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For instance:

You're 25, have an Economics B.A. from a ho-hum state school, good math/stats/coding aptitude (but no formal training) and are working in NYC for a prop shop doing accounting and operations. No certifications/exams of any kind passed. You have no seed money right now/minimal connections.

You want to be the major partner in a hedge fund with a strategy of your design with $100 million+ (in today's dollars) AUM by 35. You would also settle for $5-$8 million liquid cash (once again in today's dollars) for yourself by 35 as well.

How do you do it?

If you haven't figured it out by now, "You" = "I".

Do your worst.

Comments (85)

  • In reply to xqtrack
    TheWizeNut's picture

    xqtrack wrote:
    take your savings and start playing.

    I pulled 20-25% my first year trading 2010 (poor tracking/memory) my own measly account and 46% last year. I think I have the knack to trade, which is why the 5-8 million in liquid cash would make me damn near as happy. Trading my measly account size vs trading a million plus I would think is a whole different ballgame.

  • In reply to Cane0180
    TheWizeNut's picture

    Cane0180 wrote:
    I have no plan for you, but I always tell people there are hundreds of very wealthy people that came from way lesser circumstances than you're in now. My favorite example is Bill Bartmanm, http://en.wikipedia.org/wiki/Bill_Bartmann , dude sounded like a total fuckup, but he got it done.

    Interesting that you mention him. I grew up in a broke ass house with bill collectors calling a lot, I also got septic hip when I was a kid and couldn't use my legs for a week.

    Unfortunately, I never had the distinction of falling down the stairs drunk...YET.

  • PennTeller's picture

    Let's start with the basics.

    1. Nothing is impossible.

    2. Hope is not a strategy. At some point, the probability for a given event is low enough that you should consider it impossible. For example, I could tell you to go win the lottery which would give you the funds to start running an investment strategy.

    Those are not the odds you're contending with, but given the fund raising/hiring environment for folks with solid credentials and applicable experience...they aren't far off.

    Let me reiterate. If you were a third year analyst at Baupost with a Harvard degree, your odds of running a $100M hedge fund by age 35 would be pretty slim. Slim as in 1 in 100. Maybe. If you're lucky. Given your late start, the difficulty is magnified by a thousand fold.

    The reason why folks come into this business is not because they want to be a hedge fund manager, though that's the end goal for many of us.

    You only survive and advance in this business because you love the day to day of your work. For me, that love is understanding how companies work, finding undervalued and underappreciated ones and investing in them. For others, it is understanding the structure of economies, spiderweb of currencies and macro events that create trading opportunities. For still others, it is understanding the order of operations on a workout and selecting a specific tier of debt security because it gives them the maximum payout under the largest range of outcomes.

    In the real world, these are considered idiosyncracies and personality flaws. In our profession, they are the obsessions and fixations that create investment outperformance.

    No one succeeds because they "desperately want to be a hedge fund manager." Very few succeed because they "have a knack" for it because the investment world is wide and there are a ton of specialists out there who pore over all the runty little areas of the financial markets you're dabbling in.

    I'll give you the same advice I gave the last guy who came by asking for advice on how to be a hedge fund manager. Sit down and learn about the business first. Read a ton of books, ask a ton of intelligent questions. Figure out why you want to go into this business and figure out WHERE you want to play in this business.

    Do you have a security in mind? A strategy? A philosophical bent? If so, then go apprentice yourself to someone who is managing money in the area that you want to learn. Work cheap if you need to.

    The money and positions will come after, if you're good at what you do. If you're awesome and make your bosses money, they come faster.

    But targeting an age and an accomplishment is a mistake in my mind. It obfuscates the really important goal, absorbing as much knowledge about your chosen area as you possibly can. My view is that's the only way to make money over the long term.

  • In reply to PennTeller
    Ravenous's picture

    PennTeller wrote:
    Let's start with the basics.

    1. Nothing is impossible.

    2. Hope is not a strategy. At some point, the probability for a given event is low enough that you should consider it impossible. For example, I could tell you to go win the lottery which would give you the funds to start running an investment strategy.

    Those are not the odds you're contending with, but given the fund raising/hiring environment for folks with solid credentials and applicable experience...they aren't far off.

    Let me reiterate. If you were a third year analyst at Baupost with a Harvard degree, your odds of running a $100M hedge fund by age 35 would be pretty slim. Slim as in 1 in 100. Maybe. If you're lucky. Given your late start, the difficulty is magnified by a thousand fold.

    The reason why folks come into this business is not because they want to be a hedge fund manager, though that's the end goal for many of us.

    You only survive and advance in this business because you love the day to day of your work. For me, that love is understanding how companies work, finding undervalued and underappreciated ones and investing in them. For others, it is understanding the structure of economies, spiderweb of currencies and macro events that create trading opportunities. For still others, it is understanding the order of operations on a workout and selecting a specific tier of debt security because it gives them the maximum payout under the largest range of outcomes.

    In the real world, these are considered idiosyncracies and personality flaws. In our profession, they are the obsessions and fixations that create investment outperformance.

    No one succeeds because they "desperately want to be a hedge fund manager." Very few succeed because they "have a knack" for it because the investment world is wide and there are a ton of specialists out there who pore over all the runty little areas of the financial markets you're dabbling in.

    I'll give you the same advice I gave the last guy who came by asking for advice on how to be a hedge fund manager. Sit down and learn about the business first. Read a ton of books, ask a ton of intelligent questions. Figure out why you want to go into this business and figure out WHERE you want to play in this business.

    Do you have a security in mind? A strategy? A philosophical bent? If so, then go apprentice yourself to someone who is managing money in the area that you want to learn. Work cheap if you need to.

    The money and positions will come after, if you're good at what you do. If you're awesome and make your bosses money, they come faster.

    But targeting an age and an accomplishment is a mistake in my mind. It obfuscates the really important goal, absorbing as much knowledge about your chosen area as you possibly can. My view is that's the only way to make money over the long term.

    This is a great post. What you want to do is not impossible, but you will need to be very entrepreneurial to make it happen and work EXTREMELY hard. Maybe harder than you have ever imagined working. I went to a state school (better than the one you went to but nothing to brag about) and didn't take any finance courses as an undergrad. I got interested in the market in my last semester in school and decided to drop my plan to go into engineering, talked my way into an entry level ER job at a shitty regional firm, passed the CFA 3/3 in 18 months, read another 20-30 books on the side about investing, and then (amazingly) landed a job at one of the premier small cap funds in the country. After two years of killing it seven days a week, I moved up to Director of Research.

    Anything is possible, but you have to be willing to sacrifice pretty much everything. It's tough for people that have been on "the path" since a young age, and it's practically impossible for those not even close to the path such as yourself. The first thing you should do is drop your arbitrary time and financial goals and just get in somewhere. Nobody cares if it's millions by 35 or whatever -- just get in. There is no advice that anyone can give you on how to do that, but if you want it badly enough, you will make it happen eventually.

  • TheWizeNut's picture

    Ravenous, I didn't figure out I wanted to be in finance until I was 24 (was in the military out of high school then went back to school at 21).

    I'm 26 next month. Your post essentially told me to quit wasting time.

    Thanks.

  • Ravenous's picture

    I got in a couple of months before I turned 24 also -- I took a gap year to raise money for college. Don't worry about your age. Just do what you need to do. There are a million reasons why something won't happen in life, but really you only need one reason to make it happen.

  • In reply to swagon
    sayandarula's picture

    swagon wrote:
    TheWizeNut wrote:
    "You" = "I"

    bro you totally M Night Shyamalaned me there

    +1 laughed out loud.

    Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

  • In reply to PennTeller
    Bowser's picture

    PennTeller wrote:
    Let's start with the basics.

    1. Nothing is impossible.

    2. Hope is not a strategy. At some point, the probability for a given event is low enough that you should consider it impossible. For example, I could tell you to go win the lottery which would give you the funds to start running an investment strategy.

    Those are not the odds you're contending with, but given the fund raising/hiring environment for folks with solid credentials and applicable experience...they aren't far off.

    Let me reiterate. If you were a third year analyst at Baupost with a Harvard degree, your odds of running a $100M hedge fund by age 35 would be pretty slim. Slim as in 1 in 100. Maybe. If you're lucky. Given your late start, the difficulty is magnified by a thousand fold.

    The reason why folks come into this business is not because they want to be a hedge fund manager, though that's the end goal for many of us.

    You only survive and advance in this business because you love the day to day of your work. For me, that love is understanding how companies work, finding undervalued and underappreciated ones and investing in them. For others, it is understanding the structure of economies, spiderweb of currencies and macro events that create trading opportunities. For still others, it is understanding the order of operations on a workout and selecting a specific tier of debt security because it gives them the maximum payout under the largest range of outcomes.

    In the real world, these are considered idiosyncracies and personality flaws. In our profession, they are the obsessions and fixations that create investment outperformance.

    No one succeeds because they "desperately want to be a hedge fund manager." Very few succeed because they "have a knack" for it because the investment world is wide and there are a ton of specialists out there who pore over all the runty little areas of the financial markets you're dabbling in.

    I'll give you the same advice I gave the last guy who came by asking for advice on how to be a hedge fund manager. Sit down and learn about the business first. Read a ton of books, ask a ton of intelligent questions. Figure out why you want to go into this business and figure out WHERE you want to play in this business.

    Do you have a security in mind? A strategy? A philosophical bent? If so, then go apprentice yourself to someone who is managing money in the area that you want to learn. Work cheap if you need to.

    The money and positions will come after, if you're good at what you do. If you're awesome and make your bosses money, they come faster.

    But targeting an age and an accomplishment is a mistake in my mind. It obfuscates the really important goal, absorbing as much knowledge about your chosen area as you possibly can. My view is that's the only way to make money over the long term.

    Christ, this might be the best post in WSO history.

  • Marked to Market's picture

    PennTeller wrote:
    ....In the real world, these are considered idiosyncracies and personality flaws. In our profession, they are the obsessions and fixations that create investment outperformance.

    My favorite part. Awesome posts. Almost everyone I've ever met and respect in the buy side community has something that fits this category.

  • Determined's picture

    PennTeller and Ravenous, this is the reason people come to WSO. I'm relieved to see these gems of advice in a desert of trolling.

    Talent is hitting a target no one can hit.
    Genius is hitting a target no one can see.

  • sk8247365's picture

    Everyone aspires to do something similar, really. Few will get it done by 35.

    Best bet?

    Traditional. NO need to over-think this.

    Pass CFA level 1 and 2 by 27
    Network throughout
    Get HF Analyst job ASAP
    Prove your skills for 6 years

    -----> At some point to achieve this you will, in fact, have to prove an ability to make money.

    Assuming you prove skills, at 35, raise $100M with a partner (aim to makes friends with those older than you) and launch your fund

    Just know you are not the only one chasing this. Proving your ability to make money will always separate the winners from losers.

    You would also settle for $5-$8 million liquid cash (once again in today's dollars) for yourself by 35 as well.

    ---> Entrepreneur. Have you thought of any business ideas? Angel money is growing on trees these days.....

  • In reply to PennTeller
    DrPeterVenkman's picture

    PennTeller wrote:
    Let's start with the basics.

    1. Nothing is impossible.

    2. Hope is not a strategy. At some point, the probability for a given event is low enough that you should consider it impossible. For example, I could tell you to go win the lottery which would give you the funds to start running an investment strategy.

    Those are not the odds you're contending with, but given the fund raising/hiring environment for folks with solid credentials and applicable experience...they aren't far off.

    Let me reiterate. If you were a third year analyst at Baupost with a Harvard degree, your odds of running a $100M hedge fund by age 35 would be pretty slim. Slim as in 1 in 100. Maybe. If you're lucky. Given your late start, the difficulty is magnified by a thousand fold.

    The reason why folks come into this business is not because they want to be a hedge fund manager, though that's the end goal for many of us.

    You only survive and advance in this business because you love the day to day of your work. For me, that love is understanding how companies work, finding undervalued and underappreciated ones and investing in them. For others, it is understanding the structure of economies, spiderweb of currencies and macro events that create trading opportunities. For still others, it is understanding the order of operations on a workout and selecting a specific tier of debt security because it gives them the maximum payout under the largest range of outcomes.

    In the real world, these are considered idiosyncracies and personality flaws. In our profession, they are the obsessions and fixations that create investment outperformance.

    No one succeeds because they "desperately want to be a hedge fund manager." Very few succeed because they "have a knack" for it because the investment world is wide and there are a ton of specialists out there who pore over all the runty little areas of the financial markets you're dabbling in.

    I'll give you the same advice I gave the last guy who came by asking for advice on how to be a hedge fund manager. Sit down and learn about the business first. Read a ton of books, ask a ton of intelligent questions. Figure out why you want to go into this business and figure out WHERE you want to play in this business.

    Do you have a security in mind? A strategy? A philosophical bent? If so, then go apprentice yourself to someone who is managing money in the area that you want to learn. Work cheap if you need to.

    The money and positions will come after, if you're good at what you do. If you're awesome and make your bosses money, they come faster.

    But targeting an age and an accomplishment is a mistake in my mind. It obfuscates the really important goal, absorbing as much knowledge about your chosen area as you possibly can. My view is that's the only way to make money over the long term.

    I have not been on WSO for a long time, but this is without doubt the best post I have read so far.

  • Jerome Marrow's picture

    Why would your goal to be running a $100mm fund? After 2/20, employees, fees, and overhead, that isn't a whole lot of money--certainly a lot less than you seem to believe (on 20% returns after fees, your fund would be taking in $6mm, which isn't very much when you haven't paid any of the bills yet. You might take home $1-2mm pre-tax after all that). You also have to have a scalable strategy that has a reasonable Sharpe, something that likely is non-existent in whatever retail trading you're doing right now (I'm basically telling you your current experience is worthless for where you're trying to end up).

    I would start off by actually learning about some markets you may be interested in and, I don't know, getting into a trading or research role so you could get exposure to something that's going to be relevant. I think you need to go there and see what it takes to attain any level of success before you can create some arbitrary goals that you believe define success. That would be my first step and it isn't going to be easy.

  • In reply to No BS Banker
    englandwales's picture

    No <a href="http://www.wallstreetoasis.com/finance-dictionary/what-is-a-balance-sheet-BS" rel="nofollow">BS</a> Banker wrote:
    I have a close friend that is 31 and just received a summer analyst offer for a top tier bulge bracket investment bank. Never too late if you plan to live to be 90+.

    Same story here except in the UK - one of my close friends was a former professional (international level) rugby player and had to retire due to injury. SA at 30, FT offer for credit trading at a BB in London by 31. It is never too late to prove yourself

  • In reply to sk8247365
    TheWizeNut's picture

    sk8247365 wrote:

    You would also settle for $5-$8 million liquid cash (once again in today's dollars) for yourself by 35 as well.

    ---> Entrepreneur. Have you thought of any business ideas? Angel money is growing on trees these days.....

    While it may not have seemed so much from my post, I am just as open to this as well.

    I have played with different ideas for a while. Got some thinking to do. The input has been fantastic.

  • TheWizeNut's picture

    I've thought of trying to make seed money for my own business from earnings made on the buy-side. I have a sincere desire to understand the markets and how to be a truly prudent investor, but I don't want to be a wage slave my entire life or make another guy rich from my efforts without getting a huge cut.

  • In reply to TheWizeNut
    PennTeller's picture

    Uh, wow. 12 SBs and a Certified User tag from one comment. I'm torn on whether to have a Sally Field moment ("You like me, you really like me!") or whether to figure out if that's some sort of WSO record. Thanks guys. It's nice knowing that my rambling posts are appreciated.

    TheWizeNut wrote:
    I've thought of trying to make seed money for my own business from earnings made on the buy-side. I have a sincere desire to understand the markets and how to be a truly prudent investor, but I don't want to be a wage slave my entire life or make another guy rich from my efforts without getting a huge cut.

    This attitude is dangerous.

    The first thing you need to realize about investing is that you learn by doing and learn by watching. This is an apprenticeship business. To a great degree, you are paid to learn, (ideally from a great investor). That's a ridiculously good deal.

    The second thing you need to realize is that you are doing no one a favor by accepting a job in this world. They are doing you a favor by offering it.

    The third thing you need to realize is that the only way you're going to get rich in this business is by making other people rich. I'm pretty underpaid compared to the value I generate. I'd wager Ravenous is criminally underpaid. Most people in sub-PM roles at a fund are going to be underpaid vs. their value generation. That's simply the price of entry.

    The fourth thing you need to realize is that your worth to a fund manager today is optimistically zero, probably negative. That's okay , every single one of us, on entering the business, added absolutely no value to their bosses and probably detracted from it. Working at a fund is fundamentally different from any other job in finance because the focus is not transactional.

    When a banker completes an M&A deal, it doesn't matter whether or not it's the right deal to make. He gets paid regardless. When I buy and own a stock, everything rides on whether or not it's the right buy to make. It's a constant cycle of investment thesis development, validation and invalidation that you get no where else in this industry.

    I talk to MBA students every so often from Wharton and Harvard and Columbia and the topic of where they would come into the business from a hierarchical level always comes up. The hardest thing from them to accept is the fact that despite their years of banking or consulting experience and expensive educations...they come in at the bottom because the don't add any value for the first year or two they join.

    Get into the business, prove yourself a money maker, a great trader, a top stock picker, whatever. This process will take years. When you get that credibility, then you can talk the big money commitments to a fund. There will be people willing to give you capital to do it.

    But until then, it's just empty talk. Decide which side you want to be on.

    EDIT: Wow, I sound like a dick in this, don't I? Sorry about that, not my intention. But this is the harsh reality of trying to enter the hedge fund world. Better to have your eyes wide open right?

  • NewGuy's picture

    If you're at a preftigious shop, you will definitely add value from year one. If you don't, then the shop is too bloated with staff.

    PennTeller wrote:

    Let me reiterate. If you were a third year analyst at Baupost with a Harvard degree, your odds of running a $100M hedge fund by age 35 would be pretty slim. Slim as in 1 in 100. Maybe. If you're lucky. Given your late start, the difficulty is magnified by a thousand fold.

    Wow hyperbole much? Raising $100mm isn't that difficult (i.e. more like 1 in 20) if you were trained at a preftigious shop. In most cases, your old PMs will back you and even contribute seed money. You don't work at a preftigious fund do you breh? Coz it sounds like you dunno how the bizness works up here brother.

    And lol at all the unpreftigious brehs putting another unpreftigious breh up on a pedestal. Lol at the golden star sign of unpreftigiousness granted onto you brother. Just lol.

  • In reply to PennTeller
    TheWizeNut's picture

    PennTeller wrote:

    EDIT: Wow, I sound like a dick in this, don't I? Sorry about that, not my intention. But this is the harsh reality of trying to enter the hedge fund world. Better to have your eyes wide open right?

    I'd much rather have a productive kick in the gut than a useless pandering to. Plus, I've gotten MUCH worse on this site. Part of it is because I spent 5 years in the army "proving" myself and decided it wasn't for me (I really only did it because I had no idea what else to do and no money).

    So the idea of pandering to a bunch of men I don't necessarily ( I may end up respecting them) respect past their money making potential bothers me. The Army was Scumbag Central.

  • In reply to PennTeller
    Ravenous's picture

    PennTeller wrote:
    Uh, wow. 12 SBs and a Certified User tag from one comment. I'm torn on whether to have a Sally Field moment ("You like me, you really like me!") or whether to figure out if that's some sort of WSO record. Thanks guys. It's nice knowing that my rambling posts are appreciated.

    TheWizeNut wrote:
    I've thought of trying to make seed money for my own business from earnings made on the buy-side. I have a sincere desire to understand the markets and how to be a truly prudent investor, but I don't want to be a wage slave my entire life or make another guy rich from my efforts without getting a huge cut.

    This attitude is dangerous.

    The first thing you need to realize about investing is that you learn by doing and learn by watching. This is an apprenticeship business. To a great degree, you are paid to learn, (ideally from a great investor). That's a ridiculously good deal.

    The second thing you need to realize is that you are doing no one a favor by accepting a job in this world. They are doing you a favor by offering it.

    The third thing you need to realize is that the only way you're going to get rich in this business is by making other people rich. I'm pretty underpaid compared to the value I generate. I'd wager Ravenous is criminally underpaid. Most people in sub-PM roles at a fund are going to be underpaid vs. their value generation. That's simply the price of entry.

    The fourth thing you need to realize is that your worth to a fund manager today is optimistically zero, probably negative. That's okay , every single one of us, on entering the business, added absolutely no value to their bosses and probably detracted from it. Working at a fund is fundamentally different from any other job in finance because the focus is not transactional.

    When a banker completes an M&A deal, it doesn't matter whether or not it's the right deal to make. He gets paid regardless. When I buy and own a stock, everything rides on whether or not it's the right buy to make. It's a constant cycle of investment thesis development, validation and invalidation that you get no where else in this industry.

    I talk to MBA students every so often from Wharton and Harvard and Columbia and the topic of where they would come into the business from a hierarchical level always comes up. The hardest thing from them to accept is the fact that despite their years of banking or consulting experience and expensive educations...they come in at the bottom because the don't add any value for the first year or two they join.

    Get into the business, prove yourself a money maker, a great trader, a top stock picker, whatever. This process will take years. When you get that credibility, then you can talk the big money commitments to a fund. There will be people willing to give you capital to do it.

    But until then, it's just empty talk. Decide which side you want to be on.

    EDIT: Wow, I sound like a dick in this, don't I? Sorry about that, not my intention. But this is the harsh reality of trying to enter the hedge fund world. Better to have your eyes wide open right?

    +1

    This is another fantastic post. All prospecive monkeys should read and internalize this, because this is exactly how it is. I agree with everything in here. Hedge funds are an apprenticeship business. I don't know what the number is, but there may be 100 people in the US who are really good investors. Maybe it's higher than that, but it's not 500. There are thousands of funds of course, but most of them aren't any good. At the fund I work for, I don't know of any analysts that have survived the first year and not made at least $5 million by the time they were in their mid-30s at this shop or somewhere else. Most of them now run multi-hundred million dollar hedge funds or are partners at larger funds. Every one of them that I have talked to attribute their success to having worked here -- and it's no surprise, because the fund is in the top 1% of returns worldwide over a decade plus period.

    That being said, it is brutal. Really, really brutal. The first year failure rate is around 80%. Second year is close to 50%. You add nothing in your first year here and can only hope not to detract too much. The best strategy is to come in, shut up, sit down, and do whatever you are told while trying not to screw anything up. If you're not working 7 days a week, you are doing it wrong. I don't care where anyone went to school, that's just the way it is. I've seen people with near perfect SAT scores and elite, prestigious backgrounds flame out in less than three months. And getting a job here is nearly impossible. HYPS + GS M&A + elite hedge fund? You might get an interview, but probably won't get in. I have seen people with some of the sickest backgrounds you can imagine get shown the door after 30 minutes in the hot seat -- usually not because of skill, but because of the attitude of entitlement ("I have to make X, come in at Y, and be promoted based on Z schedule or I'm not taking the job").

    To me it has always been a net present value proposition. If this is the trade I want to learn (and make no mistake about it, it is a trade, not a job) and there are only 100 people in the country I could learn it well from, then what is that worth to me? I have no idea, but the answer is a lot -- I don't know how to calculate something specific, but even though I am criminally underpaid, I must be making at least a million dollars a year in deferred "knowledge compensation" that can be monetized at a later date. A lot of people don't really understand that. I made an offer to this kid out of an elite group at a BB and he passed to take a job paying twice as much at a mega fund PE shop where he would be 8th man on the deal team. I understand his decision, but I'm glad he did not take the job, because he obviously doesn't understand NPV -- we were literally trying to put him on the PM track within 12 months (mainly because of language skills we needed, not his investment skill, which was zero). He had the chance to work directly with a very skilled PM and he passed based on short-term earnings. It could prove to be one of the most expensive decisions he's ever made.

    The way to succeed is to make your boss successful no matter what. Get a call at 8pm Saturday night because your boss needs something for the Asia market open the next day? You're on it. Need to pull three all nighters in a row because it's Russell rebalancing week and there a million ideas to look at? You're on it. Two month non-stop road trip across the country to meet dozens of companies? Better get on it. Road trip across Asia where you don't speak any of the languages? Make it happen. There's a block up for sale on a name you've never heard of and you need to give the PM an answer in under an hour (including getting the CFO on the phone to answer questions)? Don't fuck it up. If you want to move up, never say no and kill whatever is put in front of you.

    Buffett has said you need an IQ of 120 to do this work and anything above that is wasted. That's probably true. What separates people in this business is 1) acquiring good training, and 2) wanting it more than anyone else. It's not a job, it's a lifestyle. If your goal is to make as much money as possible as fast as possible, this is not the place for you. It takes probably a decade of really, really hard work before you get anywhere close to "hedge fund money" (millions a year). As Penn noted above -- you have to have a personality defect to really want to do this. I don't mean that in the most negative sense of the word, but you have to willingly shut everything else out and just work. You have to be obsessive.

    My advice to anyone wanting to break in echoes Penn's. It's pretty simple: Be humble, be smart, and work as hard as you can imagine. If you do that and get a couple of lucky breaks, you might have a shot.

  • In reply to Ravenous
    JimmyDormandy's picture

    Ravenous wrote:
    PennTeller wrote:
    Uh, wow. 12 SBs and a Certified User tag from one comment. I'm torn on whether to have a Sally Field moment ("You like me, you really like me!") or whether to figure out if that's some sort of WSO record. Thanks guys. It's nice knowing that my rambling posts are appreciated.

    TheWizeNut wrote:
    I've thought of trying to make seed money for my own business from earnings made on the buy-side. I have a sincere desire to understand the markets and how to be a truly prudent investor, but I don't want to be a wage slave my entire life or make another guy rich from my efforts without getting a huge cut.

    This attitude is dangerous.

    The first thing you need to realize about investing is that you learn by doing and learn by watching. This is an apprenticeship business. To a great degree, you are paid to learn, (ideally from a great investor). That's a ridiculously good deal.

    The second thing you need to realize is that you are doing no one a favor by accepting a job in this world. They are doing you a favor by offering it.

    The third thing you need to realize is that the only way you're going to get rich in this business is by making other people rich. I'm pretty underpaid compared to the value I generate. I'd wager Ravenous is criminally underpaid. Most people in sub-PM roles at a fund are going to be underpaid vs. their value generation. That's simply the price of entry.

    The fourth thing you need to realize is that your worth to a fund manager today is optimistically zero, probably negative. That's okay , every single one of us, on entering the business, added absolutely no value to their bosses and probably detracted from it. Working at a fund is fundamentally different from any other job in finance because the focus is not transactional.

    When a banker completes an M&A deal, it doesn't matter whether or not it's the right deal to make. He gets paid regardless. When I buy and own a stock, everything rides on whether or not it's the right buy to make. It's a constant cycle of investment thesis development, validation and invalidation that you get no where else in this industry.

    I talk to MBA students every so often from Wharton and Harvard and Columbia and the topic of where they would come into the business from a hierarchical level always comes up. The hardest thing from them to accept is the fact that despite their years of banking or consulting experience and expensive educations...they come in at the bottom because the don't add any value for the first year or two they join.

    Get into the business, prove yourself a money maker, a great trader, a top stock picker, whatever. This process will take years. When you get that credibility, then you can talk the big money commitments to a fund. There will be people willing to give you capital to do it.

    But until then, it's just empty talk. Decide which side you want to be on.

    EDIT: Wow, I sound like a dick in this, don't I? Sorry about that, not my intention. But this is the harsh reality of trying to enter the hedge fund world. Better to have your eyes wide open right?

    +1

    This is another fantastic post. All prospecive monkeys should read and internalize this, because this is exactly how it is. I agree with everything in here. Hedge funds are an apprenticeship business. I don't know what the number is, but there may be 100 people in the US who are really good investors. Maybe it's higher than that, but it's not 500. There are thousands of funds of course, but most of them aren't any good. At the fund I work for, I don't know of any analysts that have survived the first year and not made at least $5 million by the time they were in their mid-30s at this shop or somewhere else. Most of them now run multi-hundred million dollar hedge funds or are partners at larger funds. Every one of them that I have talked to attribute their success to having worked here -- and it's no surprise, because the fund is in the top 1% of returns worldwide over a decade plus period.

    That being said, it is brutal. Really, really brutal. The first year failure rate is around 80%. Second year is close to 50%. You add nothing in your first year here and can only hope not to detract too much. The best strategy is to come in, shut up, sit down, and do whatever you are told while trying not to screw anything up. If you're not working 7 days a week, you are doing it wrong. I don't care where anyone went to school, that's just the way it is. I've seen people with near perfect SAT scores and elite, prestigious backgrounds flame out in less than three months. And getting a job here is nearly impossible. HYPS + GS M&A + elite hedge fund? You might get an interview, but probably won't get in. I have seen people with some of the sickest backgrounds you can imagine get shown the door after 30 minutes in the hot seat -- usually not because of skill, but because of the attitude of entitlement ("I have to make X, come in at Y, and be promoted based on Z schedule or I'm not taking the job").

    To me it has always been a net present value proposition. If this is the trade I want to learn (and make no mistake about it, it is a trade, not a job) and there are only 100 people in the country I could learn it well from, then what is that worth to me? I have no idea, but the answer is a lot -- I don't know how to calculate something specific, but even though I am criminally underpaid, I must be making at least a million dollars a year in deferred "knowledge compensation" that can be monetized at a later date. A lot of people don't really understand that. I made an offer to this kid out of an elite group at a BB and he passed to take a job paying twice as much at a mega fund PE shop where he would be 8th man on the deal team. I understand his decision, but I'm glad he did not take the job, because he obviously doesn't understand NPV -- we were literally trying to put him on the PM track within 12 months (mainly because of language skills we needed, not his investment skill, which was zero). He had the chance to work directly with a very skilled PM and he passed based on short-term earnings. It could prove to be one of the most expensive decisions he's ever made.

    The way to succeed is to make your boss successful no matter what. Get a call at 8pm Saturday night because your boss needs something for the Asia market open the next day? You're on it. Need to pull three all nighters in a row because it's Russell rebalancing week and there a million ideas to look at? You're on it. Two month non-stop road trip across the country to meet dozens of companies? Better get on it. Road trip across Asia where you don't speak any of the languages? Make it happen. There's a block up for sale on a name you've never heard of and you need to give the PM an answer in under an hour (including getting the CFO on the phone to answer questions)? Don't fuck it up. If you want to move up, never say no and kill whatever is put in front of you.

    Buffett has said you need an IQ of 120 to do this work and anything above that is wasted. That's probably true. What separates people in this business is 1) acquiring good training, and 2) wanting it more than anyone else. It's not a job, it's a lifestyle. If your goal is to make as much money as possible as fast as possible, this is not the place for you. It takes probably a decade of really, really hard work before you get anywhere close to "hedge fund money" (millions a year). As Penn noted above -- you have to have a personality defect to really want to do this. I don't mean that in the most negative sense of the word, but you have to willingly shut everything else out and just work. You have to be obsessive.

    My advice to anyone wanting to break in echoes Penn's. It's pretty simple: Be humble, be smart, and work as hard as you can imagine. If you do that and get a couple of lucky breaks, you might have a shot.

    This is a fantastic post and should be a must read for any person looking to break into a hedge fund. Prior to my career in VC, I spent time at a mega HF and can confirm all of this is some of the best advice you will find anywhere. Nicely done, Ravenous and Penn

    "Jesus, he's like a gremlin; comes with instructions and shit"

  • In reply to Ravenous
    NewGuy's picture

    Ravenous wrote:

    To me it has always been a net present value proposition. If this is the trade I want to learn (and make no mistake about it, it is a trade, not a job) and there are only 100 people in the country I could learn it well from, then what is that worth to me? I have no idea, but the answer is a lot -- I don't know how to calculate something specific, but even though I am criminally underpaid, I must be making at least a million dollars a year in deferred "knowledge compensation" that can be monetized at a later date. A lot of people don't really understand that. I made an offer to this kid out of an elite group at a BB and he passed to take a job paying twice as much at a mega fund PE shop where he would be 8th man on the deal team. I understand his decision, but I'm glad he did not take the job, because he obviously doesn't understand NPV -- we were literally trying to put him on the PM track within 12 months (mainly because of language skills we needed, not his investment skill, which was zero). He had the chance to work directly with a very skilled PM and he passed based on short-term earnings. It could prove to be one of the most expensive decisions he's ever made.

    Because the preftigious track is a safer one brother. If your fund is a preftigious one and you were looking to hire someone on a fast-track to PM, I'm shocked you weren't paying more than a megafund brother. Every hedge fund manager thinks they're brilliant and hence, the value they place on someone getting to train to them is waaay too inflated. Looks like you're drinking your own cool aid too brother. The "kid" was wise to see that.

  • Ravenous's picture

    Why would we pay more? I gave him an analytical test of three companies and he failed all three. He worked at GS for three years, graduated at the top of his class from one of the best schools in the world, and was a national chess champion (i.e., very smart guy with a lot of potential) but knew nothing about investing. There's no reason to pay for that. We were offering him the chance to ramp quickly and contribute some rare language skills for a market that we wanted to enter. He would be paid for performance at a PM level after 12 months if he could pull it off. The opportunity was better for him than for us -- we found someone else the next week, he did not find an equivalent opportunity. His loss.

    I know you are a troll, so I am not trying to convince you, but I bothered to write that for anyone else bright enough to run some basic math in their head. In other words, fuck your prestige.

  • ieatbananaforlunch's picture

    Wow great post, Ravenous and Penn. Quick question. I am pretty much in the same shoes as the OP. I am 26/27 years old working at a Big 4 firm and graduated from a non-target. I am not learning shit from my current job and feel that I am wasting my life. I tried cold calls, cold e-mails, and going to networking events, but I can't even get an assistant ER analyst position. I don't care how much I get paid right now, but I just want break into the industry. While your posts are extremely insightful, but I still need to break into the industry. Could you please share some light on how to break into the industry? Thank you very much!

  • Gray Fox's picture

    As usual on the hedge fund threads, Ravenous and Penn have done a great job. I'll try to offer my minor contribution. I can sympathize with the "Ho-Hum to hedge fund" as I went to a school most people on this thread have never heard of and work for a fund most have heard of.

    People here are quick to knock on the CFA as a pedagogical derelict of the long-only space and a beacon of false hope for those not already in the business, but it does present opportunities. The job board is much better than efinancialcareers and the tests show a basic dedication to the industry. Many funds post opportunities there. The big funds are obsessed with pedigree, so its hard to break in at Third Point/York/SAC type of funds without an ivy league degree and two years of banking experience. If you are coming from a different background, take the CFA exams, read obsessively, and run your PA. Try to find a list of all the funds you think are good and figure out if you connections there. If you can really offer something, a lot of smaller funds (DE Shaw's of the world, you have to be an off the charts 99.9999% intelligence type of guy. I know I'm not one of those and have no trouble living with it.

    Go to the websites of the best business school's (for equity funds this means Columbia, Harvard, and Wharton), download the syllabus for relevant courses, and read the books. Spend your weekends researching ideas. If you come across something great, make a list of 20 funds and send your write up to the PM. I wouldn't do this unless you had an amazing idea, but its always worth a shot. CapIQ and Bloomberg make it easy to find contact info.

    In terms of starting your own fund, its a lot harder than landing a job in the industry. I know a few guys that launched at SAC alums make up a huge portion of new launches. As unfair as it may be, if you have really rich friends this could be a great help. Very average guys start funds because they have the capital but their returns really aren't much better than the market but that is a story for another time.

    Best of luck. Take the CFA tests, read obsessively, crush the market in your PA. Network and figure out what type of fund you would click in.

  • In reply to Ravenous
    NewGuy's picture

    Ravenous wrote:
    Why would we pay more? I gave him an analytical test of three companies and he failed all three. He worked at GS for three years, graduated at the top of his class from one of the best schools in the world, and was a national chess champion (i.e., very smart guy with a lot of potential) but knew nothing about investing. There's no reason to pay for that. We were offering him the chance to ramp quickly and contribute some rare language skills for a market that we wanted to enter. He would be paid for performance at a PM level after 12 months if he could pull it off. The opportunity was better for him than for us -- we found someone else the next week, he did not find an equivalent opportunity. His loss.

    I know you are a troll, so I am not trying to convince you, but I bothered to write that for anyone else bright enough to run some basic math in their head. In other words, fuck your prestige.


    Oh really? It was a better opportunity for him than a megafund job? REALLY? You guys were just looking to hire a translator, and were paying pittance for it ... pleease.

    The dumbest thing an analyst can do is to join a firm on the buyside with a verbal "promise" for something greater. If he failed the tests and sucked that bad, then clearly he wasn't cut out for the job, and even more clearly, the fact that you still offered him the job means you were just after a translator, not a real future PM. I don't see what his credentials had to do with anything ... my fund rejects dozens of guys like that a year.

    Just coz every unpreftigious bro in this thread is drinking your cool aid doesn't mean I will brother.

    This thread should be called "Guide to unpreftigious HFs from unpreftigious HF analysts"

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