Are the incentives of research analysts and traders aligned?
Hello everyone.
I'm a research analyst at a single manager fund. All the analysts focus on a specific area and is expected to be the expert who comes up with insights in that area.
However, my firm's culture is: if you're not a trader, you're a second class citizen. Thus, all the political power is with the traders and the analysts are rather like robots. Recently, another analyst contributed a lot to pnl and was furious at his bonus. The head PM (trader) said this is how comp works at the firm and he can't figure out how to pay people if they're not a trader. Needless to say, my colleague resigned on the spot and I'm not pleased either since they never hired an analyst into trading either.
Wondering how other shops work. Do I need to be at a multi-strat instead?
It's the same at my fund... management considers research to be a fixed cost, and PMs call the shots at the end of the day. I imagine if you went to a multi-strat pod shop, you would be even more at the mercy (or whim) of your PM and not less so lol. Curious to hear what other people think
I'm really starting to prefer firms that are very opportunistic and have zero barriers (see my below answer). Traditional firms are either starting seats for a new grad or for someone who wants WLB.
I think if I can get a seat at a good multi-strat, there will be less barriers and I can progress along my career.
Yeah makes sense - I read the thread below and agree, though I've been looking more at stressed / distressed shops rather than pods for a next step. Would def have to look into further.
How many years of experience do u have ?
It is standard at the beginning, you suggest ideas but it is the PM taking the risk so he is doing the hard part of selecting between your good and bad ideas. I guess all your ideas would not have generate profits if the PM had put risk on them.
After a few years of experience you can be a bit more autonomous and run a book even if you are still analyst. Then your bonus should be more closely linked to your performance (but you can also be fired more easily, nothing is free). This being said in SM it is rare to have formula bonus like X% of your pnl is your bonus.
5 YOE total. 2 at my current shop.
I have a paper book on the side running long holding period stuff which has done moderately well. Since only traders have live prices on a terminal, (analysts use factset/capitalIQ/eikon), this kind of second class treatment frustrates me because there is a very clear cap on my development. While I agree with your premise for performance based reward for analysts as a future career direction, I was so turnt off by the treatment here that I'm withholding my best ideas for my next shop. If I can't trust my trader/PM, this lack of a tight relationship where ideas can truly flow is not somewhere I want to be at this point in my career
Combined with the fact that none of the analysts have been promoted, I'm starting to think going to a pod that doesn't have those kind of barriers might be better for my career.
Yes I hear you and agree your current company does not seem to value analysts work enough.
As you said there is a need for trust and alignement of interests between PM and analysts.
I think you can find SM where it is the case (done 2 SM and was the case at both)
If you join a MM, with your exp, i guess you should also be paid more in relation with the pnl your ideas generate. But I won't expect too much if you don't run a sub-book
What strategy is your fund?
Semi-Systematic Credit
This doesn't make much sense to me. At systematic funds, the strategy is wholly responsible for the PnL, and the trading is simply execution trading. The top brass PMs have oversight over which strategies see the light of day, but at these funds most people are linked to the PnL their strategies generate. Are you not linked?
I can't say too much, but we're a traditional credit shop looking to get more systematic via "quantamental" approaches. Your perception of how fully systematic shops work does not apply here since the core DNA of management is of the discretionary variety. In credit, it's a bit different because analyst perform credit analysis and feed those ideas to the PM/traders. Since credit isn't a liquid asset class like equities, they're a bit more than execution traders
Nope - I work at a systematic credit fund and it's my second credit fund, my first being a discretionary credit shop. All our researchers are linked PnL to the strategies they develop, and the trading of any CUSIP/broker product is done largely by an execution team. The only thing traded by the researchers/analysts are illiquid private deals (non-CUSIP).
Is your current fund's DNA that of a discretionary shop or systematic shop? Sounds like your shop is a good seat :)
When you say researchers, do you mean quant researchers like equity stat arb or fundamental credit research? I'm guessing you guys are generalists whereas we are split into sectors like an old asset management firm.
Maybe I'm just overreacting, but I'm so disgusted how the head PM's first concern was how to pay people that are not traders.
Yes, quant researchers. It's a systematic fund for sure. I will just say the reason why we are quant-heavy is because we operate in a niche of the credit space where that matters more than fundamental analysis. On that note, it wasn't clear to me from your post what makes your fund "semi-systematic", it sounded discretionary to me.
I was about to say - your fund sounds like an AM shop with the way they segregate analysts and the PMs and the PMs earn all the dough. I worked at a life co way back and that was the set up as well. I thought it was stupid because they devalued the analysts research in favor of the whims of some tenured guy who controls the purse strings.
My take away is that yeah, the fund's payout structure just sucks. Even if you're not explicitly linked to PnL many partners will recognize the value of their analysts and compensate them accordingly. An implicit link to PnL if you will. HF is very much at-will industry, if this seat isn't giving you what you want and told someone else they aren't going to share the spoils...find a seat that will.
So how are the traders/pms at your fund compensated?
Strange to me that you work in credit but they don’t pay for Bloomberg for analysts… red flag, IMO
Did not need to read beyond, "The head PM comes from trading". Shops started by traders struggle to ever believe analysts make the difference. I have friends who very good analysts and not prolly compensated and left with their best ideas as you plan to and their next firm did much better than the last one.
Myself I struggle with this nowadays as a lot of analysts with quant background demand high salaries and "low ceiling bonuses" but if we find someone who's willing to bet on themselves and the firm we try to for sure give them a direct link to P&L. But capping someone's development just seems like basic greed.
As someone who has a CS background and competing offers in FAANG, wondering how you think about analysts asking for high salaries?
This is the current struggle for everyone as the large MM firms have decided to treat high skilled analysts as cost centres and offer as high if not better pay to attract talent from FANG firms. Which makes total sense if they are bringing skills no one has on the team. That said the same style is with “discretionary bonus” so as an example know a firm whos head analyst made 7 figures a year ago but that equated to like .5% of book. Now in a bad year similar analyst would make 300-500k. So many firms wanted to hire this analyst but he prefers “low ceiling and decent upside”. In my view some MMs getting away from paying analysts top dollar but also few analysts would take a 50% of salary bonus in a bad year/transition year.
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