How to get comfortable with HF risk
Currently work at a BB and have been offered a L/S equity job at a good fund which will significantly increase my compensation. Despite this, I’m a fairly risk averse individual. How do I get comfortable with the risk of bad performance and losing my job?
Additionally, I know that many have cast doubt on whether any active fund manager is able to outperform the market, can someone in the industry enlighten me as to how these funds consistently stay alive when most underperform?
1) there is nothing anyone can say that will help you with this in my experience, the culture is sink or swim. You’ll find out after a year or two if it’s for you or not
2) hedge funds aren’t mandated to beat the market in a lot of cases (especially if MM)
To get comfortable with high-frequency (HF) risk, start by thoroughly understanding the market dynamics, employ robust risk management strategies, diversify your portfolio, conduct thorough research, and gradually increase exposure as confidence grows. Continuously monitor and adapt to market conditions while staying informed about economic trends.
Sorry for the confusion I meant HF as in Hedge Fund
You confused ChatGPT
It's not your money!
1) live below your means, and 2) remember this quote..."there are no investment heroes, just good risk managers."
Sounds like a typical banker reply. This is exactly why bank traders constantly fail at hedge funds, it’s because they don’t understand how to manage risk, largely because banks don’t teach how to properly deal with or manage risk.
Your success will largely depend on your seniors. If they suck then they’re going to pull you down too. Make sure they have a good track record at this existing shop, not just as a junior working for someone else elsewhere
Thank you for your honest reply. How essential is it to work for a seasoned PM, would a new PM not have gone through the stages of taking ownership of a portion of the fund previously and hence have a track record?
Theres always a risk going from junior PM to Senior PM. Some Juniors did well largely because their senior gave good guidance. Building out a new desk is always risky too, even with senior PMs, so just way safer bet to join a team with a track record at that firm than to risk it with a “start up” pod with a PM without a proven track record.
How do you develop ways to manage risk in a professional environment?
You sort of answered the question yourself in how you worded the question. That said the math I usually do with candidates; give me your TC over last 2 years then lets see how fast we can match it, then lets do 4 years. If you comfortable with both the risk of being laid off is minimized.
So if the two years is say 3 months why have this fear. If the four years is say I need to make “X”P&L in “Y” vol environment thats acheiveable that fear is minimal as you have a plan like the BB in your mind now.
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