Article just hit last night...Baly cutting 13 stock teams (~40 investment professionals) plus a bunch of back office to be cut by end of year. Oct was really bad for hedge funds, Nov has been an official bloodbath. MLP, Citadel, Baly all getting hit hard. Garden leaves vary by firm, but there will be a lot of guys looking next year.
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yes, performance and volatility as well as the fact that teams keep getting blown out so there's a bigger pool of candidates. Smart firms will just wait til Q1 next year to do the hiring when supply >> demand.
The simple way to think of it is that passive/uninformed buyers (ETF, quant, algo) have become a huge chunk of volume...so what worked 10 years ago doesn't work anymore. The guys who don't adapt get destroyed.
Also 2008 was fundamental. This is primarily quant algo driven and some factor investing.
I don't get it. Isn't this the time where HFs are supposed to be absolutely killing it? We know that they've had shit returns during the bull market, but the consensus on this forum has been that HFs "are not supposed to outperform the market." They're HEDGE funds, so we're told, a low beta asset class. Isn't this the time where they navigate volatility and put up superior returns? Isn't this their time to shine?
What's the excuse now? Algos? Trump? I'm curious. Really, I am. How many times the geniuses on this forum attacked me for calling out poor hedge fund performance. I would like to know what's up.
In times of volatility, the multistrategy firms are going to have some teams who are not positioned well for the kind of vol the market is going under. Others are positioned really well. If you look at overall multistrategy performance, it's been about flat or slightly negative for the month of October. Not sure about Balyasny specifically but Citadel, Millennium, ExodusPoint, etc. were all about flat for October, outperformance of long only. But yeah in times of high vol you're going to have some portfolio managers who were not positioned well and get blown out. Some of course were positioned very well and those teams are sitting pretty. The result is overall flat performance in this kind of environment. The violent drawdowns/overcorrections in the market create ripe stock picking and shorting opportunities, which will likely be realized in the coming months.
Citadel Wellington is up over 8% this year. Millennium is up over 5%. The multistrat firms are doing their jobs on an overall basis. This kind of environment is exactly why the multistrat structure works in the first place. It rewards competence and punishes incompetence.
So yeah, there's no excuse for the PMs at Baly who performed poorly but the multistrat firms overall are extremely effectively hedged.
I work at one of the firms you mentioned above and my personal opinion is that the industry is still too saturated. The avg level of talent has dropped over the last few years... Too much trend and momentum chasing, not enough critical thinking.
This sort of thing needed to happen.
They are shit analysts. HYP grads with Bloomberg Terminals don't seem to make great traders for some reason. No other way to describe it lol. I love these long paragraphs below me that don't addesss the question.
this literally. this industry is a prestige driven scam
I'm with you on this. It wasn't so long ago that hedge funds marketed themselves as delivering alpha. When outperformance over a market return became infeasible, funds started emphasizing the 'hedge' in their names, stressing the low beta nature of their returns. Now that they seem to underperform in virtually all market conditions, I would say the jig is up.
The problem (as always) is that a handful of funds really do outperform, and everyone seems to think they're able to pick those funds. I had drinks last week with a couple CIOs of major endowments, and they have all moved their private markets portfolios out of HFs and into PE and direct deals. The risk/return in HFs just don't seem worth it anymore.
IMO PE is a fraud and it’s just not recognized as widely. PE firms do not report returns as often which has delayed them from really showing enough data to highlight mediocre returns.
If you take away factor investing from PE their numbers are average to bad. They benefit from the small cap premium and increased leverage while also being illiquid so the volatility in their returns isn’t apparent. Another weakness is with IRR and capital calls. Endowments having to tie up capital in low return investments waiting for a capital call is a big drag on performance.
Performance for PE blows when you realize they can call capital whenever they want and are basically a leveraged version of the Russell. That strategy should return 13-15% a year just based on factors. And I don’t think pe is performing close to that.
From my understanding typically only quantitative market neutral funds are truly market neutral. A lot of fundamental L/S equity funds end up being net long as it juices returns in bull markets. So when there's a big market downturn and you get caught with your pants down net long, you get railed and blow up your max drawdown allowed by your firm.
I received an offer from Balyasny about 18 months ago. The offer was good, but I decided not to work there. It was on a big data/ML team there. Staggering to me how little those people knew about technology, Machine learning, alternative data, etc. They all had great looking resumes though, completely UNQUALIFIED. I went to an actual quant fund that's crushing it, no prestige in the name outside of people who actually know.
The truth of the matter is that there are quant funds that are crushing it, ones who stay out of the news, arent big names among the HYP crowd. Want to know why? Their employees are math PHDs with actual skill sets, not these frauds coming out of ivy league schools relying on the beta of the us stock market.
The finance world is going through a reckoning because the barriers to entry on investing have come down, so people who can actually sniff out alpha are destroying the old boys club. The game on this sham is over.
I know an insider at PIMCO who remarked that in the Bill Gross years, most of their returns came from a few guys making huge intuitive/gut based bets on the market. All of the research etc was used to sell clients to get the investment money in the door. This industry is in for a rude awakening.
The key to paired portfolio losses isn't market drawdowns. it's the liquidity events after drawdowns.
These pod models are like sharks. They only breathe when moving one direction. When money flows reverse, they lose money.
However, this phenomenon usually ends quickly. Risk managers force everyone to cut their books down.
Millennium is a complete shit place to work, but their record is unparalleled. I'd say Point72 is a distant second, followed by Citadel. Everyone else that has tried to pull off the multi-manager thing sucks.
None of these macro/structural guesses explain it either - so much of it comes down to execution on things no outsider can really understand.
L/S is pretty much dead though - 99% of the funds out there are just complete garbage.
Couple quick thoughts, though I've been out on a noncompete for a year.
1.) There is a continuum between alpha and "beta" (risk factors).
2.) Most firms run on a vendor risk model. Why? It provides a shared language for risk that doesn't have some risk of being proprietary or biased. Some investor asks what's your exposure to Book to Price-- ok, you can give an independent vendor number. The investor isn't worried about whether the measure is biased, and you're not worried about giving away your IP. Now, they might add some risk factors on top of that, but that's a good place to start. Now, the truly elite-- the RennTechs of the world, might not do that for all I know. But most of the quant shops that don't need Math Olympiad medalists and can still do well start from a vendor model. 3.) Back to (1). If RennTech, 2Sig, or DE Shaw finds out that BlackRock is calling something an alpha, they are probably going to call it a risk factor. Nothing against BlackRock-- a lot of smart guys, but BlackRock means there's probably too much capital chasing an idea for it to be an alpha for some firms.
4.) From what I am hearing, a lot of the traditional funds are interested in getting into completion books. It's sort of a hybrid between quant strategies and traditional long/short equities in that it helps figure out the most efficient hedge to your position.
Now obviously it's a political nightmare to figure out the attribution, especially for the Type-B quant who has to try and figure out something fair for a bunch of Type-A PMs, let alone something that he can explain to them. "Umm, your hedge position for Chevron works out to these 200 different firms, and the position is also going to change every day in very strange ways that really depend on what other positions there are in the book". It's also a technical nightmare for a traditional equity fund which isn't used to supporting anything much more complicated than Capital IQ. But if there's a way to cut through the politics and the technology, I think it can help a lot of firms out there. If you're confident in your firm's stock picking skill, it's a cheaper and better way of hedging risk.
Since I've been getting looks from a number of traditional equity firms on the basis of "We want a completion book", I've been doing some thinking about the political nightmare a quant faces on this. Somehow you need to make the system understandable to a PM with a UChicago MBA. Which means they're smart-- probably brilliant, but you can't explain things in terms of anything beyond Newtonian Physics to them. Everything needs to get boiled down to about 5-10 numbers that can fit on an Excel screen. And you need a lot of political buy-in. You need a bunch of PMs who are getting screwed on weird risk factors all of the time and are pissed off about it. They're great stock pickers, but they're bad hedgers.
And then you're going to need a quant with a spine and a strong sense of fairness. He's gonna have to help sort out all of the conflicts of interest and be as transparent as possible. And it's going to be tough to pull it off at a firm where the PMs are sharks and screaming Type-A personalities. That's just not how systematic quants work. But if there's a cultural fit, it might work.
I might as well get my plug in. My guess is that somewhere on WSO, there is an Equity Long/Short PM or even COO reading this. And somehow the firm's been generating alpha but getting screwed on factor risk. Either the attribution system is killing him/her or the firm's weird factor exposures are hurting the attribution. Hopefully the firm has at least $5 Billion AUM and a geeky culture where a couple of soft-spoken Type-B quants running the attribution portfolio won't get eaten by sharks.
If that's you or your firm, we should talk. I've got a couple things progressing nicely with two other firms, but I don't want to put all of my eggs in one basket. And it might be worth it to hear about how a quant or two might be able to help you. If you're really conservative, just to run portfolio sabremetrics (moneyball style) and help with risk, but if you're comfortable going further, to help set up a hedge book.
There aren't a lot of quant portfolio engineers out there-- my guess is ~500 total; 800 if you include quant PMs. There might be twice as many solid alpha devs (My sense is that DeepLearning is one of them, and he mentioned he had been interviewing on this thread). But even if I get yanked somewhere else, or I'm not a good fit for your firm, I'd be happy to talk, and it makes sense to talk. For you, there will be more guys on the market next year if nothing else. For me, I haven't landed a firm offer yet, but more importantly, if I get a trend started for completion books at equity long/short funds, that creates a lot of long-term opportunities for everyone, including me.
I spoke with a couple different fundamental PMs looking to bring a quant on board for factor attribution as well as alpha research. I've closed my discussions with these PMs for basically this reason. They didn't seem to really understand or appreciate what I would bring to the table. Seemed like what they were looking for was a way to check the "we have a quant" box and and have a data person to check to see if a particular trade "looks good" based off of "the data".
??? If the quant had insight about whether the trade looked good, he'd turn it into an alpha and get a percentage of the attribution. Like, I can do that for you, and it'll earn you a few basis points, but can I also license my alphas to a third party lol?
Still think there are some COOs and CEOs out there who want to bring the moneyball/sabremetrics approach to their firm if nothing else-- and it does make sense. But on a bad day, COOs can be like the firm's internal McKinsey. They can do a lot of stuff that seems to make sense for the business but pisses everyone off. I've seen it before at two different jobs.
So I need to find a firm where there is legitimate pain for most of the fundamental people-- where they realize they really do need a quant.
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