Hedge Fund Guru Answering Inbox Questions Here. Thanks Mr. Pink MoneyHF
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 toafter 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?
This is a challenge if you’re trying to go through a headhunter. They act as filters and would honestly get run out by amanager 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(some of those write-ups suck though)
Question: If my ultimate goal is becoming a PM at a Hedge Fund, would theAnalyst Role or Buy-Side (Traditional ) 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. Also, many headhunters are given a clear mandate to look for 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.