Q&A: 2nd Year Equities L/S HF Analyst in Hong Kong

About:

WSO has provided tremendous help at the early stage of my career, even though I have always been studying and working in HK (and yes, WSO has good traction in Asia as well). Back then I always wonder it would be even better if someone can provide me more local insights about HK HF market. So years later, I am here.

Background:

- Finance major at local target school (did 2-year deferral for two one-year placement intern, low GPA) - 1 year on BB Macro Research Team - 2.5 years on sell-side single stock research - Currently a 2nd year fundamental equities L/S HF Analyst (close to USD1bn AuM) based in Hong Kong. For more details please refer to my previous post. Happy to answer/discuss on anything regarding to Sell-/Buy-side career.

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Thanks for taking the time to join the podcast. I enjoyed hearing your story. I am very curious about how you integrated your favorite books onto your resume. Would you mind explaining how you presented that? Also, what are some other books you would recommend reading? I'm looking to follow a similar career path as you, and I love reading anything I can get my hands on.

 

Hi Buffalolad, I put my favourite reading list at the bottom of my resume, together with stuff like skillsets, interest, etc.

My advice will be: 1) make sure you read the books: interviewers always doubt whether you read these books. When I am being asked about this list during interview, interviewers always start with questions likes “which session do you like the most? What is this session about?” to verify whether you read it. If you just flipped through few pages of these books and said it’s your favourite, this favourite reading list session indeed can ruin your interview. So make sure you read them; 2) put something not investment-/career-related: put something not investment-related can prove that you are not a boring person to work with. Books about psychology, history, politics, tech/mega trends globally can be good choice as you can always relate these books back to career if needed, while you got something more interesting to talk about during interview;

Before picking your next favourite reading, I think you have to be clear about which direction you want to head to, say if you are interested in Macro/fx trading, then all books by Bernanke/Greenspan are must reads; if you want something more trading-focused, Market Wizards series are good and easy reads to start with; for value investment you can go for Howard Mark’s/Charlie Munger’s books (/Intelligent Investors, given its reputation in the value investment space, but I personally find this book is quite difficult to fully understand); All the above are some easy reads to start with. For the others I like Rumsfeld’s Rules, 7 Habits of Highly Effective People, Thinking Fast and Slow.

 

Thank you for your help. I asked about the books, in particular, because I read a bunch of books that would be viewed favorably by interviewers in the roles I am targeting. If you have yet to read Red Notice by Bill Browder then I would like to suggest it. I think you would really enjoy it based on the other books you mentioned.

 

Hi marketbeater, thanks for the AMA. i have missed your previous post and sent u a pm afterwards as i wanted to know more about the local HF industry. Maybe just a short question here, from your experience do u think research internship (either Macro / single stock) helps u in your daily work in L/S Equities? And what do u think on SnT and Asset management internship?

haha just an ordinary kid with enthusiasm in the market -- market-enthusiast/ Hongkonger
 

Hi market enthusiast mind dropping me a pm again?

On your questions, I think whether research internship experience help on LS equities HF largely depends on your fund’s/boss’s investment style. The more value driven/longer-term focused your fund/boss is, the more useful a research internship experience is to your buyside job. Instead, if your fund is more trading/day trade focused, a S&T internship experience could actually help more. Different styles require different skill sets.

Do you mind elaborating more on your questions about S&T or AM Internship? Do you mean the determining factor of choosing between different internship experience, or how is a S&T or AM internship experience like?

 

I know you're in fundamental L/S. But could you give us some names in Event-driven L/S or special sits fund in Asia? Who is the biggest/best player in these categories?

 

Your question is hard to be answered, because firstly "best player" is hard to be defined, say 2018 return tripling does not mean it is a good HF and is sustainable. It is also hard to say a HF "is the best" if it is the biggest by AuM, because there are also many HFs with AuMHF usually engages in multi-strategy.

Let's just say if you ask me to name some notable HFs engaging in LS based in Asia (i.e. not global ones like p72/Millenium even if their Asia team perform very well) with a longer track record (with no comment on recent years' performance), I will say the following names cannot be missed: Hillhouse, Segantii, Tybourne, Value Partners, Ichigo, Dymon, Platinum (Australia-based), Graticule, Myriad, SPARX Group, etc.

 

Let's just say the 2 following direction are something I am working on to generate alpha, given I do not have a 15+ year of solid track record to prove that I really master alpha generation like Soros or Buffett: Fundamentals and Solid Mentality

Fundamentals mean having solid industry and company knowledge to interpret information correctly, and foreseeing what could happen next, and decide on what risk-to-reward in each bet you are taking. This still works because of different investment styles (e.g. prefer technical analysis to fundamentals), time horizon (short-term speculation vs long-term bet), and simply lack of enough understanding by different market participants.

Neuroscience suggested human's brain easily block information which is boring (not causing excitement at the moment, but could be important in the future), threatening (i.e. something counter to what you believe (hurting your dignity)), and something countering to your defense mechanism when you face shock (e.g. not to do panic sell) from further processing. Therefore having solid mentality to make decision based on critical thinking and sufficient evidence regardless of emotion and dignity is of upmost important in my opinion.

I also heard interesting source of alpha, mostly from mega funds, such as launching a satellite to the space to track shipment of a listed company, tracking private jet to predict the next mega deal, sending a team to all production sites and office buildings of a company to check if it is a fraud. Other ordinary source of alpha could be 1v1 paid expert calls, hiring industry professionals to cover listed equities of the same industry, etc.

 
Most Helpful

For PM roles I think it varies from shop to shop, largely depending on the pay structure and culture each firm has. So I am not commenting on that.

For global platforms like p72 millenium they are adopting global pay structure so I can only see slight difference when it comes to comparison with their headquarters'.

What is more interesting is analyst roles in boutique/local shops here, that things are actually drastically changing in HK in the past 3 years I think.

Not just LS shops, sell-sides (research only) are also underpaying many staff in HK comparing to US EU by more contract research roles (HK/Singapore, at least 3 BBs using contract role program or satellite office paying half of other banks' 1st-to-2nd-year equity research analyst pay). Besides, there are many mainland Chinese brokers establishing arms in HK and providing new source of research/trading talents here. The thing is mainland Chinese brokers has a different pay structure vs western firms that they pay very low base but very high bonus (It is very normal for juniors in mainland Chinese brokers to receive 12 months+ bonus here and made their pay on par/close to BBs', you do the maths). But both result in a relatively cheap supply of labor to buyside. I think traditional HK buyside firms also underpay vs western peers. So overall I agree that the underpaying is still ongoing.

What is changing in recent years is that in order to acquire talents from BBs, Chinese AMs/HFs are also paying very decent pay to attract talents. They could pay on-par top base pay of sell-side (research or IBD) for a buy-side job, or even with premium for some shops (10-30% premium), and of course, still-decent bonus structure. Therefore things is starting to change, but given the market is real bad, and with recent lay-offs (DB/BNP/many other sell-sides in the past 3 years), the underpaying may still go on for a while.

 

What shapes HK HF industry in the past decade will definitely be fusion with China onshore market: Firstly since 5 years ago Shanghai/Shenzhen-HK Connect were established, where AMs in HK/Shanghai/Shenzhen can invest in one another subject to daily volume quota largely due to still-existent China capital control. The so-called Southbound managers (from Shanghai/Shenzhen)clearly has different investment styles versus HK/global managers, and is a new force to compete for pricing power in HK equities. Meanwhile HK HFs are also accelerating learning and investing in A shares (via Connect program), and to a certain extent make HK HF/AMs more opportunities in China growth. Secondly, WM in HK continues to grow thanks to booming wealth of Chinese entrepreneurs, as most banks are expanding their WM business here, which also benefit HK HFs, because . Thirdly Chinese onshore brokers are also posing serious competition to BBs in HK, and have already taken top spot in the league table for IB (I am talking about top 3 here), and continue to climb up the ladder on trading side with competitive service and commission. However one thing to note is foreign financial institutions are now granted green light to establish majority-owned arm in onshore market. This may be the new event reshaping China AM market. So I think overall fusion with onshore market is reshaping HF market here, and will continue to happen.

I remember there should be around 60 Asia-based USD1bn+ HF, and 30 with USD2bn+. Most are headquartered in HK, followed by Singapore. Most new additions to the billion dollar club are also Great China manager. So I would say there are still plenty of opportunities here and is still growing.

I think HK is still equities LS dominating at the moment. Not sure what exactly the data is.

 

Yes I do, but now I follow mostly industry bloggers on the IM we use in China called WeChat (basically imagine FB + Whatsapp + IG + mobile payment + many other things). I mean they are quite local. still I think for China related news, you can follow Caixin, or Caijing magazines. They always have some good articles. I gave up my bloomberg magazine subscription for these 2. Caixin should have Eng version. I also read Financial Times' Martin Wolf's column regularly.

 

Apologies as you half answered this question already. Which Singapore funds do you think are notable/good? (I noticed you mentioned Dymon) What about GIC/Temasek? Do you think there'll be a move from HK to Singapore given the political situation there right now?

 

Interesting question. I am not very familiar with Singapore-based funds, and I think GIC Temasek and Dymon are the 3 I can recall on top of my head. Another one is FengHe.

Potential money flowing from HK to Singapore is something I am monitoring as well. The political chaos happening recently is indeed quite brutal. However so far from what I heard, private banking clients considering moving money out of HK are less of those UHNV, but more of clients with medium to low ranking within private banking (~USD20mn clients), according to my private banker friend. Also, while inquiries increase, actual fund flow to Singapore does not happen at the moment. Still the political chaos is still ongoing here, so who knows what will happen next....

 

Thanks for the AMA!

  1. Do you hear through the grape vines any HF making plans to move HQ from HK to SG?
  2. How about expat HF / financial talents, have you seen any significant flow out of HK auto SG / back to where they came from?
 

I assume you are talking about A share (Shanghai/Shenzhen, not HK), yes I give it a 3:7, and this results in 2 things: very expensive small mid cap which has stories and themes (e.g. reform, cutting edge technology, etc), and very cheap for large caps in boring sector, such as home appliance national champion trading at 4x PE with well run factories. I would not say institutional money certainly has edge, after all, value discovery is one thing, re-rating is another thing, it takes time and actual fund flow into undervalued name. So in terms of value discovery, yes, institutional money has edge in a sense that retail money price in near term catalyst while institution price in 5Y growth. But retail flow make the market trending less with macro, and stocks often trading at expensive range. A little chatter somewhere can put a stock shooting up to sky high. That’s another headache for many institutions trading in A share market.

 

How do you break into bottom-up from top-down macro research? Do you think the skill is transferable? I would have thought it is almost impossible to break into bottom-up with your back ground. I am currently working at a multi-asset boutique AM that has a pretty long track record (>a decade), would you have any tips if my goal is to break into global macro HF or L/S Equity eventually? Many thanks in advance for your time!

 

You are right it is tough to transit from top-down to bottom up, that's why I didn't take the return offer to Macro research team, and instead opt for equity research role, since my passion has always been in equity, and ultimately equity LS.

Global Macro and equity LS have very different skillset requirement: Global Macro's being more quantitative and top-down driven (securities pricing, econ model, monetary policy knowledge, technical analysis, etc), while equity LS's being more fundamental driven (e.g. industry knowledge, HF industry connection, equity valuation skill, edge in specific sector by either knowledge or connection within your covered industry, etc). There is not much overlapping between the 2 skillsets. You need to choose one from the beginning.

Given you already have some years of exp in AM, I think you can first ask yourself what is of your interest, macro or equity LS. Then you can ask yourself if you have already developed your edge which fits into either of the style by the years of exp you have. These questions should be asked on a relative basis, i.e. if you can really convince people in the industry that you can perform better than people already working in the HF industry, such as your current job, your PA, your connections' feedback, but not being blindly confident and thinking you are good enough by taking some online courses, reading some books and that's it (or in simpler terms, understand your competition in the job market). We are talking about HF, one of the most competitive industries globally.

If not, go take a master or something, build connection in the industry, get exposed, and getting better equipped with technical, connections, more track record and exp by trading, more knowledge by reading, and make sure when chances really come, you can impress people with what you have.

If you are young enough, moving to sell-side is also a choice: equity research if you are into equity LS or macro trading if you are into macro.

Hope this helps.

 

Hi marketbeater thanks for the highly relevant thread.

I was wondering how familiar you are with the multi-manager HFs (P72, Millennium , etc.) in HK. In the US, they are known to be high-risk high-reward places but it seems it is hard to do well because the equity market there is so saturated. I heard that in HK, teams in general are doing quite well, and bonuses of US$1mm+ are common for analysts. Any insights on this?

 

MMHF to my knowledge should have very similar pay and bonus system across the globe. However whether it is common for analysts to earn USD1mn per annum is really determined by your PM's performance. In 2017, it is common for analysts to earn very good bonus since it is a bull market in HK, but whether USD1mn is common depends. I know analyst in MMHF earning bonus higher than that in that year, but I only heard of a few. On the contrary i know some PMs in MMHF do not perform well in HK in the past 2 years. It's all about performance.

The downside on a career perspective is that some selective MMHF has a system to let go analysts who underperform the market in a period of time. Therefore once you are let go, the whole street knows that you are let go because of underperforming. This is quite bad for your career.

I think in short it is quite similar with MMHF in US. After all it is a global platform. What differentiates is still PM's performance.

 

Got it. So even though MMHFs are in theory market neutral, they still tend to perform better in a bull market?

I had thought that well-performing MMHF teams may be more common in Asia, because the market is less saturated (fewer MMHFs, fewer quant funds, fewer index funds) and therefore more conducive to active management.

By the way, would you know if analysts at MMHFs in HK tend to focus on one country or do many cover multiple countries? If the latter, are they at a disadvantage if they do not know the local language?

Finally, in your experience covering offshore HK/China equities, how much of the research you do/news you read is only available in Chinese? If you know Chinese (speaking and reading) but prefer to read English most of the time, would you be at a significant disadvantage?

 

HK definitely has positions which do not require mandarin. Indeed there are many HF/LO here hiring analyst role covering regional assets. From time to time you will see AM based in HK hiring regional analysts, not just ASEAN, but also US coverage, JP/Korea coverage, etc. After all, HK is home to many good and sizable fund looking to expand global footprint as well. However most HF/PE are focusing in HK/China assets and deals, and thus majority of the job opening here are China-focused.

But if you are interested in covering HK/China assets...mandarin is close to being a must

 

Thank you for doing this. how important is having a master’s degree in HK? Any advice for students studying in U.S but interested in working at HK in the future?

 

Master degree used to be less important, but now with more mainland-based asset management companies coming to HK and hire, they sometimes require master degree, preferrably top schools in mainland China or gloablly. So I will say master degree is getting more and more important.

Advice... 1) think clearly if you can adapt to our tiny living space in HK before you move to HK...; 2) consider learning Chinese, it's just like learning Japanese if you are working in Japan, it always helps, for work, for lifestyle and for networking; 3) think clearly about what your career direction is, in HK we have mostly China-related job roles, and also regional-related job roles, in both AM and IBD. Opportunities are plenty here, but you have to think if you have edge, or what edge you should build now, to get a job here

 

Thanks for your AMA.

  • What attracted you to an Equities L/S?
  • Why would you choose this over traditional long only asset management? Ignoring things like comp, is a traditional AM not safer for job security etc? So why did you choose this path?
  • What is the process/structure of a stock pitch at your fund? How does it work do PMs say ‘ go put together a pitch on X’ or do you independently look for companies to pitch in weekly meetings?
  • aside from COVID-19 what are some of the things happening right now affecting your portfolio?

Thank you

 

What attracted you to an Equities L/S? Equities LS are able to do the short side, and using derivatives like options to structure a trade to better scale your risk exposure. These gives your more room to perform, and makes your life more exciting.

Why would you choose this over traditional long only asset management? Ignoring things like comp, is a traditional AM not safer for job security etc? So why did you choose this path?

I at first favor LO, given I am a deep dive fundamental guy, but then later realize that firstly traditional LO are mostly institutionalized, meaning you need to go through series of internal process for 1 single stock pitch. You also need to handle lots of admin/paper work as an analyst in LO. That's something I don't enjoy much.

Secondly, the chance for you to move up the ladder is slimmer in LO, unlike HF where as long as you build track record and credibility can you get at least a small book on your own, and that, if you want, is also important for your future career (i.e. having track record on your own to hunt for PM roles)

In terms of job security, I think it is actually safer to work in LO, given most traditional LOs are funded by longt-term, stable funding, unlike HFs which are funded by liquid funding from private banking/FoF (This is ofc not a must, given high-quality HFs can still attract long-term stable funding from say endowment, pension funds, sovereign wealth funds, or in more extreme case, posing harsh funding lock-up terms).

What is the process/structure of a stock pitch at your fund? How does it work do PMs say ' go put together a pitch on X' or do you independently look for companies to pitch in weekly meetings? From an industry perspective it varies greatly between HFs. I heard HFs doing morning meets everyday like IB; I heard HFs allowing analysts to walk into PMs' room directly whenever they want, and it's all done as long as the PM likes the trade;

For my case it is pretty chill: If you have an idea, pitch that with whatever format you like in the regular meetings, and keep the team posted with any update on the companies in the portfolio or being closely monitored. What it matters is if the trade works at last.

aside from COVID-19 what are some of the things happening right now affecting your portfolio? Trump's twitter, trade/tech war, QE, fund flow in particular those from retailers and systemic funds, etc, the rest, and more importantly, are the companies and industry newsflow and updates

 

T1 in Japan market and T3/4 in ex-Japan Asia market. Nomura has relatively strong fixed income and macro research team. To my knowledge funds who trade in Japan should likely user either one at least. 

I don't think it is a prerequisite to first land a BB offer before landing an offer in big name HFs, but coming from a BB definitely gives you an edge because: 1) BB analysts enjoy more resources (e.g. network, more juniors per team, etc) to produce better research products (theoretically, but not a must), and thus easier to gain traction which can also help your own reputation; 2) easier to gain traction both from a networking perspective or a reputation perspective, given all big funds use BB more for sure (HFs use BBs more because BB provide better comprehensive services, such as better prime brokerage service overall (e.g. better borrowing costs, more borrowing quotas, better trading algo, differentiated product offering (derivatives, hybrid product, etc); 3) better alumni network which helps you to land a job anywhere;

However, there are also many star analysts in non-BB houses, and working for them can also help your career to buyside

One more thing to share is that reputable platform HFs have Business Development teams, which are in-house headhunters basically who also have their information source to sniff if there is any good analyst out there esp in buyside. Therefore any buyside analysts in small houses but with good reputation can also get noticed and get a job in big HFs.

 
 

Thanks for your AMA! 

I am from a top school in U.S. and thinking about working in hedge fund either in the U.S. or HK. Could you talk about what's the difference between the two in terms of culture, daily life, hours, resources, and learning opportunities? Is there more hierarchy in HK? Thank you! 

 

Not sure if I am in the best position to answer this, given I do not have working experience in the states. But I am willing to share some observations I have over the years:

I will put it this way: in general, buyside life in US should be less intense, while in terms of growth opportunities, at this moment I still believe working in HK has more of it, thanks to the potential of China and neighboring Asian markets, say ASEAN, India, etc, and of course, well-established institutional environment in HK as well (i.e. all top IBs, fund houses have presence in HK). Tax environment should also be more friendly working in HK vs US. 

But I think the key determinant is not US vs HK, but fund houses you are working in. e.g. working hours in top-tier platform funds like Millenium, P72 are typically long. Culture is also competitive. There should be relatively limited difference between global offices they have. Top-tier local HFs to my knowledge also have quite competitive culture in terms of working hours, pay structure, work standard, etc.

Similarly, in terms of resources, it vary greatly between fundhouses. Top-tier HFs always have abundant resources thanks to the high sell-side commission (Trading + Prime Broke), mgmt fee, profit cut, etc, comparing to LO (except for gigantic LO), followed by mid-tier HF, then low-tier HF/LO. Don't think geography plays a role here.It also depends largely on your boss's style in investing in resources for the firm.

It is also the same for hierarchy: we have relatively flat-structured global LO like Capital (correct me if I am wrong), but on the flip side many LOs are comparatively hierarchy. This is similar for HFs, no matter big platform funds, or small HFs. I once also expect China funds being more hierarchy back then when I was in college, but from my few years of working experience it seems like there are also flat-structured China funds that make me not able to make a straight conclusion that "western funds are less hierarchy".

It is always case by case, firm by firm for HFs, in my opinion and to my knowledge at the moment.

 

Hey thanks for the AMA.

  • I am a medical graduate from a local university, who will complete housemanship by 2022
  • Always had strong interest in HF but never had the time to do internships given the scheduling of classes in med school
  • Any advice you would give to someone with my background looking to transition into HF
  • I have been looking at :
    1. Doing an MBA at a target institution upon completion of housemanship in 2022
    2. Networking/finding my way into a BB via summer associate programs (and hopefully getting a return offer) then doing the 2 year stint in sell side before moving to buyside
  • In addition to the reading list you provided in earlier posts, are there any courses you would recommend that would teach the prerequisite skills/knowledge expected of a summer associate?
  • Would completing level 1 of the CFA help in my case?

Once again, thanks for your time. :)

 

This will be such a big change not only for you, but also to someone in IB/HF to hire you. Therefore my advice will be as follows:

1) Show that you are committed in such change: CFA/CAIA/MBA can help to prove so. In particular, an MBA to me makes more sense given it gives you solid finance knowledge and network in preparation of your attempt to break into the industry. It gives you one extra year with strong alumni network to leverage and get the summer asso program opportunity. CFA/CAIA helps, but given the time and resources needed, I don't see they are as important as MBA in your situation. On top of these extra qualification, try to build more interest to show your commitment, for example, trading and reading, and show them while you are networking. These help. 

2) Identify you edge to break into the industry: healthcare analyst has always been a rare asset in both sell-side and buy-side research, and you are specializing in this field with many friends to be in this field as well, and you are quitting your med career for HF. These can be your talking point when you are trying to network, and possibly progressing in IB/HF. Networking is important in your case given your background may not give you good chance to progress in ordinary hiring process. Pay more effort in that; 

3) Courses to be taken: online module like Break Into Wallstreet (BIWS), Wallstreet Prep, and you would also need extra training on excel by basically mastering all excel shortcuts.

 

Hey marketbeater, thanks for your AMA and detailed responses.

I am an ... and am contemplating a similar career path. I am curious about what you think gave you an edge over other candidates (especially IB analysts) when transitioning to the buy-side. In your experience, what are some skillsets/qualities that HFs value the most out of sell-side RAs? How did you establish your own name as an RA working under senior analysts, and what do you think would help build a good rep early on? Lastly, I understand that HFs are the most likely exits, but how realistic is it for sell-side RAs to move to growth PEs? What do you think about a career at a global HF with Asian offices vs one at a local HF?

Apologies for the length and thank you again!

 

Thanks for the question Enjung and congrat on your offer. 

what you think gave you an edge over other candidates (especially IB analysts) when transitioning to the buy-side.

I think it is my mindset of always trying to be as critical as possible, do as much secondary thinking as possible (i.e. pinpointing what is right and wrong, or missed by the consensus), and be sure that all my thesis are well-supported by evidence, which requires technical skillsets like accounting, in-depth industry knowledge, and an attitude to make sure every thesis I lay out is objective but nothing subject. I think with this mindset you will always deliver relatively more solid research work with value not captured by the market, i.e. something really executable on trading/investment front. On the contrary, when you are in your job as an analyst, no matter you are in buyside or sellside, you can always choose to lay out a logic, and input what the company guides in your model, and finish your work and go home. That's efficient, and logical, but that does not give you real profitable idea because what you are repeating is how the consensus is built, and thus your work is interpreting the consensus only, but not capturing alpha.

In your experience, what are some skillsets/qualities that HFs value the most out of sell-side RAs?

If we are only talking about RA, speed and accuracy to reply to our requests. Sweat pays off for sell-side RAs. If possible, any good insights also help of course, but that is more of analysts' job actually.

How did you establish your own name as an RA working under senior analysts, and what do you think would help build a good rep early on?

That actually depends more on how your senior analyst treat you. If they are kind enough to share credits with you, or at least let you keep your own credit, that is good enough already. My suggestion is do your job right all the time, build your reputation internally at least as someone reliable,  be friendly to your colleagues, try to expand your network externally, and always get prepared for stepping up before stepping up, e.g. try to be ready to possess capability to generate investment ideas and expand client network when you are RA, try to learn mgmt skill when you are say RA 2/3 or VP, etc. Quite typical thing I will say.

Lastly, I understand that HFs are the most likely exits, but how realistic is it for sell-side RAs to move to growth PEs?

Not a very typical exit, but not impossible for sure. If you are really keen to join growth PE, try to think of how to connect with those people. Sell-side RAs basically has no chance to contact with PE guys, unlike IBD associates

What do you think about a career at a global HF with Asian offices vs one at a local HF?

Good question. The answer is it really depends on who you work with, and what you want.

Firstly, Global HF always has the best resources you can get. All PMs don't even need to bother about operation and fund raising. The leverage is always there. The funding, and the system to get extra funding, is always there. All resources you need, like sell-side, expert call network, someone arranging company meeting, are always there. All you care will be profit. Your pay/bonus/benefit is definitely high/awesome. Working in reputable platforms like MLP/P72 etc will always make you feel good as well. These are all the upside which i believe to be not surprising to you. So let's talk about downside, because the upside is big and clear, it is very competitive. If you outperform, congrat, your PM is gonna get more AuM shortly, and thus likely to share more bonus with you. However if you or your PM underperform for several quarters, you are very close to be out. So job stability is one downside. Secondly, platform HFs have tons of rules, such as strict compliance, internal procedure etc. These can also be big headache. Thirdly, most platform funds are market neutral fund, so that adds complexity to your work, such as you always need to find a short candidate even you are sure your long pitch is gonna triple, you need HUGE volume of investment ideas given there is risk control issue and thus you cannot put 10-20% of your AuM into 1 single idea, and this can be tiring and lower your pitch quality; Fourthly performance review is always ongoing, and thus you need to explain every single move of your positions daily. In short, job security, stress, and hours can be big issues.

Meanwhile, Local HFs can be outstanding and even enjoy better reputation than global HF's Asian office sometimes. Working in these local HFs can be good choice., if it is of good culture, good size, and with good people. e.g. most brokers still serve you well, people in the firm are all nice and smart that you can learn from each other, boss is kind enough to have in-depth discussion with you all the time on investment, and thus you can learn fast, boss is kind and share good profit cut with you so that you can earn well. You are also given career upside and one day can manage AuM yourself, and all under a better lifestyle and better job security. This kind of local HF is rare, but still exists. So if you can find one, it can be good choice too.

Hope these help.

 

Hello marketbeater thank you for all your insights.

I'm a sophomore studying in a top 20 US school and I will be recruiting next year (focus primarily on sell-sides in HK). Just wondering if my ultimate goal is to work for a L/S equity hedge fund like you do, which one gives me the best shot, IBD or ER? 

I personally think ER may have a slight edge because at a junior level, people need to care about the market, and keep coming up with a mix of marketing / actual investment ideas on the companies their groups cover. Meanwhile, they will gain more knowledge about the specific industry. Also, I think contacts are better because sell-side ERs can pitch ideas and talk in front of buy-sides. However, when I searched some LinkedIn Profiles it seemed that the majority of the HF analysts also come from IBD

I have heard people having different opinions regarding this topic elsewhere on WSO. Really appreciate your ideas here!

 

Hi Abk, I think there is no absolute answer on this, what you said on both sides make sense.

In general, buyside hiring analyst from ER makes so much sense, because: 1) ER job gives your direct exposure to connect with buyside and corporates; 2) ER job is similar with buyside (one is more primary thinking and one is more secondary thinking, but basically the technicals behind, like building model, doing company/earnings calls, etc, are largely the same); 3) ER should give you deep knowledge in one certain sector, and this saves buyside's time to train you.

Buyside hiring IBD analyst/asso also makes sense, because: 1) IBD analyst/asso in general as long as you don't mess up or you are not getting the job by purely connection, you should be trained to possess good work attitude, technical skills and in certain extent being more street smart; 2) some buyside like training analyst from ground zero to make sure the analyst deeply believe and execute their own investment thesis; 3) for HFs with certain strategy, such as M&A arb, activist, they prefer analyst possessing certain degree of deal-related knowledge. Thus in this case IBD analyst can be preferred. 

 

How do platform maintain market neutral while trading in Asia? I see a lot of platform analysts in my A-Shares meetings. How does that even work? Is everyone just short the same 10 negative momentum HK names with enough liquidity on the short side, and just do a lot of Japan on the short side? Or I am guessing Asia pods get away with long bias or, god forbid, just shorting futures and indices? Perhaps that's why pod pay is a lot of lower in Asia. Curious to hear your take here. Thanks. 

 

A share short is do-able, there are Prime Broker doing so. Not 100% sure about how other Asia markets work out so I won't comment on those. To my knowledge pod pay should not be substantially lower in Asia on platform fund. Ultimately its all about fund size of your PM and how he helps bargaining for everything. We also have pod in Asia having AuM of 3-6B with a total of 4-5 analysts at most, and formula should be universal globally on management fee and profit cut. That's what I know from my connection on a platform fund.

 

Hi marketbeater,

Curious about your take on working as a pan-Asia analyst in a particular sector(s) and how to reconcile that with your comment about locals covering local markets better. It seems many MMHFs and large LOs have such investment teams/roles. I wonder if the lack of deep local familiarity/language with a lot of markets affects their ability to generate alpha.

 

Relatively speaking for Fundamental-driven funds, I think so, it helps you acquire info and understand local cultural change far faster, but to me not a must. In HK I heard some HFs performing really well in US and Japan, I also heard some Canadian-based HF performing very well in China A and HK too. There should be also many foreign funds that must engage in other countries stocks and still performing very well, say Tech focused fund must engage in Taiwan and Korea. I think the key is still how much you are willing to engage in that market's culture, lifestyle and build local connections; Also there are trading rules universally globally like staying disciplined, understanding risk-reward, stop loss, so as maths behind all the instruments you can use, etc;

The more quant or momentum driven your fund is, the less you will rely on industry or company knowledge and thus importance of local familiarity/language also diminish

 

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