How valuable would it be to prove your track record without sharing your strategy's proprietary information?
I think this would be game-changing. Scouting for investment talent would be like major league baseball scouts scouting for the next big hitter or fastball pitcher. The top talent can be demanding huge payouts to join a team. You can go into interviews, and the interviewees won't have the same leverage and power over you as they currently do. You can raise capital, spin out your fund, become an emerging manager, and assemble talented investment teams. If you're a student with no experience, few network connections, or from a non-target school, you can still go out and prove your investment skills.
But the only provable method out there now requires some third-party audit service to review all your trades, and this requires initial capital, which most of us don't have access to. This could be even bigger if anyone can prove their alpha/edge on a paper book simulation, where you simulate trade fills, but your conviction in assets can be proven. If you are a discretionary trader, you must also prove your research/pitch skills since you make fewer trades than a quantitative trader, but ignore this for a second. If we can do this with paper books, you can find talent anywhere in the world!
Assuming this is possible, do you agree with it's potential or still see barriers?
1. There is no upside for funds with alread talented people to make this information public.
2. PnL attribution will be a nightmare
I agree that no fund will ever want to make this public; why would they? Griffin will not tell Englander who his best portfolio manager, analyst, or quant researcher is. Otherwise, he will have to pay a more fair market price to keep them. They want to keep this information private so they benefit more. If they think you are not talented, they will fire you; if they believe you are talented, they want to keep that a secret and underpay you. Stephan Curry gets paid 48M a year because everyone can see his talent, so he has bargaining power. But I bet the Golden State Warriors would pay him far less if they had the opportunity.
The second statement is true: if you are an analyst in a fund/pod, how do you prove your portfolio contribution? This requires you to have your coverage of assets in your subset portfolio and create a track record of that. Some large pod shops evaluate their analysts exactly this way. One option is to continue running your portfolio in paper book mode outside the fund. If you are a quant strategist, you may need to reconstruct your strategies outside the fund and run them in a paper book. Now, can you take that outside of the fund? Probably not. These rules exist to protect the fund managers and partners, and not you.
Is this not what pitching stocks already is?
This can also work for discretionary analysts, but you must create a provable track record of your pitches. For example, your portfolio might look something like this CSV;
Date, Side, Stock, Report
2022/09/02, Buy, GE, Stock Pitch PDF Report
2023/01/12, Sell, APPL, Stock Pitch PDF Report
If you got this, I would say you have a track record that can verify your investment skills because you can reconstruct a decent portfolio from buy/sell signals. A lot of alpha is just in the direction. The trade size matters, but that can be computed by a quant researcher/developer to generate a good well-balanced portfolio.
Now, pitching a stock at an interview might be satisfactory, but it is not comparable to the information one can get from a provable track record like the one above. I would argue a single stock pitch at an interview can be subjective, but a provable track record is a more solid judgement of your investment skills.
For some context, I have been a long-time lurker, having worked in the hedge fund field since 2016. I wouldn't post something like this if I didn't think it was possible. So, if you are interested in trying this out, ping me. Again, this can be done without sharing any proprietary information, not even live trades or signals.
Nobody cares about your 1,000% return using a paper book or a $100k capital base, whether you have proof or not.
When you go interview with an allocator or a Citadel, first question is did you manage a live book before, and what was the AUM. If you did well managing size, they don't need audit nor certification- they have their way of asking around.
You are essentially saying nobody cares about a provable track record if it doesn't scale to the AUM and constraints they want to run you at. A paper book with a 1000% return probably won't scale to a 250M AUM. I agree with these statements.
But what people do care about is your conviction. I can take your paper book or $100K capital live trading book, extract your conviction from the provable track record, and simulate that under 250M AUM with market/cash/sector neutral constraints. Now, if your provable live conviction track record is doing a 30% return with high Sharpe under those scenarios, people will look. I essentially created a digital hedge fund that can simulate any hedge fund conditions. Then I gave you a seat at the table where you can prove your historical track record to anyone. When I say prove, I mean mathematically prove it and not have to trust me or any third party. You can walk up to anyone; they can't deny your track record type of proof.
If someone in Citadel calls Millennium asking about someone's performance, they will hang up. This is a fact. Primary brokers can't identify the pods trading because it all goes through central books. So, who are they going to call to certify your claims? They have to ask someone who might personally know the candidate. But at the end of the day, it's still all trust-based.
Have you ever worked at one of the big4, or went through the process to be hired at one?
They use various resources to do this stuff; 1) headhunters who do a deep dive and dig up competitor intelligence for a PM role they looking to fill. 2) BD people to evaluate how you communicate your track record 3) outside third parties, who run psychological tests to see if your personality/style matches to your p&l and strategy.
I have worked at two of the largest hedge funds in midtown. I'm unsure if you mean big4 accounting firms because I know they audit track records.
I am not saying the process is completely broken. Horses were great to get around back in the day, but anyone would agree cars are better.
I think (1) is still necessary but can be improved upon, (2) can be completely removed, and I don't even know what (3) is. I have never seen psychological tests, and I and many others think they are all nonsense. I think a database of talent, that can prove their track record, like a scouting report is the car, and the various sources you mention is the horse.
Ya good luck with that my dude. Posting a couple of pitch examples isn’t going to get you looks for a pm seat - having consistently good ideas that’s you’ve shown the ability to monetize and that can be verified with a couple phone calls can though.
My two pitch example was just to show the concept. If you are an analyst in a pod you would have a coverage of 10-20 stocks. So 10-20 pitches, over whatever time period you want. That can be easily 40-100+ pitches depending on your hold times and track duration, with provable long short convictions and provable entry time stamps. So I wouldn’t say it’s just a few examples, it your full portfolio.
Who are you calling to verify someone else’s trades? What if that candidate is in a team at your competitor?
Its an interesting concept, there is definitely a gap in the marketplace for what the OP described. But lets say your mathematical model can scale up a paper record or small personal account, there are still two main barriers that you haven't overcome: 1/ where are you going for capital introductions, 2/ simulating trade fills is incredibly hard because the market is adaptive. I think even if you were to approach people with a personal track record with a small account (< 500k) you will need to show live trades whether you like it or not.
Hey, thanks for the response. So with regards to 1, there are always hedge funds opening up looking for talent. If I can provide a database of verifiable talent, small shops that don’t have the same resources as the big names, will be able to scout their talent based on which portfolios work best for them. Imagine the movie moneyball, but instead of baseball players, it’s analysts and pms, who proven their skills live, and being scouted.
For regard to 2, yea it will always be an approximation. The conviction will be provable, but the trade fills will be approximated. Now it’s not impossible. I worked at a shop where the pms and analysts traded with a simulated book, which filled their orders however the pms wanted. Then a bunch of math nerds filled those orders in the market optimally. So how much do you charge the pms for slippage and market impact when the orders where being filled optimally but the pms received constant fill order? It was all simulated. So it’s possible. You can also add tolerance on the performance reports to account for uncertainty in market fills.
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