IB -> Macro HF

Hey All - First time caller, long time listener. I'm in Structured Credit at a BB working on esoterics (won't give more details to avoid self-incriminating as we're one of the few on the street in this particular business, but will say we're on the illiquid and complex side of things) looking to make a passion-driven pivot to a macro fund.

In digging through guides, public forums. etc and speaking with peers, I get the sense there's frankly a dearth of detailed content on macro strategies (which I'd think is driven by the opportunity set skew, as well as the fact that the top-down market segment is just less homogenous). So I'm going to ask some stupid questions:

- What are the different "flavors" of macro? How can you bifurcate at a deeper level than just discretionary vs. systematic (i.e. do some strategies express theses more often in say credit and rates than other asset classes, do some have broader mandates than others, etc.)? Examples would be extremely helpful

- Assuming there are discernable buckets, what would interview processes look like for each / how does one prepare (apart from the cliché "just follow markets / read a ton and have your mental model for the world)?

- Which recruiters work on macro mandates?

I realize I'm walking off the reservation a bit here (exits from my team are typically to Spec Sits teams in Private Credit), and that a background in trading / research would've made this pivot much easier, but frankly the idea of being handed x names to follow and limit brainstorming to is just not for me. Definitely a STEM / research-focused person at heart and care dramatically more about macroeconomics / public policy / cross-asset flows than entrepreneurship and business models. I also dislike the fact that private credit (going to paint with a broad brush here, so please correct me / give examples if you disagree) won't make directional bets (constantly hear people regurgitating Marks's "the macro future is unknowable") and that it's just not their business.

TLDR; Solving for a role with as broad a mandate as possible. That said, I have built a niche in modeling / understanding complex situations that's monetizable (and I do enjoy it as well), so am actively looking for an intersection between that and making macro bets. Would greatly appreciate any advice .

Comments (13)

Most Helpful
Aug 7, 2022 - 6:20pm
MacroJunkie, what's your opinion? Comment below:

I'll answer as best as I can but will be limited by my personal experience. 

1. Different flavors of macro

Broadly speaking, I would consider there to be two really broad flavors of macro.

The first is "classic macro," which I would classify as anyone who makes directional bets based on a combination of public policy, asset flows, economic developments, etc. These guys may take a position on the direction of inflation prints and attempt to profit by correctly guessing the future path of inflation as an example. These guys will likely have the broadest mandate and trade a wide variety of products. If you've read some of the content on this forum, it seems like bondarb and macrobruin were probably like this.

The second, for lack of better terminology, I would call "micro macro." These strategies involve trading macro products (e.g., rates, fx, etc.) but not necessarily trading based on macro data (capital flows, economic data, etc.). These strategies try to exploit persistent market inefficiencies, usually using some type of relative value framework and do not generally rely on making directional calls. An example might be exploiting a persistent inefficiency in cash bonds vs. futures by shorting the futures and going long cash bonds on repo. Martinghoul on WSO is an example of someone who was probably like this.

Both of these types of strategies can be executed across a variety of asset classes (rates, fx, commodities, credit, etc.). Depending on what kind of shop you're at and what background your PM has, you will likely be trading across several of these asset classes, but not all. For example, I would consider myself an interest rates trader, but also look at fx and occasionally credit (but not so much commodities). Your mileage may vary. Macro-oriented strategy mandates tend to be limited only by what you can profitably trade (and in this sense PMs tend to decide their own circle of competence to some extent). Everyone will have their core competency and will add positions as it complements whatever themes they want to express in their portfolio. Many investment themes can be expressed using a variety of asset classes and some trade expressions will have a better risk/reward than others.

2. Interview process

The interview process wouldn't materially differ at these two different kinds of places, except perhaps with regards to the trading ideas that you might pitch. The background knowledge would be the same in both cases, just how you apply it would be different.

In terms of preparing, the most helpful thing I did when I was still building my framework of how to think about markets was to read a lot of central bank research and understand how central banks work at a very granular level. This part is perhaps a bit unique to the set of products that I now trade, but I think this skillset would be extremely helpful to any prospective macro trader. Central bank research is great because its free and there are some really high-quality authors out there who I, and traders that I know and deeply respect, read on a daily basis. 

 3. Recruiters

Can't help you with this one, sorry. My recruiting process was a bit unconventional, and I didn't go through a recruiter. It might be worth writing some market commentary/trade ideas down and seeing if you can reach out directly to people at these funds. Your background probably won't translate well on paper to recruiters or PMs (I would know, I also came from IB), so you need to give them a reason to get them on the phone with you so you can show off what you know. After that, it's really up to you.

Aug 7, 2022 - 7:33pm
amsal, what's your opinion? Comment below:

Super helpful answer, I really appreciate it MacroJunkie. Have read some posts from Martinghoul and [macro bruin] over the years but probably a good idea to go back and refresh as I think through what exactly I'm aiming for. Also appreciate the suggestion to start producing my own commentary to leverage for conversations, think it's a good one. 

Couple of follow-ups:
- How long will you guys hold a position for on average? (I realize this is extremely path dependent) 

- What is the lifecycle like for a trade idea, from the point where you're inspired by something you read / saw and produce thoughts to you actually taking risk? How much time is going by?

- Further to the above, when you pitch an idea to your PM, what are you showing up armed with (e.g. a writeup to debate, a model with some distribution of outcomes, etc.)? 

- How often are you talking to the sell-side / who are you talking to? (i.e. just when you're ready to implement or constantly for color / to bounce ideas)

- How many positions will you personally have on at any one time?

Candidly having never spent a day on a proper trading floor (in structured credit we consider it a trading floor but it's not), I'm unfamiliar with your version of the lead generation -> analysis -> execution process so trying to understand the speed dimension and the extent to which you do deep analysis on one idea first versus take a position early and "build the car as you're driving."

My reaction to your post is also that what you describe as "micro macro" probably dovetails a bit better (or maybe just not quite as poorly) with both what I'm currently doing / what I imagine (i.e. looking for rel val across asset classes). Would be curious to hear to what extent having deep modeling experience / debt background would be helpful (realize this is likely out of your purview, but would encourage you to take a stab anyway if you have opinions).

At the risk of really sounding dumb, any macro funds that come to mind with deep roots in debt?

Aug 8, 2022 - 8:19am
MacroJunkie, what's your opinion? Comment below:

Posed a longer answer earlier, but it got deleted. Will try and rehash.

1. How long will you guys hold a position for on average? (I realize this is extremely path dependent) 

Anywhere from a few days out to a year, with the average being a few weeks.

2. What is the lifecycle like for a trade idea, from the point where you're inspired by something you read / saw and produce thoughts to you actually taking risk? How much time is going by?

My best ideas have been spur of the moment and didn't take very long from initial idea to trade write-up to being put on (maybe 1-2 weeks total). Some take a bit longer, but a lot just depends on when you think the timing is right. You may be working on an idea for 6 months and have just been waiting for the right catalyst in the meantime.

3. Further to the above, when you pitch an idea to your PM, what are you showing up armed with (e.g. a writeup to debate, a model with some distribution of outcomes, etc.)?

Still a junior analyst, so not everything I work on is my idea (a lot of my time is spent fleshing out my PM's ideas), but when I'm pitching something I'll usually write up a trade idea as an investment memo type of thing. Will supplement with background information, suggested trade execution, cost of carry, etc. Oftentimes will have some models that look more like data science (regressions, PCAs, etc.) than 3-statement financial models. I've never used accounting or 3-statement knowledge.

4. How often are you talking to the sell-side / who are you talking to? (i.e. just when you're ready to implement or constantly for color / to bounce ideas)

Will talk to sell-side strategists and brokers at least a few times a week to bounce ideas off of, see what others are thinking, etc.

5. How many positions will you personally have on at any one time?

I don't run my own book of risk, but we'll usually have a major theme or two we try and tilt the book towards and will express that theme through maybe a dozen trades or so.

There's quite a bit of deep analysis done on any idea before it goes in the book, but the way it looks is a bit different from fundamental-type ideas. There's a lot more background research and analysis that is done up-front to try and identify possible dislocations. After something a major theme is identified, you might work off that for months or years at a time and will basically be coming up with different ways to express that idea in different asset classes depending on where the best risk/return lies.

I would tend to agree that a relative value-type framework is probably the most sustainable way to try and generate returns. It's also extremely intellectually rewarding as well (IMO). I'm assuming when you refer to "modeling" you mean 3-statement modeling, accounting, understanding capital structure, reading 10-Ks, etc. I haven't done any of this since I started, and I don't think any of the PMs or analysts that I work with could explain how depreciation flows through the 3 statements (just as an example). It's just not really relevant to what we trade to be honest. There are other "fundamentals" that we pay attention to like understanding what bonds are cheapest to deliver, what technical changes to the Fed's RRP facility mean, change in the US Treasury's issuance schedule, etc.

I think LinnaeusMaximus does macro with a credit/special sits slant and may be more helpful.

Aug 10, 2022 - 9:36pm
bfeuabfeab, what's your opinion? Comment below:

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