My hedge fund has this practice, is it normal?

I just joined a hedge fund and we have this investment challenge game within our team. The game is to play a virtual investment game with hypothetical money. But the payoff, which is determined by our over/under-performance against a particular index (say MSCI APAC ex Japan), instead of the actual returns of our holdings, is real. So for example if my virtual holdings for the month returned 5% while the index returned 3%, I would receive 2% x USD 100 = USD 200 from my boss. I am just wondering if this is a normal or legitimate practice within a fund house. My boss said he got the idea from a retired Goldman Sachs fund manager who used to do this with his team. Thank you.

Comments (18)

Mar 26, 2013 - 10:23pm
sage_of_java, what's your opinion? Comment below:
zeropower:
Never heard of something like this, but if it's risk-free money (i.e even if you under-perform, you don't have to pay your boss), then why complain? I'd go balls deep in OTM options and hope for a major (extra) payday.

no...the exact opposite is true if I under-perform the index, i.e. I have to pay my boss the difference...

my boss said that the GS fund manager team lost almost 2 months worth of salary in the first few weeks of the game, not sure if it's true or not but probably tells you why analysts are not usually good at investing IMO...

Mar 26, 2013 - 9:02am
STIBOR, what's your opinion? Comment below:

Doesn't really sound like that big of a deal. So I don't think it's "normal", but it's also not exceptionally weird.

It's similar to the European quant team at SAC getting together and doing PF Chang's every Saturday night - is that "normal"? No. It's also not really weird. Or a big deal. Or that interesting. Kind of a like this.

Mar 26, 2013 - 9:15am
duffmt6, what's your opinion? Comment below:
STIBOR:
Doesn't really sound like that big of a deal. So I don't think it's "normal", but it's also not exceptionally weird.

It's similar to the European quant team at SAC getting together and doing PF Chang's every Saturday night - is that "normal"? No. It's also not really weird. Or a big deal. Or that interesting. Kind of a like this.

Wow. PF Chang's every Saturday? I wouldn't last 3 weeks...

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  • 1
Mar 26, 2013 - 9:49am
BlackHat, what's your opinion? Comment below:

Not weird, but also kind of retarded since you should probably be pushing any good money-making ideas into the fund...

I hate victims who respect their executioners
Mar 29, 2013 - 1:40pm
Barbell Capital, what's your opinion? Comment below:
BlackHat:
Not weird, but also kind of retarded since you should probably be pushing any good money-making ideas into the fund...

^^^ this ^^^

Seems like the game is a waste of "intellectual" resources. Instead of looking for safe ideas for the fund 24/7/365 (that's why we get paid 2/20 or 1.5/15), analysts have incentive of spending some of their time looking for riskier (but more profitable) ideas for their virtual portfolios.

Mar 26, 2013 - 10:15am
GBB_19NHS, what's your opinion? Comment below:

damn every saturday pf changs, so you can never do something on saturday but go eat pf changs?

that just sucks

"too good to be true"

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Mar 26, 2013 - 12:38pm
SirTradesaLot, what's your opinion? Comment below:
GBB_19NHS:
damn every saturday pf changs, so you can never do something on saturday but go eat pf changs?

that just sucks

Seriously...just pull my fingernails off with pliers instead and get it over with.
Mar 26, 2013 - 1:21pm
Simple As..., what's your opinion? Comment below:
SirTradesaLot:
GBB_19NHS:
damn every saturday pf changs, so you can never do something on saturday but go eat pf changs?

that just sucks

Seriously...just pull my fingernails off with pliers instead and get it over with.

You mean you don't enjoy over-priced faux chinese food in a completely Americanized environment?

[quote=patternfinder]

Of course, I would just buy in scales.

[/quote]

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  • 1
Mar 26, 2013 - 11:17am
meabric, what's your opinion? Comment below:

Doesn't Dalio do that at BW on a pretty big scale (although I think its macro allocations there, in line with fund strategy).

Mar 26, 2013 - 10:31pm
sage_of_java, what's your opinion? Comment below:
meabric:
Doesn't Dalio do that at BW on a pretty big scale (although I think its macro allocations there, in line with fund strategy).

yes the game is kind of in line with our fund strategy... we have to beat our fund's benchmark, which is the MSCI PAC ex Japan, to receive the payout....

Mar 26, 2013 - 10:27pm
CountryUnderdog, what's your opinion? Comment below:

This is just a more practical, less macho form of liar's poker. I guess you could say this is your office's "liar's poker."

"They are all former investment bankers that were laid off in the economic collapse that Nancy Pelosi caused. They have no marketable skills, but by God they work hard."
Mar 27, 2013 - 9:32pm
blackthorne, what's your opinion? Comment below:

Similar. I had a setup with a paper portfolio, bonus was based off performance of work & other 50% off performance of paper portfolio. this was to prevent a quite often complaint at HFs that the PMs didn't listen to analyst investment pitches and were the reason for a fund suffering/stifling progression etc.

Mar 28, 2013 - 2:36am
Macro Arbitrage, what's your opinion? Comment below:

I had heard that a top quant fund (think: D.E Shaw, World Quant, Two Sigma, AQR) would day-trade via a virtual simulator on a discretionary basis during the lunch hours/ down time and see who generates the most profit over the period. It seemed to be a game, and I'm certain that their monopoly money daytrading performance had no bearing on comp.

Apr 1, 2013 - 2:24pm
beeeZeee, what's your opinion? Comment below:

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