S&T or Research for future hedge fund career
Hi guys, Credit Suisse is recruiting at my school for summer 2013 internships. They asked us to contact the recruiter with our resumes and which division(s) we were most interested in: investment banking, S&T, and research (fixed income/equities).
I have no interest in investment banking, so that narrows it down to S&T or research for me. As someone who wants to work at a hedge fund/start one (the latter is a more long term plan lol) and already has experience managing OPM, etc. which would be a better opportunity to prepare me for a future hedge fund career...sales & trading or research? I hear research pays a little better, but there are a lot of jobs being cut in that department?
Any thoughts from members here? I'd love to hear.
Thanks again!
Research.
Care to explain further?
What type of hedge fund strategy are you interested in?
Long/short, value strategy (something like Greenlight or Pershing Square)
I guess if you wanna do value investing for a hedge fund, equities or fixed income research would be the way to go ?
If you wanna do things like statistical arbitrage, derivatives hedging etc. S&T i reckon?
I'm blown away by the amount of people that want to work at Greenlight or Pershing Square because Ackman and Einhorn are in the media all the time and have charismatic personalities. Whats even more absurd is that people automatically link value investing and those two funds. They are obviously great places but PS runs essentially 5-6 positions. What do you think you are going to do there? Value investing in its purest form is statistical. If you really want to be a pure value investor it takes one copy of security analysis, a subscription to a financial database, and a google search of "Ben Graham net-net"
I've never seen a thread that says I want to work for Highfields, Value Act, Glenview, Chieftain/Brave Warrior, or countless other multi-billion dollar l/s value funds that are truly excellent. The amount of threads on WSO about "value investing" and "I want to work at Greenlight after I graduate" are ridiculous. There are a few high profile names that have done well and now everybody wants to be a l/s value investor because Ackman nailed MBIA and then GGP on the flip side of things while Einhorn is lighting up GMCR, Allied, Lehman, etc. You can be a value investor and not work at a $10bn fund.
In most of the last the decade the macro funds were the most prestigious place to be. Everybody wanted to work at Soros, Tudor, Moore, etc because they had made killer trades in the previous 10 years (Tudor calling the '87 crash, Soros' currency trades,etc). Everybody is fighting the last war. There is the infamous statistic that MBA employment stats are the best contrarian indicator. They all went to tech startups in 2000 and I-banking in 2007. It scares me that everybody wants to work at a value fund right now. Actual "value" stocks, those trading cheap on a P/E, P/B, etc basis did really well in 2002-2004 and haven't done much since. They have absolutely sucked the last 3 years. Normally they lead out a rally but not this time. I don't know what type of funds will do well in the next decade, but I'm reticent to say it will be the big name value funds. Nobody wants to work at mortgage funds right now but they seem to be killing it.
The dirty little secret is that the great value investors built their track records on far, far less capital. If you took Ackman, Einhorn, and Loeb's record before and after they cross 2bn in AUM I bet there would be a statistically significant gap in performance. They killed it with AUM that was way less and are collecting hundreds of millions just for showing up. I have a tremendous amount of respect for the aforementioned names, and they will probably generate good returns going forward, but I would be shocked to see them hit 20%+.
If you want to be a "value investor" it means that you are going to spend all day reading stuff, occasionally calling mgmt, customers, or suppliers, and being stumped most of the year. The guys I know who are really good come up with 1-2 ideas a year. Do you have any idea how frustrating that can be? To spend a month on a name and come to the conclusion that it is fairly valued??? To do that over and over again and have a PM disagree with you??? When you have spent your whole life taking a test, playing a game, or closing a deal every few weeks and then you have one actionable idea a year it is very difficult psychologically.
rant over. value investing is great but consider other things.
Hear hear!
Hi GrayFox, you make a great point. To be honest, I never said I wanted to work AT Greenlight or Pershing Square....and most "value" investors aren't as statistical as Ben Graham was. Not even Buffett...he took relatively very concentrated positions. My own style is similar to that....concentrated value with a potential catalyst (so basically...event-driven). I've PM'ed you regarding some questions I had regarding your post. Thanks again.
Also, I agree....and Buffett has pointed this out many times regarding how much harder it becomes to generate great returns as the amount of capital increases. Einhorn's fund isn't doing too hot this year (although one year isn't a good predictive time frame), but I think the S&P500 is beating it by over 5% YTD.
This post is exactly why I want to work at a "small" fundamental fund. $100M-$500M seems like a great sweet spot for position size. If you are $10B fund you aren't scalping value out of the market, you are the market. At that point the 2% is much more important than your 20% fee. Also, for everyone who brags about being up 50%+ in their $5000 PA, LIQUIDITY! Try seeing how easy it is to move in and out of a $20M position in a ~$500M company, its not the same.
Its sad how herd like institutional investors are in their capital placements. It would be better if institutions spread their capital around at more "smaller" funds rather than playing it safe by being able to report they investment with Greenlight/PS. #tryingtokeepyourjob
Value investing is great, Ben Graham is a wonderful poster boy, there are also great modern day value investors working some very interesting niches in the market (google Paul Sonkin, read his book). Speaking of CBS, go out and read http://www.grahamanddoddsville.net/?page_id=689 If you're too lazy not to then you don't belong in the business. That being said, coming out of the financial crisis, my bet is on GARP for the near time future.
-I'd ask for no more "how can I get into Greenlight posts" but unfortunately my parents already told me Santa doesn't exist
This is spot on. The fact of the matter is that true value strategies have to evolve if they want to stay ahead of the market as more and more people pile into value funds and it becomes harder to actually find opportunities in the mid and larger caps where we higher AUM guys have to operate. Value investing doesn't just mean buying the bottom anymore, it's much more complex than that. Many funds have/are starting to recognize this and I bet we'll be seeing a lot more of the "buy a great business at a decent price" mentality rather than the "buy a good business at a bargain price" that's typical of value.
There's nothing worse than spending multiple months on a name and then seeing that there's no opportunity for you, as a value investor, to find alpha there. But sometimes you have to re-tool what it means to be looking for value. Being a bit more of an activist is necessary sometimes and it's something 99% of funds aren't willing to do, so there's still plenty of opportunity at the crossroads of value investing and activism. Not to say we should all be Bill Ackmans - I disagree with his more aggressive style and marriage to 1-2 names at all times - but looking at ways that a company could be undervalued if they made a small change or if you saw the place from the inside can be the difference between dropping that name you worked months on and actually making an opportunity for yourself.
And on the short side of things, I think the modern value investor has to get a lot more involved in identifying overvalued companies rather than being so heavily focused on their long book. This is an area I think should be pretty safe for a while since it's simply human nature to not put your balls on the chopping block too often. The smarter / more confident investors will always have opportunity to kill it on the short side.
And I'd also like to echo the "I wanna work at Greenlight or another super cool l/s value fund!" thing. It's fuckin' annoying, and just from the number of PMs I get referring to the same 3-4 places, it's unreal. "So which one do you work at? Is it Pershing?! I wanna work there so bad, my mom shops at Marshall's but like I know she's wrong and stuff, plus I read Intelligent Investor, will you look at my resume?" All the best value shops go completely overlooked on this site. How many people in here even know who Glenn Greenberg is? Greg Alexander? Bill Nygren? Bob Robotti? Hopefully at least you guys know Bill Miller.
good shit
Greg Alexander? Isn't he that guy Mel Brooks played in Last Of The Mohicans
but seriously people, google these names.
-Are you really a christian if you haven't read the bible back to front?...Find some religion, read Security Analysis and then make your own opinions
There is a story in Franceabout a famous French poetnamed Paul Claudel who had not believed in God. One day, he was standing by a pillar at a Cathedral near Paris and he said: “I was illuminated by faith.” In a sense, I was illuminated not by faith, but all of a sudden, it seemed to me that Ben Graham simply made sense." - Jean-Marie Eveillard (old school)
BlackHat, I PM'ed you but no response lol.
I like this post...I work for a mega macro fund and it makes me somewhat happy that the focus of junior people such as MBAs seems to have moved away from this space. In terms of big vs small, I have worked at both and can definitely say that crossing the 1.5bn-ish mark makes trading an entirely different sport even in very liquid markets. It just becomes much more difficult to move the needle when the sizes get that big. Billions under management are very good for the guy who runs the fund, as it garauntees his private jet fuel bill gets paid each month, but other then that it doesnt really help other people at the fund who dont see any of the management fees.
It's because they want to update their linkedin profile with "XX now works at Pershing Square" and watch all their friends gawk at their newly acquired preftige. If preftige and lay respect is what these folks are seeking, who are you to define their value system for them? U mad college students don't think your fund is preftigious, brother? U mad when you go out with your banking friends and someone asks you where you work, you have to suffix the fund name with "we manage around X bn dollars"? Yeah, u mad bro.
You too Whitehat.
I don't want to start a "my daddy could whup your daddy" war, but if we are going to define "preftige" as the duration of a track record and magnitude of out-performance, I highly doubt your fund is nearly as "preftigious" as where I work. If "preftige" is being on CNBC a lot then I'll gladly concede.
On a very high-level perspective, research will teach you to analyze: -stocks in a "why this/why now" perspective. Great ideas have no value if you can't explain what's different with the landscape today vs yesterday. -reactions to earnings/news. You'll need to convey what event would need to occur for you to change your thesis. In other words, what would the X Co. have to say in order for you to cut your losses or buy more (assuming stock dips) without calling sell-side analysts for the answer. They will be busy answering calls from their top (and clueless) clients. This is different the knee-jerk reaction to above/below consensus earnings.
Through your conversations with clients and management teams, sell-side research will give you some insight on how Street expectations are set. Are investor expectations below/above guidance (given by management)? What are whisper numbers?
Needless to say, you'll be interacting with HF clients, providing many opportunities to network.
From my observations of institutional sales, you regurgitate/water down your research analyst's report into fewer words that catch a reader's attention. Due to compliance reasons, you're not allowed to provide your own opinion and you're not paid to do that.
if you want to do L/S value i'd seriously think about banking
its fairly standard to do 2 years banking -> HF or 2 years banking -> 2 years PE -> HF
Black Hat/Gray Fox - you guys are entirely right. I think the preference for Greenlight/Pershing/Soros comes from the same desire to work at KKR/Blackstone/TPG. You don't only want to be successful, but you want others to recognize your success.
In my view, MM PE is vastly preferable to working at a megafund. Similar pay, better odds of promotion, more experience. The same can be said of working for a lesser known hedge fund (at least, I hope so). I would think that you would learn a lot more working in a team of 10 - 20, than at some massive $10b+ fund.
The funds I most want to work for are completely unknown to the general public, and to most people in finance. 500m to a few billion AUM, generally outside NYC, with PMs who don't appear in the press. Chasing prestige is pointless - sure, the average joe might not know Empyrean/Beachpoint/Watershed, but you'll have a way more interesting job than the guys at Paulson.
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