I look at it this way: no amount of water can turn that grass green if you don't find solace in what you do. Most people entering the industry don't experience a double digit drawdown the first month in like I did. It will humble you very quickly.

I never went the traditional IB, PE to HF route, but I will say my fund offers me autonomy, flexibility and balance. As you get older, you'll understand how important it is to find all three.

My boss started his fund because he was sick of the bureaucracy at his prior fund. We get in early and leave when the market closes, but that doesn't mean I'm not at my home computer at 11:30 modeling or reading. Weekends are my own, though we both end up reconvening on Mondays with more insight and knowledge than we had on Friday.

If you have the time, try to learn outside of finance. Most creative thinkers look outside their respected fields for inspiration - no different in finance.

 

Industry agnostic/generalist. Those with an industry focus, from my experience, operate and look at things from a subjective POV. From my experience, outsiders tend to be less biased which is helpful when you need to look at something objectively . Others will have a different opinion, and I'm sure I can agree with them in some fashion, but for me, being a generalist eliminates that bias.

 

Thanks for doing this AMA. I'm wondering if you could expand a bit on this point so I make sure I understand what you're getting at. Could you elaborate on the subjective POV and also the bias(es) you're referring to and why outsiders are less biased? An example would be great!

One other question on industry specific vs generalist. On the flip side of being less biased as a generalist, do you think it takes longer to take each idea from start to finish because you may need to spend more time learning the applicable elements of the particular industry and not just the company, whereas an industry specific analyst would already know what's going on with the industry?

"Successful investing is anticipating the anticipation of others". - John Maynard Keynes
 

as an industry-focused guy please invest in my sector. generalists in my experience are really bad at modeling companies in my space and lack the knowledge to really generate alpha

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."
 

Fund of funds have the capital most small shops want, so they are a VERY valuable resource. For instance, we have a number of fund of funds on our distribution list who track our performance. If we reach a certain return level, you bet we're going to be marketing to them first.

Most funds want a decent amount of capital mainly for marketing purposes, to deploy capital in new and existing positions, more cash in pocket when they take management fees, hire more people, attract more investors, etc. Of course like any multi $bn fund, the more money you have, the harder it is to produce great returns on a consistent basis. Renaissance and Bridgewater are the outliers, so let's not compare.

I think there is a perception that FOF don't really do anything besides take meetings and throw capital somewhere hoping they get a double digit return every single year. Complete opposite. Manager selection is no joke and the due diligence required is very comprehensive. Like any investor, if fund of funds don't produce, investors will pull out.

If you work at one, use the network of managers/analysts you've met and see if they'll take a meeting to discuss career moves. You'd be great for investor relation roles and could possibly network your way to an analyst position.

 

Hey mate, appreciate you taking time out of your day for this. It really helps young guys like me to get a larger understanding of the industry.

Firstly, what path did you take to get into the HF and how did you land the job?

Secondly, what percent of your work is modelling?

Thirdly, what is you something you wished you knew before you started?

Finally did you go to a target school?

Sorry for the barrage of questions.

 
Best Response

1) Interned at prop trading HF in the back office (literally scanning and filing for the first few months), found my way around into other internships in and outside of finance, and eventually got connected with my current boss who needed another analyst.

2) I would say about 25-35% of my work is modeling. The rest is developing an independent opinion on management, identifying catalysts, understanding the business model, reading 10-Qs and 10-Ks, understanding the regulatory environment, market research, etc.

3) Long answer, but I feel this will impact most people. I don't care if you're from a target, Liberal Arts or a non-target, don't conjure up an excuse as to why you can't break in.

It's true, targets get first priority for BB ,PE, HF, Consulting positions and everything else under the sun - and rightfully so - that's what a $60K a year school, HUGE alumni and brand name provides. They're also extremely smart and they hustle. At the end of the day a IS, BS, CF statement are linked the exact same way. You have to be just as clued up as the people you're going against.

Be the catalyst If you're from a non-target, be the econ/finance/accounting/philosophy/engineer/computer science kid that made it. Be the reason a certain bank decides to take on 3 kids from your school the following year. At some point, you'll look back and appreciate the journey. And when you're at some PE, HF or serving in a C-level position at a company, you can be a great alumni and ensure you'll have X amount of spots saved for your people.

Finance isn't everything You can get rich, or least very comfortable, doing something entirely outside of finance. Look at the Forbes Billionaire's list... sure, a handful of them are in finance, but a majority of them actually created something. Go take risks. Some Fordham MBA asked Bill Ackman what career advice would he recommend to someone and Ackman's response was something like "we're in the most unique time in history. Go work at the next Facebook. Go work at a startup and gain some practical business experience. You'll be exposed to sales, payroll, operations. Gain skills running a real business." Not verbatim but something like that.

Follow your passions I'm a huge wrestling fan, and these guys at a company called Flowrestling started filming wrestling tournaments and visiting colleges around the country. They did this for about 5 years and all the content was free. Some PE or VC firm founded by former collegiate athletes either bought out or gave an equity investment to the parent company, flocasts, and helped shape their business model to start generating revenue. Now they're raking in the cash with a subscription base model and have a monopoly on the entire wrestling community. They didn't go around the country because they thought they were going to get rich filming wrestling tournaments, they did it because they followed what excited them and got them going in the morning.

Lastly, everyone is chasing something. I remember reading a post on Quora that said something like IB people want PE and HF positions, PE people are tying to get into HF, HF want VC positions, VCs want to run the next Facebook. Point is, be true to yourself, follow your own guiding stars, be real with yourself and take risks. You'll burn out and eventually resent working in finance if you don't have the right intentions.

4) Non-target motherfuckers.

 

Much respect my dude, you keep it real. You sound like you grew up in an environment of struggle and honed your hustle whilst in the pits.

Absolute truths don't exist... celebrated opinions do.
 

This is an awesome AMA. Seriously, thanks for doing this.

I don't know where I'll end up but right now the long term goal is to end up at a hedge fund. I'd really prefer to not go through Banking to get there for a number of reasons so it's encouraging to see others who didn't. Did you need to learn modeling before you got the job or is that something you learned/they taught you? What do you think is a good starting job that could lateral over into HF, especially for an econ major at a nontarget? Research?

 

Anytime. I purchased the WallStreetPrep program to learn the basics.. Every fund has their way of doing things. My fund has a pretty basic template, but I always spread the financials my way and according to the industry. You wouldn't model an O&G company using a REIT model template, obv. I also don't like the whole use blue, green, black, italicize, bold thing. Models are supposed to be clean, not filled with noise. I understand IB and PE have their way of doing things since info is passed around to multiple parties. HF is a little different, and if you have a great PM, you can slowly introduce your methodology and create a hybrid to satisfy both parties.

 

I have a mixed view on this. ER is definitely helpful. You shouldn't be surprised to know ER analysts who cover, say TMT, end of being poached to become strategy analysts, VPs or investor relations personnel at a company they've been following & interacting with for a few years. I once came across a VP of ER from CS who ended up becoming a CFO at a REIT. Simply put, and to reiterate what I said above, you can literally become quite comfortable and pretty wealthy when you transition to industry. Finance backgrounds are definitely helpful, so if you're in, you're straight. It's also very important to consider your long-term career moves and what you want to accomplish.

I find people with backgrounds outside of finance way more interesting and are sometimes better fit for jobs at a HF. For instance, I'd favor a R&D person with a hard science background and is coming from a pharmaceutical/biotech company for my healthcare group, than a Goldman IB person who worked on deals in the space. I'd also favor someone from Nielsen who understands a highly niche market than someone from a BB or PE firm. You can always teach someone how to model and the various investment philosophies/strategies. It may literally take years for them to become subject matter experts. Why not just side step the process?

If I'm building a team from scratch, I would value someone with subject and industry knowledge. Deal don't mean anything to me. I want to see what you know, where you add value, and how you can make us money. Before everyone throws shit at me, remember my fund forced me to be a generalist. I still follow my core sectors/interests and I remain in the know so when I have full autonomy with idea generation, I can pitch those companies I've been tracking.

You can also not take my advice. No problem in that. These are just things I've noticed.

 

would brush up on valuation/modeling and business drivers. read through pearl & Rosenbaum and McKinsey's value at the very least and maybe a self-study modeling course.

it might not be 'necessary,' and your fellow interns probably won't have. however, it'll definitely give you a leg up. i got to work directly with a MD and ran the model for the project by myself cause they knew i had the prerequisite skills. The MD's recommendation at my end of summer review was a huge asset.