Hey everyone,
I work at a single manager fund that utilizes my trading systems in order to time our entries/exits, manage risk and find new trading opportunities. I also provide the PM with various market analyses that have helped our numbers.
How can I build a trackrecord of my performance given that my system is such a big part of the returns of the fund?
In case I want to work for a larger firm in the future, how can I "prove" my performance?
Thank you
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in short, you can't "prove" your performance...but also, you don't have to.
If you were a retail trader with a 50k account, then yes, you would need to prove your returns...but when you are part of a larger book, larger funds will understand that you can't.
They will just ask you to track your own perfomance (in excel) so that you can produce risk stats (max intraperiod drawdown, sharpe, sortino). At a minimum, that means for every security traded, you have entry, daily closing price, running P&L, until exit. Then you sum everything up for a daily portfolio P&L...and that is what you use for the risk metrics.
Ask yourself, are you capable of being a solo PM right now? If you think so, think about going to a MM like Millennium. They will ask you, what is your strategy?...walk thru it with us.
You should be tracking (even if just in excel) all your trades...entries and exits (with timestamps). You can then create a portfolio history. I would call it an effort to track performance with the intention of improving signals from post trade analysis. What are your risk stats (sharpe, sortino, max drawdown, avg drawdown, alpha/beta vs a benchmark, etc..).
what you need is to track the performance of your signals, both good and bad. you'll also need a back test that goes thru 2007 --> present day, with max drawdowns under 5%
if you can articulate your strategy (while at the same time keeping your secret sauce, a secret) then you can do well in a MM interview. You will be asked what are the risks to your strategy...when does it blow up? These people are seasoned investors/traders...the people who interview you used to work at Goldman, and have been doing this for a number of years, so you got to both check your ego, but also be confident in your performance and outlook.
Also remember that the platform funds are only looking for strategies that can scale...if there is a cap of 100mm before you hit execution slippage, they won't be interested...because they are a 35bln fund and need to put large amounts of $$ to work with avg 5-6x leverage.
Thank you very much for the thorough response.
you don't specify what type of fund. Are you quant or fundamental? Do you provide any signals for the book? Is your role mainly risk and execution? Dependent on how you answer building track record can be easy or hard.
The portfolio manager chooses which stocks he likes fundamentally and based on my system, which utlizes proprietary indicators I have developed myself, I decide when to get in on a trade, the stop-loss levels to use and when to get out. I also provide him with macro analysis, market timing for hedge trades and do all trading executions.
Ok, so this is an interesting mix. and somewhat hard to prove. Can you run a backtest on some universe of stocks, can you prove that you can create returns without your PM's fundamental input? In other words can you prove that you actually add alpha? Also, how scalable is what you do? You mention stop-loss and execution, how big is the size of book that you are currently working on?
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