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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WSO Podcast:
Member @MarketBeater shares how he broke into Goldman and eventually a buyside hedge fund role in Hong Kong with a 2.8 GPA. How much he's getting paid now and a key piece of advice to our listeners to stay motivated...
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.
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.
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.
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.
Not all MMHFs are market neutral. I prefer calling them Multi Strat. And I have no idea whether market neutral HFs outperform DM's HFs. To my knowledge I know 1-2 high-profile MMHF (and market neutral) underperformed the market last year in HK.
Large sum of analysts in HK cover China A/H shares (i.e. Shanghai-/Shenzhen-listed onshore equities and HK-listed offshore equities (or US China ADRs). There are also analysts covering Asia regional equities (Korea/Japan/ASEAN). For mega funds analysts tend to be divided by sectors, who should cover global equities in one consumer, say if you are consumer analysts, you will not only cover China sportswear brands, but also Asia-listed sportswear OEMs listed in Taiwan, HK, Korea, etc, and biggest sportswear brands like Nike, Adidas, Puma, etc. So it really depends on your role.
For your last few questions, I think locals always can cover the local market better: local news in local language is always faster than global news source; There are more local industry columnists writing in local language that you cannot read if you do not know local language; locals always have, and can develop, better local connection in the industry ; Locals always understand their own country better. For myself 95%+ of the news flow I read is in Chinese, because they are faster and in higher quality. So yes, not knowing local language puts you in disadvantage.
If you know Chinese speaking and reading, and aim at covering China market, I will suggest you to speak more, learn more about local culture (trying local good, using local apps, observing what brands the locals are wearing, driving, meet some local fd), instead of saying "but prefer to read English most of the time". you are basically forgoing what you have to do to cover a market well. You can fool your non-local boss by doing so, but this also puts your in a harder position to earn money and run ahead of the curve. And don't get me wrong, this is not something specific about China, but also applicable to all other markets, such as Korea and India (quite famous for locals enjoying significant edge vs foreigners).
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
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