make inroads with an asset manager that doesn’t have the kind of churn a bank annually produces.

Tags:
Flake's picture

This is great. Thanks.

ER
(Neanderthal, 3,595
 
Points)
 on 12/7/11 at 1:14pm

This is great. Thanks.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

WallStreetOasis.com's picture

Welcome back Mr. Pink Money.

EN
(Human, 12,074
 
Points)
 on 12/7/11 at 1:21pm

Welcome back Mr. Pink Money. Back to collecting SBs I see....

Thanks for sharing with the whole forum instead of just PMs.

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westcoaster's picture

Building off of your answer

ST
 
Points)
 on 12/7/11 at 2:02pm

Building off of your answer to question abt becoming a PM and coming from BB --- what advice can you provide on moving from an S&T macro product role into a HF (preferably global macro)? All I read is about IBD analysts making to jump to buyside, but what about those in S&T ( traders/ stucturers/salespeople)? Would be coming from name brand school, and analyst experience at low-tier BB, in addition to SA experience at top BB.

Thanks for taking the time to do this... really helps us out.

Hooked on LEAPS's picture

Thanks a lot Mr. Pink. +1 One

ER
 
Points)
 on 12/7/11 at 2:59pm

Thanks a lot Mr. Pink. +1

One question though, if you have time to answer. If you are starting your own hedge fund and come from a non-traditional background, but have had major success in your personal portfolio, how much would you need to put into the fund for investors to take you seriously? Would say $1 million and a 5 year track record cut it, or is that peanuts in today's market of fear and volatility?

You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist. - Friedrich Nietzsche

Nouveau Richie's picture

Very awesome to see a member

IB
(Neanderthal, 2,785
 
Points)
 on 12/7/11 at 2:37pm

Very awesome to see a member of the WSO old-guard (so-to-speak) wander back into the site. Thanks for the content MPM.

(+SB'd)

KarateBoy's picture

Welcome back Mr. Pink Money !

AM
 
Points)
 on 12/7/11 at 2:57pm

Welcome back Mr. Pink Money ! Thanks again for answering my question in your prior threads as well as helping out in this one.

Quick background: I now am at my 18-month anniversary as a junior research associate at a respected non-bb investment bank working for a young but up-and-coming analyst. Big 10 undergrad with 3.7+ GPA and CFA level II candidate. I've been interested in the stock market since high school and hope to make the jump to a HF within the next 6-12 months.

1) Is it true that if I stay on the sell-side covering the same industry much longer than 2-3 years, I'll be pigeon-holed when try to move to the buy-side?

2) The style that I am most interested in is long/short value with a concentrated portfolio a la Einhorn/Ackman/etc... Assuming I don't get a job at Greenlight (fingers crossed), how do I go about researching which other funds apply the same principles to their strategy? Your comments above lead me to believe a head-hunter will not be my biggest ally.

3) Once I gather a list, how can I research the quality of the PM? My number one goal is to put myself in a position to maximize learning (not salary), while my biggest fear is I end up working for a consensus-driven closet indexer.

4) Can I pitch a prospective fund an idea about a covered company or is that taboo? I worked hard to establish contacts at a few private companies/trade associations that resulted in a non-consensus investment thesis and I'd like to show the PMs I can do a "deep-dive."

Thanks again (SB in advance),

KarateBoy

Flake's picture

KarateBoy wrote: Welcome back

ER
(Neanderthal, 3,595
 
Points)
 on 12/7/11 at 2:57pm
KarateBoy:

Welcome back Mr. Pink Money ! Thanks again for answering my question in your prior threads as well as helping out in this one.

Quick background: I now am at my 18-month anniversary at a respected non-bb investment bank working for a young but up-and-coming analyst. Big 10 undergrad with 3.7+ GPA and CFA level II candidate. I've been interested in the stock market since I was in high school and hope to make the jump to a HF within the next 6-12 months.

1) Is it true that if I stay on the sell-side covering the same industry much longer than 2-3 years, I'll be pigeon-holed when try to move to the buy-side?

2) The style that I am most interested in is long/short value with a concentrated portfolio a la Einhorn/Ackman/etc... Assuming I don't get a job at Greenlight, how do I go about researching which other funds apply the same principles to their strategy? Your comments above lead me to believe a head-hunter will not be my biggest ally.

3) Once I gather a list, how can I research the quality of the PM? My number one goal is to put myself in a position to maximize learning while my biggest fear is I end up working for a consensus-driven closet indexer.

4) Can I pitch a prospective fund an idea about a covered company or is that taboo? I worked hard to establish contacts at a few private companies/trade associations that resulted in a non-consensus investment thesis and I'd like to show the PMs I can do a "deep-dive."

Thanks again (SB in advance),

KarateBoy

I love this thread. Some great questions that I'm curious about as well.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

Kenny_Powers_CFA's picture

Can you comment on how you

HF
(Neanderthal, 2,194
 
Points)
 on 12/7/11 at 3:21pm

Can you comment on how you see the hiring/firing market? Is your fund hiring (as a data point not an invitation to get inundated with resumes)?

What advice if any do you have for someone with a few years of buyside experience looking for a new role?

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

Walkerr's picture

This is awesome! Thanks so

IB
(Gorilla, 570
 
Points)
 on 12/7/11 at 3:22pm

This is awesome! Thanks so much Mr. Pink. I myself am still figuring out which route before my goal of HF: IB, ER, AM.

Mr. Pink Money's picture

westcoaster wrote: Building

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 4:03pm
westcoaster:

Building off of your answer to question abt becoming a PM and coming from BB --- what advice can you provide on moving from an S&T macro product role into a HF (preferably global macro)? All I read is about IBD analysts making to jump to buyside, but what about those in S&T ( traders/ stucturers/salespeople)? Would be coming from name brand school, and analyst experience at low-tier BB, in addition to SA experience at top BB.

Thanks for taking the time to do this... really helps us out.

Not too familiar with the HF path for S&T folks. The handful I know did S&T (not sure what exactly) -> Internal prop desk -> HF. That's the path...no idea what the actual process is.

Mr. Pink Money's picture

Hooked on LEAPS wrote: Thanks

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 4:06pm
Hooked on LEAPS:

Thanks a lot Mr. Pink. +1

One question though, if you have time to answer. If you are starting your own hedge fund and come from a non-traditional background, but have had major success in your personal portfolio, how much would you need to put into the fund for investors to take you seriously? Would say $1 million and a 5 year track record cut it, or is that peanuts in today's market of fear and volatility?

Getting high net worth folks to invest in a HF is still a referral business imo. If you have a solid investor base and perform well (in a strategy that's scalable), those clients will be your champion and you should be fine. Raising institutional money is a different animal.

Mr. Pink Money's picture

KarateBoy wrote: Welcome back

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 4:18pm
KarateBoy:

Welcome back Mr. Pink Money ! Thanks again for answering my question in your prior threads as well as helping out in this one.

Quick background: I now am at my 18-month anniversary as a junior research associate at a respected non-bb investment bank working for a young but up-and-coming analyst. Big 10 undergrad with 3.7+ GPA and CFA level II candidate. I've been interested in the stock market since high school and hope to make the jump to a HF within the next 6-12 months.

1) Is it true that if I stay on the sell-side covering the same industry much longer than 2-3 years, I'll be pigeon-holed when try to move to the buy-side?

2) The style that I am most interested in is long/short value with a concentrated portfolio a la Einhorn/Ackman/etc... Assuming I don't get a job at Greenlight (fingers crossed), how do I go about researching which other funds apply the same principles to their strategy? Your comments above lead me to believe a head-hunter will not be my biggest ally.

3) Once I gather a list, how can I research the quality of the PM? My number one goal is to put myself in a position to maximize learning (not salary), while my biggest fear is I end up working for a consensus-driven closet indexer.

4) Can I pitch a prospective fund an idea about a covered company or is that taboo? I worked hard to establish contacts at a few private companies/trade associations that resulted in a non-consensus investment thesis and I'd like to show the PMs I can do a "deep-dive."

Thanks again (SB in advance),

KarateBoy

1) You'll probably be pigeon holed but it's not necessarily bad if you're in a "hot" space that a fund wants to hire into.

2) Hard to say. Personally, if I consistently see a fund in the ownership list of names I'm looking at, odds are they are looking a things in a similar way (also means I need to find a better edge in my research lol but I digress). You can start off by seeing what kinds of names Greenlight is investing in and see if there are other funds showing up. I've also actually come across some interesting funds by looking at the presenter list of investment conference. Look into the funds that are presenting along side the Greenlight's of the world.

3) Hard to evaluate. If you have access to their investor letters that's a good start. You can also look at names they've been in historically and try to reverse engineer their thought process. What was their exposure in the last cycle? How did they respond? Did they try to catch a falling knife and get burned or did they seem to get conservative? At the very least, you'll have some good questions...people love it when you dig in a bit and they can have a conversation about past war stories, etc.

4) Pitching a name in the universe is fine. I'd think it be weird not to (imo). That said, I'd expect them to prod you on non-coverage names too.

Mr. Pink Money's picture

Kenny_Powers_CFA wrote: Can

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 4:24pm
Kenny_Powers_CFA:

Can you comment on how you see the hiring/firing market? Is your fund hiring (as a data point not an invitation to get inundated with resumes)?

What advice if any do you have for someone with a few years of buyside experience looking for a new role?

The grass looks pretty brown to be honest. There's some activity (some getting hire...some getting hired away) but it's not crazy.

I've been pretty consistent in my view that it's really hard to move around buyside even when you work in the industry. With that in mind, guys who are hired away are typically folks ready for a bigger role that's not available to them at the current fund they're at (i.e. maybe they are ready to be PM but there's not a PM position available to them). I don't typically see many lateral moves.

Kenny_Powers_CFA's picture

Mr. Pink Money

HF
(Neanderthal, 2,194
 
Points)
 on 12/7/11 at 4:45pm
Mr. Pink Money:
Kenny_Powers_CFA:

Can you comment on how you see the hiring/firing market? Is your fund hiring (as a data point not an invitation to get inundated with resumes)?

What advice if any do you have for someone with a few years of buyside experience looking for a new role?

The grass looks pretty brown to be honest. There's some activity (some getting hire...some getting hired away) but it's not crazy.

I've been pretty consistent in my view that it's really hard to move around buyside even when you work in the industry. With that in mind, guys who are hired away are typically folks ready for a bigger role that's not available to them at the current fund they're at (i.e. maybe they are ready to be PM but there's not a PM position available to them). I don't typically see many lateral moves.

Thanks, that's pretty disheartening. What do you think drives that? Because PMs/senior analysts would rather groom someone new and fresh than hire someone who's learned someone else's habits/styles?

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

BigHedgeHog's picture

Thanks Pinky. At what point

(Baboon, 122
 
Points)
 on 12/7/11 at 4:59pm

Thanks Pinky. At what point in an analyst's tenure at a HF does he start to "see" and finally starts generating ideas? As you mentioned, analysts are really just apprenticing in the first year or two, putting together simple analysis, reading the footnotes, learning what makes stocks move...etc. Specifically, for analysts in a generalist fund who cover a lot of sectors (mining, O&G, tech, industrials, REITs...etc) how do you acquire the sense of finding cheap/over-priced stocks? An analyst can spend all day reading the Ks, Qs, 13Ds...etc. but everyone is doing the same thing. Recognizing that there is a spread in the various multiples vs the comps isn't that helpful either since everyone can see the same thing.

I guess what I'm trying to get at is: if you see a massive sell off (eg: Diamond Foods) or a big valuation discrepancy (eg: a mining company that's trading at 0.5x NAV vs comps with 1.2x NAV), how do you go about finding out if it's an opportunity or not?

BigHedgeHog's picture

Kenny_Powers_CFA wrote: Mr.

(Baboon, 122
 
Points)
 on 12/7/11 at 5:01pm
pestilence's picture

Thanks a lot for answering

(Monkey, 34
 
Points)
 on 12/7/11 at 5:01pm
rossi99's picture

Any thoughts on moving into a

O
(Chimp, 10
 
Points)
 on 12/7/11 at 5:01pm
leveredarb's picture

Could you elaborate on the 1

(King Kong, 1,232
 
Points)
 on 12/7/11 at 6:06pm
Jorgé's picture

Great thread. Thanks for

(Neanderthal, 2,182
 
Points)
 on 12/7/11 at 6:13pm

People like Coldplay and voted for the Nazis, you can't trust people Jeremy

Mr. Pink Money's picture

Kenny_Powers_CFA

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:13pm
Mr. Pink Money's picture

BigHedgeHog wrote: Thanks

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:18pm
Mr. Pink Money's picture

BigHedgeHog wrote: You often

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:20pm
Mr. Pink Money's picture

pestilence wrote: Thanks a

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:23pm
Mr. Pink Money's picture

rossi99 wrote: Any thoughts

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:27pm
Mr. Pink Money's picture

leveredarb wrote: Could you

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 7:28pm
rothyman's picture

Mr. Pink Money, thanks for

HF
(King Kong, 1,163
 
Points)
 on 12/7/11 at 8:21pm
dazedmonk's picture

What blogs do you believe to

IB
 
Points)
 on 12/7/11 at 8:48pm
wso1234's picture

rothyman wrote: Mr. Pink

 
Points)
 on 12/7/11 at 9:10pm
BigHedgeHog's picture

What do hedge fund analysts

(Baboon, 122
 
Points)
 on 12/7/11 at 9:20pm
KarateBoy's picture

Mr. Pink Money

AM
 
Points)
 on 12/7/11 at 10:53pm
Mr. Pink Money's picture

rothyman wrote: Mr. Pink

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 11:39pm
Mr. Pink Money's picture

dazedmonk wrote: What blogs

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 11:41pm
Mr. Pink Money's picture

BigHedgeHog wrote: What do

HF
(Gorilla, 642
 
Points)
 on 12/7/11 at 11:54pm
ERGOHOC's picture

Depends. Depends. Depends.

AM
(Orangutan, 271
 
Points)
 on 12/8/11 at 3:06am
Oreos's picture

Mythreads. Good stuff, this

HF
(Neanderthal, 2,454
 
Points)
 on 12/8/11 at 6:49am
KarateBoy's picture

Can you give us some insights

AM
 
Points)
 on 12/8/11 at 9:09am
OhYeah's picture

Learned a lot from your

 
Points)
 on 12/8/11 at 11:25am

"Sincerity is an overrated virtue" - Milton Friedman

OhYeah's picture

...

 
Points)
 on 12/8/11 at 11:38am

"Sincerity is an overrated virtue" - Milton Friedman

Mr. Pink Money's picture

ERGOHOC wrote: Depends.

HF
(Gorilla, 642
 
Points)
 on 12/8/11 at 11:33am
BigHedgeHog's picture

What does a fund need to

(Baboon, 122
 
Points)
 on 12/8/11 at 11:40am
Mr. Pink Money's picture

KarateBoy wrote: Can you give

HF
(Gorilla, 642
 
Points)
 on 12/8/11 at 11:46am
Mr. Pink Money's picture

OhYeah wrote: Learned a lot

HF
(Gorilla, 642
 
Points)
 on 12/8/11 at 12:00pm
Ravenous's picture

I'll chime in on the banker

HF
(King Kong, 1,347
 
Points)
 on 12/8/11 at 12:09pm
Mr. Pink Money's picture

BigHedgeHog wrote: What does

HF
(Gorilla, 642
 
Points)
 on 12/8/11 at 12:07pm
BigHedgeHog's picture

Mr. Pink Money

(Baboon, 122
 
Points)
 on 12/8/11 at 12:13pm
heister's picture

Totally off topic but, those

HF
(Neanderthal, 2,465
 
Points)
 on 12/8/11 at 2:27pm

Follow the shit your fellow monkeys say @shitWSOsays

lucrativ's picture

Absolutely great thread.

ST
(Monkey, 46
 
Points)
 on 12/8/11 at 3:33pm

"Kept feeding him dollars 'till it all started to make cents."

Series7's picture

I don't think anyone has yet

(Chimp, 4
 
Points)
 on 12/8/11 at 3:59pm
Ravenous's picture

Series7 wrote: I don't think

HF
(King Kong, 1,347
 
Points)
 on 12/8/11 at 4:40pm

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