Most meritocratic hedge fund?
Hello fellow apes
I'm a final-year condensed matter physics PhD thinking about what to do after I graduate.
One thing that's majorly annoyed me about academia is how political it is. Criticising important people's ideas must be done with great care, when writing articles you have to cite your allies regardless of how relevant their work is to yours, conferences are often somewhat of a circle jerk and so on. There's just too much ego-driven nonsense that detracts from the actual science.
Don't get me wrong, academia is great in many other ways. You meet many very intelligent people, get exposed to fascinating ideas every day and you get to learn a wide variety of skills. But, at the end of the day, academia is just far too political for me to enjoy a career in it.
I hear that trading-oriented finance is however pretty meritocratic. "Eat what you kill" and all that. Is this true? If so, are there any quant hedge funds/prop-shops in London or Europe that are particularly known for being places where one can openly exchange and criticise ideas and where the leadership isn't up their own asses? Maybe something ala Renaissance Technologies in the US? It'd be really cool to work in a place where the focus is on solving problems, understanding markets and making money instead of dealing with insecure egos.
Cheers :-)
Well prop shops tend to have flat organisational structures and are much more open to criticising and helping people with strategies and ideas. Jane street tends to come to mind as one which exemplifies this culture fairly well. There will always be a few tough personalities though. Finance, even quant/prop, has a huge degree of pure randomness when it comes to recruiting. You don’t really pick where you go. Apply everywhere you can and go wherever you get an offer, although I’ve seen people in prop land multiple offers and negotiate off the back of that in some rarer cases.
Read “Principles” by Ray Dalio. He is a fervent believer in meritocracy. And his hedge fund, Bridgewater (which I’m sure you’ve heard of), at least according to what I know (having spoken to former employees) actively lives out a truly meritocratic culture. I think perhaps it’s exactly what you’re looking for, but of course its enormously famous and hard to break into. Maybe start your research there. Good luck man, sounds like you’ve got an interesting background and a great intellect.
Gonna offer a counter point here that I have heard Bridgewater operates more like a cult and is perhaps the most political investment firm on the street. The whole radical transparency bend sounds like it can lead to a lot of internal bickering and sharp elbows, and not everyone likes having their mistakes put on blast by their coworkers with 100 people cc'd.
Millennium on my opinion - here's your payout, here's your drawdown limit, here's your risk parameters - her's your tech/research budget. Now F off and you'll hear from us if you lose money.Pretty purely meritocratic at the PM level at least and that filters down below PM on most good/large teams, just by nature of the arrangement.
Remember though the purity of meritocracy isn't the only important metric. It's a meritocracy SUBJECT to strict conditions, the best investor may not be the best market-neutral portfolio manager - and when they blow up they'll tell you it wasn't their fault, bad luck etc. It's a meritocracy, but in who is the best at a particular thing and with a lifestyle risk profile that is worth considering. If I tell you to run a 100meter dash against my 3 friends, winner get $20m and everyone else gets their feet cut off - are you excited to join my meritocracy?
That said, while I may sound negative, it's only to address/temper what sounds like a touch of idealization in this thread (not specifically OP). I love this industry, and I think Millennium is one of the best places for a PM to work, but meritocracy is self itself the specific goal.
Most of the industry is pretty meritocratic. Funds with great performance are likely to be more meritocratic, because great performance comes from great teams and great teams comes from great talent and great talent is aware of market rate in a competitive field.
I’d argue integrity/portability/verifiability of track record is the key to participating in the meritocracy of the industry, you’ll generally paid not “the value you are worth” but rather “the value you can verifiably/confidently be expected to deliver on a forward basis” with consideration to supply/demand. Just like a stock or anything else.
Just to add, every PM that blows up, lost. The job is to win, and if you lose, you didn’t do your job and that meritocracy.
People seem to think meritocracy means the smartest or hardest worker wins. Incorrect, the most capable to win, wins. Again public markets are generally meritocratic to a high degree everywhere, any claims they aren’t are ego-preservation “I underperformed, but MUH fed!”
Since meritocracy can be generally assumed in public investing, your focus should be on:
- game selection: work for/with the teams/institutions/strategies that best play to your capabilities. At junior levels it’s not a pure meritocracy and many capable future stars never reach meritocracy level (imo PnL linkage) because they spend the early years churning under bad PMs. Who you work for is the most important choice, not the pay - if you have that choice and choose incorrectly it’s on you, if you don’t have the choice - well I will recognize the meritocracy is less direct at junior recruiting stages (hence why prestige weighs more heavily, less results to work off of) but whatever that’s not my purview.
- as I said, meritocracy is measured specifically by ability to win. But There are considerations, most importantly high integrity/character, which are arguably could be neutral/negative on a short horizon, but are critical on a long horizon, both objectively and subjectively. Cutting corners re: ethics is for those incapable of truly performing, because doing it the right way is dramatically higher return in the long run. P72 probably has the best compliance around these days, but how much investment talent has avoided them over the past decade due to the taint of past?
To most succinctly answer your question, the most brilliant and successful investors I’ve met invariably sought out critical feedback and alternative views as basically a central tenet of their personality.
When I was a college intern at a large extremely well performing under-the-radar single manager, the Founder asked me to make two post-mortem criticism decks of their investment failures - it was a quarterly process for them. It was very uncomfortable to present a deck picking apart the missteps of absolute industry thought leaders (imo). But it was very instructive for me to see their relentless self-review and humility - it’s not a coincidence, it goes hand in hand with being a good forecaster and it’s also why I love the industry
Academia is far from a meritocracy of ideas. Much respect for the knowledge they bring to public sphere, but increasingly alarmed at the damage they do as well - maybe due to decreasing alignment between funding and truth vs. public narrative influence. Nothing pisses me off more than seeing people disregard anything that doesn’t come from an “expert” as defined by titles and degrees. Titles and degrees may by good predictors of who is most likely to produce reliable knowledge, but academia has elevated the titles beyond the objective truth. If Joe Hillbilly does robust and reproducible research, the data is the data. The rapidly accelerating trend to dismiss or believe any conclusions, solely based on the degree/title of who put it forward with almost no consideration of the primary data/research is the scariest and most disappointing trend of my lifetime.
edit: I wrote “to answer you succinctly and then wrote another novel, bad habit sry!”