analysts vs traders in junior HF roles?
Hi. I am a junior at a top-target, majoring in computer science. I'm also a new student of the HF industry. I genuinely enjoy developing my own ideas and see it actually work in the real world, so the job seems to be a good fit for me.
So I understand that the top 20 funds can be categorized into one of the three mainstreams: Fundamentals(equity long short, distressed, merger arb), Global macro, and Quant. I doubt I can jump into the fundamental funds without prior banking experience (assuming banking internships don't count), so I have my sights set on quant funds where I can play to my strength in computer science.
My understanding is that just as sell-side positions break down to IB / S&T, Hedge fund front-office roles generally break down to analysts / traders (forgetting about the research people for now). The analysts make models, generate ideas, pitch them to the PM, whereas the traders are the executors who spend more time dealing with the market. Please correct me if I'm wrong.
So here comes my question:
I see a very thin line between these two roles. It's not as if the traders don't generate their own investment ideas, or the analysts delegate all trading activities to traders. Could someone describe specifically how junior positions are different from one another? Also, which career would give you better chances of being promoted into a PM?
Thanks for taking time to read a long post.
a) Forget about top 20, that's arbitrary and probably not a good way to end up in the best spot for you, not to mention seriously limiting your total opportunity set (I would estimate that the top 20 hedge fund by AUM employ 5,000 investment professionals and only a VERY small subset are junior people without prior buyside or elite sell-side experience).
b) Generally your three buckets are right-ish but they ignore a lot of nuance within the three, plus macro is often very quantitatively-focused.
c) I am not sure what you think the difference between "analyst" and "research" is. This may be a quant vs fundamental issue on my end but they are effectively one and the same at every shop I've ever interacted with.
d) As far as work-flow between analysts, PMs, and traders, you are on the right track though it tends to be a bit more of a dialogue-I keep my PM and trader informed on what I'm working on and they tell the analyst team about ideas they hear about/think of that they want to do someone to do some more work on. It's important not to downplay the importance of execution and being in touch with the market either-our trader is extremely valuable.
Now to your question: It really depends on the culture of the firm. Some places have a more trader-focused culture where traders are allowed to take prop positions based on their gut feels/their own research, or to trade around positions to some extent (ie we have a target exposure on this name of X, and the trader has discretion to take it up or down by Y% when they feel things are over-bought or over-sold). Others would never in a million years let their traders have this kind of discretion (the firm I work for is probably in the mid-point but trends away from trader discretion). That said I rarely meet traders who are particularly good at coming up with their own ideas. More often they hear from some trader or PM they respect that they have some trade on and replicate it or ask an analyst to look into it.
The junior level distinction is important too. Our back-up/assistant traders are effectively middle-office (entering trades in the blotter, helping with marking the book, picking up phones, etc). IF they manage to do that for a few years without screwing up they get to graduate to placing calls/executing certain trades themselves. This is from what I can tell pretty common-it's just too easy to do serious damage in a short amount of time with a trading screw-up, whereas shitty research is typically easier to nip in the bud without serious issue.
At my particular firm, every analyst is responsible for their own names (more junior people have a mentor or two who has shadow-coverage at first). However many shops have more formal junior/senior analyst system (sometimes they may use banking-style titles for this). The amount of freedom to generate new ideas, do your own research, and control the process varies a lot by firm, PM, etc.
The same applies to the PM question, though in my opinion the pendulum has been swinging away from traders for a while now (and going to more so as banks decrease their prop trading). At my particular shop every PM was an analyst at some point, and most of the new fund-launches I can think of are analyst-driven, but obviously there is no shortage of famous funds started by traders.
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