Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role

1) This can vary greatly. Truth is that lots of idea generation can be random. Sometimes you start of with quantitative screens on business characteristics to whittle down  investable universe. Sometimes you learn about an interesting nook of the industry while researching a different company, and decide to dig into that nook further. Sometimes you just hear a friend mention something. Sometimes you have a secular view on an industry and dig to see which verticals are most exposed to the upside or downside. Some models you have a defined coverage universe that you basically force rank. There's not really a consistent way to go about it. Idea velocity will also vary greatly by type of firm and role. My approach with junior analysts is that they should, at the onset, work with their bosses on higher conviction ideas that the boss has already screened so that they can get good reps on the deeper side of the diligence process. So I wouldn't place a large burden on juniors for idea generation early on -- this tends to be consistent with what I've seen at other firms. That's a skillset they develop over time (generally a couple of years). That being said, it's never a bad thing to pitch your boss ideas that you find interesting, as long as it's not coming at the cost of you doing the work they want you to do on the already-screened higher conviction ideas they've chosen. 

2) I can't tell you what your expected comp for that role should be -- that's a conversation you should have with the fund and it's totally fair game to ask them to walk you through expected progression under various return scenarios. Also you'd need to have a view on AUM progression. Unless your boss is generous or you had significant contributions, I wouldn't expect a junior analyst is likely to be hitting the $250-400k on a "normal" return year at that AUM / head. As unsatisfying as it is to hear, they'll ultimately pay you what they want to pay you unless you have a contractual guarantee or an explicit % of firm carry pool you'd be getting. If you're very talented and have potential to be a PnL generator day 1, or have other opportunities w/ better comp prospects, then you can obviously push them more. If you're not, then your bargaining power at an entry level is pretty nonexistent. EDIT: Very simple exercise to do on comp is map out the carry pool. $100mm AUM, let's say that at that scale, 100% of management fees goes to covering costs and there's no excess (if anything there could be a deficit). Maybe expected return is 15%, so $15mm generated. Probably closer to a 15% performance fee given AUM is concentrated in early investors with more favorable terms. So carry pool of $2.3mm. Evenly split amongst 5 investment professionals is $450k / person bonus, but it obviously won't be evenly split if 1 of the 5 is the PM and 1 of the 5 is the senior analyst. Really quickly you can see how the math doesn't add up that favorably for the juniors, all else equal on AUM and return profile. Isolate the variables (AUM trajectory, return profile, # of heads and payout split) and develop your own view on the trajectory of each or ask their view on each of them to build what comp trajectory could look like. 

3) That's going to be dependent on learning experience and firm trajectory. The former depends entirely on who you're working for and the latter will depend on historical PM returns and AUM trajectory of the firm. If it's some rockstar who just launched after leaving a well known firm or platform and could scale to $1bn if they wanted to, that's generally a more attractive opportunity than a $2bn firm w/ sloppy returns and AUM on the decline.

4) Varies. You'll find scaled firms with top returns have pricing power (and are oversubscribed / closed to new capital) and you can still see that 2 and 20 (or more). Others will have cost pass throughs that equate to higher than 2% mgmt fees. Generally the industry has deflated to something between that and 1.5 and 15. Also depends on how mature the firm is -- if most of your capital is seed capital or early capital on "special terms" that's obviously deflationary to the fee structure. 

Really great detailed reply from the OP. 

Curious if you're at a solid BB seat or a more off the run IB seat - ie is this the best you're gonna get or just one of the first opportunities presented. In my view, your first move post IBD is pretty critical and if you're in a good enough seat you should get plenty of looks with time. $100mm is really small and if it blows up you're gonna be in a really tough spot from a career perspective. As said above, unless there is a really good path to growing that AUM and fast, I'd be very hesitant. There are a lot more 100mm funds that sell junior hires on growth opportunities and spin their wheels than actual funds that get traction.  As a side note, that head count seems very bloated. 

It's not as binary in my seat as you described between delegating vs doing the work, and this will vary by firm. I'm absolutely still in the weeds since my coverage universe didn't expand (if anything I got more specialized over time). But I will of course delegate part of the work to the person working under me, especially on maintenance work (I'm not going to be the one updating every model or leading every call). I'm still leading the charge on deciding where we spend time, which requires doing a lot of the upfront analyst work on new ideas. 

I think the 3 biggest factors were 1) that my ideas did well from a PnL contribution standpoint consistently (it wasn't 1 home run that I was leaning on), 2) I had a fairly structured research process (see my response above; a lot of this was adopted from people I worked under) that gave leadership confidence that my time spent independently was used effectively (vs needing someone else telling me what to do) and I could generate ideas consistently (and #1 wasn't purely random), and 3) there was room at the firm to grow into that sort of role as we weren't headcount / coverage / capacity constrained. Sometimes for #1 and #2 you'll find that there's a conflict where people will want to keep you as a junior working under them (and effectively underpay you), but that isn't really the culture at my firm, and people had the view that everyone could be better served letting me scale (i.e. total carry pool could be bigger). I also was pretty upfront about my expectations for wanting more responsibility (especially as I felt my performance contributions were pretty easily measured). #3 was a fortunate situation that wasn't really in my control but is often a limiting factor for others (and an inability to scale will often create the dynamic I just described of keeping people as juniors)

There's a lot to unpack here and unfortunately the degree to which coverage is a headache will vary tremendously based on 1) fund structure (e.g. SM vs MM), 2) fund risk parameters (net exposure overall and by industry), 3) average position size / concentration limits (i.e. how big is your investable universe), 4) fund compensation structure, and 5) fund culture. I would say that to determine how big of an issue coverage would be, you'll need to make your own assessment on a how a given fund rates on each of those factors. My thoughts on each of those are as follows:

1) Fund structure: the nature of the headache is different between SM and MM. At SM, it's a question of whether you have the ability to cover XYZ company if it falls within someone else's purview. At MM, the issue is more on having to share access to XYZ company if 5 other teams at the firm cover it and you have firm-level seat limits in meetings and corporate access (e.g. XYZ will only give 2 seats to an MM firm at the conference even though there's 5 analysts at an MM covering). So it's ability to cover period vs ability to cover effectively -- both are obviously headaches. 

2) Fund risk parameters: If you run a low-net strategy and have to run industry level nets low, then access to the good companies is less of a relative advantage since good companies are often residing in good industries. A lot of times you're riding industry beta. If you're the TMT analyst, sure you can go long FAANG, but it's as much of a challenge to think about what you're going to short against it to get your nets in order. Under this sort of model, intra-sector spread is what matters, and it's probably more of a level playing field among analysts covering different sectors in terms of relative opportunity sets (though there are differences in intra-sector dispersion by industry). This is how many MMs run. Unfortunately, that's not the way most SM funds are set up, and the model is generally higher nets (60%+) and taking inter-sector spreads (i.e. long secular winners and short secular losers). In which case being able to take higher nets in high flying industry (i.e. taking industry beta) is a relative advantage, and people will probably be more defensive in trying to keep that relative advantage, all else equal. But, that's only a relative advantage to the extent the industry is working (which is what it sounds like your example is referring to)

3) Investable universe per head: put simply, the larger your investable universe, the less of an issue that coverage may be. Think about the AUM of the firm and the gross leverage. Then think about how many positions they on avg run long or short. Then think about whether they have limits on how much of a given company they can own. Before even accounting for stylistic biases (i.e. we only invest in companies with ROICs > X%), you should have a sense of how big/limited of an opportunity set they're playing with per head. I'll paint a very simple example (not to say this is the only set of things in consideration). If you're a $10bn+ fund running at 150% gross, you have $15bn of capital to put to work. Let's say you run 100% gross long and 50% gross short for 50% overall nets, so you have $10bn of long capital to put to work. You like running concentrated and only want to have 10 longs in your book, so therefore avg position size is $1bn. You don't like filing so you want to avoid owning > 5% of a company, so the company needs to be at least $20bn of market cap. How many companies just from a size perspective fit that bill within your respective industry coverage? If you already have all industry coverage accounted for and employee turnover is low, then it's probably more difficult to have coverage / risk ownership as a junior looking to progress. Now, flex each of those variables -- if gross capital is lower / liquidity requirements are lower, concentration requirements are looser, and number of accounted for sectors is lower, then coverage being a limiting factor is less of an issue. One caveat: while your free reign may be lower in the example I pointed out (i.e. high AUM and concentration is prohibitive), just by nature of scale, your economics per head will still be vastly better than most of the industry. So while you might be upset for not getting to cover FAANG, the fund is probably at escape velocity on AUM (and management fees) that you'll be well compensated vs most of the industry. 

4) Fund compensation structure: Owning the "good companies" will be less of a political pressure point if your fund compensates you on alpha vs $s (see my point on industry beta), and if there's a component of comp that is based on overall fund performance vs just your coverage. From my experience, generally at junior levels, team / firm performance matters more to overall comp than your sector performance (provided you don't own the risk), so it's not an issue you'll have to worry about as much. Comp determination method varies more significantly at more senior levels. 

5) Fund culture: Pretty self explanatory. The degree to which people are territorial is dependent on comp structure but also dependent on whether people have the mentality of someone else scaling being a zero-sum game. Culture will in part depend on AUM trajectory and whether or not there's actually capacity for the # of risk takers to scale without diluting the economics of incumbents. I was fortunate where, even though I was scaling into a role with some (albeit low) overlap with existing risk-takers, they saw it as beneficial for the overall firm and overall carry pool to better monetize my corner of the world. The easiest way to gauge this prospectively is see the nature of the employee turnover under the person you'd be working form. Additionally, you should absolutely bring this up in later stages of an interview process (or post-offer) to understand your path to scaling within the business.

To answer your question more directly: I've seen/heard coverage politics be a bigger issue in firms where the culture is sharp elbowed, comp structures are very PnL driven without much risk management, and AUM is prohibitive to expansion of risk taking roles without coming at the cost of existing folks in that role. 

Similar to assessing stocks, your opinion on funds should be based on forward outlook rather than trailing or point-in-time characteristics (unless they help inform the forward outlook). Addressing some of the factors you bring up: my view is that ultimately career potential LT should be influenced by 1) personal performance and development, and 2) structural characteristics of the firm. We'll come back to #1.

On #2, we often talk about AUM per head as a measure for opportunity / stability, but really it's a proxy for carry $s per head and doesn't always paint the full picture. For instance, you could have a HF that has been growing AUM in a long-only product (which carry far lower fee structure) while core HF assets are shrinking -- optically AUM per head could be increasing but carry $s per head could be decreasing due to fee dilution. Break carry $s per head down into the components and think about each of them individually -- expected AUM, expected return, fee structure, and expected headcount. The HF industry is unfortunately littered with carcasses of $2bn-10bn AUM firms that optically had good AUM per head a couple of years ago at a point in time, but nosedived very quickly (for reasons that could be somewhat diligenced ahead of time) because returns lagged, AUM wasn't sticky, and/or they were too deep under a high watermark and that affected talent retention (which creates a downward spiral on performance and AUM). In theory, forward risk-adjusted return expectation should drive forward AUM and forward fee structure. Unfortunately allocators tend to be backwards looking and trailing returns often drive forward AUM and forward fees. A few of the things I diligenced to make sure carry $s / head prospect were intact, even if AUM / head looked good at a point in time: what have historical returns been the last handful of years vs their benchmark? What is trajectory of AUM? What is the level of concentration of investors in the fund? How much of AUM is locked up and on what time horizon? Are they coming up to a big gate on AUM while performance has recently lagged? What has fee trajectory been historically and recently? What are watermark terms and how in the hole are they on high watermarks? Depending on the answer to all of those questions, you can have a discrepancy between attractiveness of forward carry $s / head vs trailing AUM / head.

To your question on minimum returns -- this will matter on two factors. a) the lumpiness and sequence of returns, and b) the benchmark that allocators judge them against. For the former point, there's lots of funds that have great LT track records today but all of the excess returns were generated 10+ yrs ago. If they had grown AUM since (since allocators tend to chase trailing performance), average capital in the fund could actually be lagging a benchmark materially. On the latter point, you alluded to this when you mentioned this will vary by strategy. So I unfortunately can't give you a great answer. Expected or minimum return will vary based on style, vol, correlation, etc. 

So, if a firm checks all the right boxes on AUM outlook, doesn't have a watermark issue (so carry pool is intact and talent will be getting paid), and has been outperforming their benchmark, you've won a battle that 90% of HFs won't. You at least have minimized the existential risk of the opportunity vs peers. That's where point #1 comes in -- being in the seat that maximizes personal upside. Generally I find checking the boxes in #2 will create a culture that's more conducive to #1 (since people aren't fighting for a shrinking pie and will be focused on grooming talent). But one of the biggest factors here will be who you're working for. Unless you're a rockstar out the gates, the most valuable seat in developing your prospect for future performance will be under an apprenticeship model. What could be some of the leading indicators of that? If you're working for a more senior person, the career paths of historical analysts under them is a great indicator (note: turnover may actually be "good" here if his/her analysts are leaving to become PMs and sector heads at other firms). It's tougher to diligence if you're working for a more junior risk taker, and you'll have to rely on reference checks. I can't stress enough that who you choose to work under is incredibly important in your LT personal development (which is very important to LT comp prospects) especially since you only work under 1-2 people in most HF setups. 

The other point I'll note is that you can have bad seats at good funds. Won't name names, but some funds that people like to mention here actually have pretty crappy analyst development w/ high churn and are designed as model-monkey 2-and-out type roles without much room for progression (not to crap on 2-and-out programs in general -- some are still very good)

I'll caveat all the above by saying that very few people are lucky or skilled enough to have a large enough opportunity set of funds to pick and choose all these factors from. 

Interview sourcing was mostly done through headhunters. I was coming from a good IB, and I was 100% set on doing HF. In terms of background, I had enough demonstrated interest and experience in / adjacent to the space to be convincing that was what I wanted. 

Interview structure was relatively similar across firms. First round was usually a "gatekeeper" round. Either HR or the direct reports with mostly behavioral questions and a mix of a few technicals and a short pitch. Second round was more in-depth interview with the direct reports and meeting with a couple of other members of the investment team. Flavor of each interview depended on what mattered to the person. Some more grilling into a stock pitch, some more technicals, some more deeper behavioral Qs. Next round was usually a case study -- either open-ended or you were given a ticker. It ranged from being in-office to take-home for 1 week. Varied whether that was presented to the broader investment team or just your direct reports, but in either case you present and get grilled on Q&A. Final round was usually meeting 1-on-1 with the founder or CIO or head of the strategy. 

In terms of handling the case study, it depended slightly on whether the format was a user-generated or them giving you a ticker. In either case, I'd stick to a very clear pitch that shows you know how to isolate the 1 or 2 key KPIs that matter for the stock and can express why you have a variant view vs other investors or consensus. I'd refer back to the first response I gave on this thread on how I manage my research process into stages. Generally it helps to break your case study in similar stages since it's a fairly logical flow. Determine business / industry quality > isolate the key drivers and points of debate and state your varying opinion > make clear the path to getting paid and realizing your discrepancy vs consensus. The only thing I'd add to that is making clear the risks of your view and the absolute risk / reward skew of the opportunity. 

If you have an opportunity to pitch your own company in the case study round, it's an opportunity to showcase your ability to dig and be original / creative. So don't let that go to waste with a very generic or well known pitch. If you don't care about the opportunity enough to put in work on a case study, you probably won't like the job. This is a response I gave in another thread: 

It's a tough question as there's no silver bullet, and everyone on the other side of the table is solving for their own unique needs or culture. From my perspective, the best things you can do for yourself in terms of increasing your attractiveness as a candidate coming from IB or PE are 1) work at a top brand name firm (high signal - why should I make it an "either/or" decision on talent vs pedigree if the talent pool is deep enough that I can have both), or 2) come up with good pitches that are truly value added and original - I always liked to pitch undercovered companies bc it showed that I wasn't just ripping off SS research or regurgitating a well documented HF hotel thesis / VIC write up. Most pitches I hear are phenomenally unoriginal. Not suggesting that a thesis has to be original to make money (your #1 goal is to make money - not to be intellectually superior), but rather, from a recruiting standpoint I don't glean anything incremental on your unique ability to think or pitch or dig when hearing the same type of pitch on the same type of company over and over.

In terms of breaking in, I would refer to the comment above this one. It was fairly generic use of headhunters coming from a good IB seat, and I had demonstrable interest in the space. 

In terms of expectations, it's an interesting question. A lot of prospects have the view that you're expected to be idea-generating day 1. That's really not the case from my own experience and peer experience. Despite having to pitch a few stocks throughout the interview process and case studies, I wasn't expected to be the idea engine upon starting. More than anything, those parts of the interview were screening your interest, raw talent, and ability to communicate effectively. As well as screening your maturity level to make sure this is someone I can put in front of a management team without reflecting poorly on the firm. Every firm has their own manner of diligence and process, and your first year or two is about learning that rather than letting you loose on idea sourcing. Disclaimer that that will depend on the nature of your talent and the nature of the role the firm is looking to fill.

The IB / PE role on avg is quite different from the HF role, so you're not expected to have the full toolkit ready to go aside from your technicals (making sure you can build a model without errors and I can trust any numbers you give me) and work ethic. Nor are you expected to be an industry expert coming into a junior HF role from IB. Frankly, in most cases, you don't really learn shit about your industry in an IB coverage group outside of the surface level. 

I think it’s really just about the quality of the position and PM right? I’ve seen people go from good SM seats to good MM seats voluntarily and it’s been career enhancing for them (quicker access to risk taking roles). I’ve seen the opposite happen going to a bad seat. I’ve seen talented people ~30yrs of age consistently clear 7-figures in both models with different investment styles. I’ve seen people hit a wall in comp and get stuck in a middling role and burn out or blow up in both models. I’ve seen styles and holding periods range at both models (you’re less likely to see the multi-yr holding period at MMs — more the point that a lot of SMs are higher turnover than people think). As you mention, it’s kind of difficult to compare the two generically. Have to look at it on an opportunity-by-opportunity basis. While it is incredibly important who you directly report to under each model, diligencing your PM / direct report is probably more important at MMs since it has greater influence over your staying power vs most SM setups I’ve seen. 

I can only speak to the experiences I’ve seen from friends and peers, but at the non-PM level, I think the best SM seats are better than the best MM seats (mostly because of the economics per head and management fees at the very best SMs, though seats are fewer), but the best MM seats are better than most SM seats. Keep in mind that average SM is not some $5-10bn AUM firm w/ 10 IPs consistently clipping double-digit % returns — it’s a much smaller firm with declining AUM that’s underperformed its benchmark for years. 

Going through the questions: 

1) I can’t really comment on this since I haven’t made a similar transition to what you’re describing. How difficult the transition would be is dependent on how much of a skillset you developed on deeper diligence (or at least how good of a reason you have for wanting to switch to that model). People often conflate a turnover with not doing diligence (don’t get me wrong, there are definitely diligence-light high-turn shops). Not always the case though, and there are several well known SM funds that trade a lot more than people WSO think. 

2) Easy proxy is to look through 13F filings over time. Whalewisdom is a good source for this. You can screen for funds of interest, or you can pull up fund-by-fund to get a sense of how portfolio size has changed over time which can give a view of how AUM has changed. 13Fs are by no means a perfect tool though since they only show domestic long positions (so a firm with increasing international market exposure isn’t well captured). The best way to know a firm’s capital duration is to just ask them when you’re interviewing. 

3) There are threads on the HF forum I’ve seen in the recent past that do a good job of giving an overview of building quarterly forecasts. I would recommend searching for those. The mechanics are no different than an annual model — it’s just about being more granular on things like seasonality and layering in lower latency data points. In general you should build all your models quarterly since for US domiciled companies that’s how often you’re getting updated information, and you always want to be working with the freshest information in the cleanest format (updating an annual model as the year goes on is an even bigger pain than just updating the quarterlies flowing into an annual). To your second question about why NT / MT trends matter in a LT thesis — it’s always about maximizing the monetization of your ideas. Position size should in theory reflect probability adjusted risk/reward and catalyst path (which feeds into the “probability” part). You can believe the LT story while at the same time your research gives you a differentiated view they’re going to unexpectedly whiff the quarter in a way that looks damning to the narrative and NT #s (see this plenty with companies with good LT prospects going through an underappreciated and accelerated investment phase and gutting margins) while they’re going into the announcement on peak relative valuation and NT outperformance vs peers. That’s where the skillset of differentiating between a good business vs a good stock comes in. Why be maxed size on that company into a really crappy event path if you could have the option to scale post-fact at a better price? Truth is sometimes you just don’t care about the NT, sometimes you do. Lots of smart investors feel very strongly about both sides of the debate and have different beliefs on how good of traders people actually are (research suggests not very good) and what windows of alpha generation look like. Just depends on the confines of your model and your personal skillset. 

1) At the end of the day, the output you’re solving for is good ideas that make money. Hours worked are just an input, and will vary by person. As I mentioned, I worked a lot because I was still young (i.e. I still have the energy and no family of my own) when I stepped into a risk taking role where I felt I had a lot to prove (and still a lot to learn). A mentor of mine always said that sequencing of events determines success in this industry. Let’s say that in a string of 10yrs, 2 individuals are equally talented and would have put together the same CAGR of returns and would have 7 amazing years and 3 bad years. If person #1 started off with 2 good years, and person #2 started off with 2 bad years, I guarantee their career arcs will look different all else equal. My goal was to try my absolute hardest to make sure I could be person #1 and start off on a good foot in that role (that’s what I meant earlier when I said “frontloading the effort”). So maybe I worked more than I needed to frankly. Also, in my case in particular, you can assume that over most of the time I’ve been working I haven’t had a junior employee working under me, which is something that will ultimately change the # of hours I work. I have no intention of continuing to work 70-80hrs/wk in perpetuity if I feel it’s LT counterproductive physically and on ability to think clearly. To your specific point about whether 50hrs/week is a death sentence — it’s not. As long as you’re effective at your job. Different people just have different styles and processes that are different levels of taxation on time. Holding periods and idea velocity are also generally determinants of lifestyle (lower portfolio turnover culture generally equates to better lifestyle). 

2) When I say #s, I’m generally referring to models or back of the envelope types of analyses. To the second part of your question — like I said, you can do whatever forms of diligence suit you best as long as you’re consistently making money (legally). You can’t really avoid reading and #s though. Talking generally entails listening to someone else’s opinion rather than developing your own. What I will say is that your idea velocity (and therefore depth of diligence) will in some ways determine what the split between the different types of work is. If you’re a really deep dive, long holding period, low velocity type of place, then you probably spend a lot more time per idea on doing things like expert network calls. 

3) I think it’s really difficult to have longevity in this job without enjoying it just given it’s pretty mentally taxing and there’s more transparency into your personal performance vs other jobs. I mentioned this in a different thread, but in *very* broad strokes I generally think of a 2x2 matrix (shout out to consulting friends) with passion for the work and talent (which is always subjectively measured) on each side. Low passion + low talent = don’t bother. High passion + low talent = maybe you get your foot in the door at the junior level, but are found useless pretty quickly before getting into the money-making seats. Low passion + high talent = can probably string together a few nice years but then burn out. High passion + high talent = people I’ve seen with greatest longevity and success. It’s not a uniform distribution of these combinations / outcomes, and there are obviously so many other factors that determine probability of success which I’ve mentioned in other posts. But it’s always helpful to think objectively which bucket you fall in for any high stress / high reward job like this. I do genuinely enjoy the job in aggregate (there are always shitty stretches though) and that is good medicine for the stress for me. And to your point about just taking it easy after a few nice paydays, I’d say that a) the numbers I gave were gross and you can assume I’m in NY / CA where the tax man takes their fair share and COL is high so I don’t feel I’m anywhere near a walkaway net worth, and b) upside potential is what excites me more than the trailing performance especially when I like the job enough to keep me motivated regardless. 

To grossly oversimplify it, I tend to think about exiting the same way I think about initiating a position — in no particular order, the medium-term outlook, valuation / relative performance, quantifiable upside / downside to street #s or key debate points, and more near-term catalyst path are the inputs to sizing. My view (and the one I was trained on) is that ideas should always be competing for capital, and I exit an existing position if I’m wrong, something’s played out, or there’s a much better use of capital that can replace it. Barring liquidity issues, I generally don’t like being in positions that I wouldn’t re-underwrite today. 
 

Also, I think it’s important at all times to understand whether your thesis has played out, is wrong, or has a *real* new leg. The first two are conducive to trimming / exiting a position, and the latter can often be defense for staying in or adding. What you want to avoid is thesis creep, where your original thesis plays out, and you stay in a position because it’s worked well but are starting to stretch the rationale that can you can diligence. One exception is stellar management teams (if you’re getting them at a discount) that create optionality and can pivot narratives because they can see around the bend much better than the investor community. That can often still be diligence-able though.

1) I would refer back to the first comment I had in the thread on organizing your research process. So I think of a soft pitch as being an indicator to your PM of when something is worth spending time on (rather than it being all done and dusted) -- I'm assuming this is what you were referring to rather than having a done-and-dusted write-up for an investment committee type of set-up. I'll caveat by saying that depth of pitch will depend on fund culture and idea velocity. Generally I think an idea is ready for a soft pitch if you've isolated the key KPIs that drives upside / downside or is are key point of debate, have a differentiated hunch, and can back of the envelope show interesting risk reward. You don't have to have the answers immediately on catalysts, or specific hard evidence of why everyone is wrong on the KPI in debate, just that it's worth spending time on and others' assumptions didn't pass the sanity check. Usually that's a good moment to run it by them to start the dialogue and see if they have a gut reaction. There's no reward for running a science project on something that's unactionable and you don't want to be spinning your wheels. 

2) It's less about absolute time and more about whether the risk-reward, potential positions size, etc. justifies the amount of time you'll spend on it. Generally I ask myself about the 1) size potential, 2) measurability of thesis / outcome, 3) risk-reward potential (one input of which is differentiation) of any opportunity as the key factors for determining how much time I spend on something. If I can't be meaningfully sized in something for whatever reason (fund style bias, liquidity, etc), am not really differentiated in my view, and I can't properly measure or diligence the tenets of my thesis, then I move on. I've spent significant amounts of time on diligence-ing single positions that check all 3 of the factors I mentioned, so it's not so much about managing to absolute # of hours I spend on any one thing, but rather EV-optimizing your efforts.  

3) See above

Appreciate the kind words, and everyone should be grateful of all your contributions as well. 

Good question. I think shorting is a good and differentiated skillset to develop and at least for me, makes me a better long investor (due to a more heavy emphasis on evidence-focused approach, and generally adding more balance to your views). I'd say I spend far more time on shorting than my average peer. Probably not that far off 50%. A couple of reasons for this - 1) I actually enjoy it and my short alpha is better than my long alpha (note: alpha % and not PnL % return), and 2) I have a higher velocity on shorts vs longs bc my avg holding period is longer for longs (I'm generally more catalyst focused on shorts), 3) nets exposure % is managed top down rather than bottoms up where I work, so shorts aren't purely opportunistic -- there's a constant "need" for a certain amount of them. 

In terms of criteria for shorts, there are some who have the philosophy of shorting only the 3 Fs -- fads, frauds and failures -- or basically terminal shorts w/ bad or unsustainable business models. My criteria is far more broad, but I am more focused on catalysts. I'm fine shorting half decent business models where expectations + valuation are out of whack or there's reason to believe they're overearning and that should reverse.  What I would remind a junior analyst is to always differentiate between good businesses and good investments (and the opposite). You can have good businesses be bad investments (i.e. good shorts) but the better the business quality, the greater burden of proof will be on you (hence the importance of differentiation and catalysts in those instances). Also, especially with shorting, you have to do your own work and tune out the noise since the industry runs long bias, and sellside ratings are always positively biased. 

In terms of what to look for, the 3 Fs mentioned above are always great, but I would encourage juniors to broaden their universe of short opportunities. For example, one of the things I like to look for are mathematical inconsistencies. Some of my favorite instances of shorts are when you have an industry where the expectations for each of the companies individually doesn't make sense for the estimate for the underlying end market e.g. public player(s) guidance is actually expected to contribute way over 100% of the expected growth for the underlying industry. Mathematically it doesn't add up if you don't have obvious share donors, but you'll find that sellside will often view guidance in a vacuum and model each company according to the LT plan that mgmt gives. Another example is the type of setup I was mentioning in the very first comment in this thread on building up investment theses -- instances when people conflate transient cyclical changes with structural changes and valuation paradigm "incorrectly" changes. Both of these types of examples could be happening to companies in good neighborhoods or industries, but can still be good shorts. What these examples can be summarized as are instances where you see material downside to the key KPIs to the business (or the narrative) while valuation leaves low margin for error. It doesn't always have to be on a differentiated view on direction btw -- maybe people are already negative on a secularly declining industry, but not negative enough and underestimate operating deleverage on sales declines. You'll sometimes see these called "value traps" (valuation optically looks "attractive" on NT #s, but the pace of LT degradation is underestimated and valuation is expensive on out year #s i.e. they're cheap on NT #s all the way down). 

The main thing I would say to avoid are valuation-based short theses absent a catalyst (outside of some extreme situations). Additionally, don't underprice optionality for good management teams running good businesses (I had a post in this thread earlier about what that means). And the last thing, depending on your holding time horizon, is being mindful of technical dynamics around short squeezes i.e. consensus shorts with really high SI% and low liquidity going into a positive catalyst window -- this goes into determining bad business vs bad investment (bc of a bad setup). 

Most people don't like to short because on avg, positive short alpha is still negative returns % in PnL terms because equity risk premiums are LT (+), and most of the industry is compensated on PnL terms. Chanos is arguably one of the greatest short sellers ever but barely makes $s in PnL terms in his short-only fund (might have since gone negative -- LT returns I last saw were from a few years ago). So why bother at all with time on shorts if even the best are going to make no $ from it? Answer is that Chanos historically made a stupid return in his other fund that is long a 2x levered index fund against his short book (so 100% net exposure on 300% gross, but short book basically contributing 0% and long book contributing 2x SPX). Point being that being a good short seller allows you to go more long (i.e. > 100% gross long) and run a bigger balance sheet with downside insurance. Always think about your ability to generate L/S spread.