Q&A - HF work and life in NY / LON , HF launch

There is a lot here; I'll try.  When I joined, we were $100-200mm; we peaked at $10bn, and the firm still in that mid/high single billions AUM range.  

Tenure is a very personal decision.  I had no reason to leave, so I didn't.  Others who could have stayed felt compelled to move, and did; some went on to great things, others not.  Many were not suited to the place and left, again sometimes to find success at shops that fit better and sometimes not.  It is hard to generalize, because HF are very heterogenous.  For that reason I generally believe that if you find a good fit, it is worth hanging onto.  Hard to value the decision as such for these reasons, and I never thought about it that way.  If you stay because the place is working for you and you believe that you'd have difficulty replicating your seat, then it has great value to stay vs. almost no value to go ... similarly the reverse would apply if you were finding it difficult to be successful.  The setup is pretty binary generally, and the stakes can be very high.

Comp can be very high (or very low).  In my case, our highest-profit (and therefore comp) year was followed immediately by a losing year, where comp fell to zero.  Like zero.  From many hundreds of millions.  This is in aggregate.  Individually, approaches vary widely.  Some places operate like kingdoms where spoils go to those close to the king (or queen).  Others try to pay for p/l.  Others aim for incentive comp splits based on perceived contributions to the business overall, subjectively addressed.  Again very hard to generalize.  Upside is nearly limitless, downside is zero.

This depends entirely on how much you plan to invest into the business and what sort of capital you can attract.  If you aren't going to launch with say $25mm of fee-paying assets at a bare minimum (assuming a lean structure and simple strategy), you should be prepared to subsidize operating costs.  More complex businesses are more expensive, so you'd need more fee-paying capital to make it work.  How much you need beyond that for your own life is again quite personal.  

I didn't necessarily do all the things I did all at once.  It is about pacing , discipline , and hard work.  The minute you can't cover the ground you have to pare back.  It is not worth the risk, which will find you and punish you.  So yes I enjoyed the variety and still do, but I have learned to be decisive about time and energy allocation.  

Not a whole lot if I'm honest; good fortune played a large role in my life.  I'd say, you do make your own luck to some extent, though, so hard work matters.  If I could do it again I would have listened a little more as a youngster vs volunteering my views when half-baked.  I unnecessarily damaged my credibility at a couple points and it took a while to regain.  I could have better used that time deploying capital than rebuilding confidence in my judgment.  

Think I got it all but feel free to follow up.

Depends a little on the role and the target job.  Some funds can be somewhat snobbish about analytical/research roles vs sales & trading ones.  Mind you, both can pay very well.  Credit funds, particularly distressed but high yield too to some extent, lean more heavily on the trading function, so that can be an easier fit than in equities, where trading tends to sit alongside research.  Again, not a bad thing necessarily.  Really, you should think about the role that would play most to your strengths.  You'll succeed most at what you enjoy best.  Sovereign would be more suited to a macro type approach I would think.

Hard to say, as generally these two categories serve different purposes in a portfolio.  The most significant trend, which seems inexorable, is that the largest and most established funds continue to raise capital easily, while everyone else struggles.  This sadly means that all but the most vaunted, highly capitalized launches struggle mightily to attract attention and capital.  

Not many surprises to be honest.  The differences are glaring and they really played out.  I think the biggest insight was quite how much waste there is within most large fund cost structures:  you really can do so much with so little it is amazing to think what we could have done if we were more efficient.

See above but if you have a simple strategy and can run lean, you could probably get by with $25mm in fee-paying assets ... but it is a long tough road to proper scale, let's say $100mm.

Great opportunity for UK and European managers.  Lifestyle / culture is fantastic (or I thought it was), and markets are far more interesting and varied.  Valuation inefficiencies can be massive.  Disadvantages include persistent discounts/mispricings, more variety means more risks if you don't understand the texture properly.  But generally, and for me, rich opportunity set and fun places to get to know.

Trust is number one.  LPs are entrusting capital to a manager, and their job or savings or wealth or whatever is on the line.  So they want to know that a manager will do what they say, has a robust infrastructure, and will do their utmost to generate returns.  Most allocators will tell you that track record is not numero uno in manager selection.  (look no farther than the large underperforming funds that continue to scale for evidence :>)

Not a whole lot I'd do differently; see above.

I just don't have much interest in the private side as such.  Too long to see if what you're doing works, too much inside baseball in marking in the meantime, too much structure in the firms, and I think the wrong time in the cycle anyway.  But that's me.  

This is always tough.  If stress/environment/energy level is what you want to downshift, then HF in general is just a poor fit.  Could be that the particular firms you've experienced have particularly attenuated cultural profiles, or that your disposition isn't well suited to the pace and stakes in general.  Hard for anyone but you to know that.  

If you're just after fewer hours but ok with the generally high energy/stakes environment, then there are a few decent options.  Not sure what primary research would be , but things like research co-ordinator might be relevant (admittedly only at pretty large funds if that).  Trading side tends to be more market hours if that's what you're after.  Operations and compliance might be worth a think.  But all these are critical components of a fund, and at the end of the day the report to the same partners who run the place, so they come with the same overall package.

not sure what you mean by first.

all except biotech, insurance, and growth tech.

China dunno.  US strong IPO market driving market breadth, economy reasonably strong to very strong.

Bulk of hiring funds in Europe is multis. 
Do not do this job if you don’t love it, you won’t be able to compete.

you may take a comp discount moving over at first, and will need to relearn a lot for MM style. SM will be more transferable but not a lot of these in Europe 

Big funds may well have plenty of infrastructure, process, etc.  So might small funds.  Process is what makes a strategy repeatable (and marketable) ... and politics can be intense at any size firm because the stakes are so high.  If you think a switch to the principal side makes sense, cast a wide net and talk to anyone who will talk to you ... you never know what might fit.  Everyone talks about these names as if they know them , how they work, and as if they could walk right in the front door.  It is rarely if ever so simple.  If you are fretting about comp and WLB it is likely that the field will not be a fit.

credit for asking.  

that's what my kids call me.  I think it is a compliment.  

The ellipsises "..." always give it away. Mad respect. OP, how is your hairline after all these years of stress?

Sure , fertile ground.  Always in disequilibrium.  Not resource play investor so no need to be a geologist :)

It just happened to be honest.  I do think that being too focused on the end result, or firm name, or whatever, actually ends up making it more difficult to achieve that.  I had no idea what I was getting into but I happened to love it.  There were lots of challenges and many difficult stretches, but we had a great team and the work is more addictive than crack.  So it has never been hard to come to work.  

Things have changed a great deal since I was young.  But I would advise : talk to as many semi-relevant people as possible and ask their advice and help.  Use your schools recruiting /career resources as much as you can.  Be persistent but always pleasant.  

As for resources, read as much as you can, listen to interviews/podcasts, and be creative in ferreting out things that can help you.  Above all start to see the world around you as an investor: how does every feature of it work?  What are people buying and selling and why?  How does profit figure into everything you see around you - how does the buyer perceive value / need and how does the seller fulfill that ?  The more you can think in this way the better you will become at understanding business analysis. 

Your main problem is going to be the visa situation. The hedge funds don't want to deal with people with less than a Green Card. And it would also be reckless, given losing your seat while on an H1B is no fun at all.

Going from MBA to IB is obviously very common and they take care of the H1B for you. But discussions about a Green Card wouldn't happen before VP level, and then you're too senior for most buyside opps.

Maybe the large asset managers / SMs / LOs offer H1B / GC sponsorship to MBAs. I don't know for sure.

Hahaha not really sadly … and we’re in LA … out of curiosity why ‘dead set’?

The general idea of cross-asset investing is to pivot with opportunities.  So, yes to the second part of the first question.  And therefore, it is usually true that I have moved on from an asset class when it has ceased to be interesting.  For example, convertible bonds became briefly extremely compelling for guys like us during the GFC.  We quickly built a large portfolio of these.  When things normalized, we sold and returned to regularly scheduled broadcasting.

Anything that sounds interesting is worth checking out.  Lately I've enjoyed the O'Shaughnessy podcasts.

As calmly as you possibly can, review what exactly has happened.  Try to identify the most likely reasons for this - whether there's signal or just noise - and if signal how those reasons relate to your thesis and expectations.  (have you been zapped by known unknowns, or unknown unknowns?)  If there's new information, you need to re-underwrite your thesis.  What would you do right now if you had no position?  Try to keep a level head and make the best decision you can with the information you have. 

I'd advise you do what you're doing as well as you can - nothing makes something fun and engaging like success.  While you're doing that, be increasingly conscious of ways to build your network and tilt it in the directions you might want to explore.  Try to talk with the equity holders of situations where you're involved in the bonds or TL, and see if you can find some folks who value your relationship.  Those will be the best people to eventually introduce you to people who might be hiring, or to hire you themselves.  It will take some time, but it will yield the best results most likely to stick.

Wildly different paths if you mean managing MM capital, so really depends on what you want to do and how you want to do it.  I would not equate a job with a job, as it were, unless a MM PM were hiring to you to be an analyst vs a SM hiring you to be an analyst.

Moving from analyst to PM is a jump in general, and the parameters at MM mean that you'd have a narrow fairway (generally speaking) without a safety net.  The MM path would never have suited my style, but it does work for many (it also boots out many more).  

Sorry that's a bit of a non-answer but in sum : don't just take a PM role at an MM to have a job ... that job can quickly vanish, and then you are in limbo.

As for technical acumen I can’t imagine that you don’t already possess the tools needed to be successful.  I’m not sure what your reference to glass ceiling implies.  But I’d say that sure HF work is stimulating but also 24-7 even if you’re not on the desk.  So in a certain way WLB as you all call it gets worse.  The stakes are so much higher that nobody will think twice about demanding your time when it’s needed.  Especially if you want to bust whatever ceiling is holding you back.  The thing is that generally the whole team is on the same page and the thrill keeps everyone engaged.  If it feels like work it’s not working as they say. 
I continue to believe that as soon as you think a career ‘pivot’ is in order the thing to do is to buckle down and excel at your current job, while paying special attention to how you can use your seat to gain insight and hopefully placement into the area you think you want to end up in. 

what's human scale mean?

I’m afraid you’ve gone beyond my competence zone.  I really don’t know how to think about that.  Generally, trying to expand your practice area and knowledge is a good thing for your career so pushing at the edges of what you know and do is something I would normally encourage.  

Ha sadly not at the moment 

Lots of people with very different styles can be (and have been) successful … it’s all about what plays to your personal strengths.  In my own interpretation and experience,  ‘big swinging d’ behavior is most often an indicator of insecurity - very few people can walk the talk.  Likewise a lot of job or platform switching is more likely an indicator of a continued lack of success than the opposite.  How many teams has LeBron played for ?

If deep dives and patience works for you, great.  If being in a hurry does , great too. 

Thanks; there’s a lot in there but I’ll give it a shot.  
most of what you say is entirely sensible.  I am a little bit of an outlier vs more conventional views but I strongly believe the toolkits/skillsets for equity and credit are not very different.  The mentality / approach is the difference.  
I tend to agree that in the long run you’ll be better off if you’ve experienced more rather than less , but you’re not wrong that some folks would recommend focus vs general exposure.  
but cutting through it all, you do have to go where the jobs are.  It’s all well and good to theorize but if there’s no job you can’t work there.  So cast a wide net and make the best choice you can based on the offerings.  There really aren’t any wrong or bad answers.  

FWIW there's someone active on this site who did as you described. They got v bored of the MM L/S model and went to a tier 1 distressed-type shop in LDN.

They did not like playing the earnings revision game.

Think I’ve answered this above to some extent.  
NY is great : dynamic, vibrant etc etc.  but it is very hard work.  Suits some people great.  I love to visit.  But I haven’t missed working there for a second.  There is probably no better place to be for the early years of career and life.  
London imho is a much more long term livable city.  That said Brexit changed a great deal and the forward is probably less rosy than the past for finance careers unless some important things change.  It will be a great global city forever , in some form or another .  

of course I’ve thought about it.  Anyone who says they never have is lying.  People I know who have left are doing all sorts of things, from teaching high school to running PE owned businesses.  You might be surprised how useful an investment mindset is in the normal world.
 

Luck is hugely important as is hard work :  you make your own luck to some extent.  That and not being distracted by the success of others.  Just play your game, don’t worry about the other guys.  

Well, everyone starts somewhere, and that somewhere generally involves no HF experience.  So in a certain way the answer is 'always'.  I think the real question is whether there are paths that have a higher hit rate somehow.  The real answer is that there is no magic formula, particularly in HF, since each fund is literally entirely unique.  That is slightly less true for the largest and most institutional, but slightly.  I would imagine that banking or consulting would be the most conventional training ground but by no means guarantees a spot (or even an interview).  FWIW I would be more interested in somebody experienced in medicine as well as finance than just finance, because I would imagine there's a specialist skill set that's harder to find and also a story about career re-focus in there.  Both are not commonplace and can make your candidacy stronger if you let them.

They are desperate for talent.  Not least because the churn is high.  If you want job security do not go into HF in an investment role generally , and for sure don’t go to a MMHF.  Since you asked about MMHF I will say overall that you must remember their business model depends on mechanical risk management on the downside.  Translation:  as soon as a manager trips risk limits it is curtains.  The machines execute , there isn’t an override.  You’re done.  (Some will say there are exceptions and there have to me, this is life.  But the model doesn’t work if it isn’t robust in this way)

The only things to worry about if you go that direction are risk parameters, costings (especially for capital and services agains your p/l), capital allocation (and levers for that to grow), and payout formula. 
One coda/caveat: everyone I know who has run money at a MM says they undermanaged vs limits because they were so terrified of getting blown out.  Means they always underearned whatever the potential/imagined payout might have been. 
All that said , the model can work really well for some people for a long time.  It ain’t for everybody though. 

You mean individual PMs?  Diligence then is really whatever sleuthing / networking you can do.  It's worth also trying to get a sense of firm culture, since this tends to change more slowly than individuals.  

It's always worth understanding as much as you can about strategy.  Might all seems similar to you but will enable you to understand how the team thinks about the world if nothing else.

Thanks for that.

Given 1a, my initial reaction is to say:  it is rare to find this.  Go with it and you will no doubt find success.  OK some guy at HF#6 will make more money, but you will have the priceless compensation of loving what you do and therefore exceling in it.  See Dave Swensen at Yale for a case study in what you can build in endowment-land.  Anyhow ...

Fair enough, it is certainly true that the pace and stakes in a principal role are likely higher.  This can work out great for the right person, or not.

I wouldn't say that.  the allocation world is a world unto its own and as I've understood it is not that easy to break into later on in life.  I've known only one HF guy who retired and transitioned to an endowment role.  I do think that mobility between the two (or any two fields/subfields really) only becomes more difficult with time.  That said I would imagine the transition from allocator to HF later on would be more difficult than vice versa.  That's just a hunch though.

I think MBA is the ultimate pivot enabler in general.  I say that with all the confidence of someone who never made it past a bachelor's degree though.  I would think two years focused on networking and career transition would definitely provide a broader array of opportunities vs a lateral move.  That said, you might end up in exactly the same spot either way.  Hard to know.

I'm not sure what LP is ... if that means allocator then yes probably is a difference.  The candidate with some PE experience will have thought more about companies and businesses and industries, which is most likely more relevant to my objectives.  Doesn't prevent the other candidate from being interesting, just worth bearing in mind.  I'd use my seat to meet and learn from as many smart investors as possible.  Study the investment ideas that resonate with you in detail, and be able to talk about them intelligently.  Very few HF (and probably no PE) folks will be able to build that network and library like you can.  That is a unique advantage whatever you end up doing.  

That's tough; I've only ever had a practitioner's working knowledge.  Given your seat, I'd probably try to get some smart MM risk manager to give me a teach-in.

Ha, you're asking the wrong guy.  I didn't take a single math / finance / investing class in college.  My major was Medieval History.  My first interviewer ever said 'you're what we call a poet.  We don't hire many like you.'  So yes it can be an uphill battle.  I also had a boss / mentor who said 'you bring other things to the table'.  So remember that quant / math is a weaker spot.  Work on it.  Buy a calculator.  Use excel.  Find some quanty folks you can befriend to help you out when you get stuck - they'll need your EQ insight too.  I'm very tight still with a former partner of mine who was the yin to my yang.  We helped each other out tremendously.  Work on your weaknesses, but ALWAYS PLAY TO YOUR STRENGTHS.  There is no magic formula, and conventional thinking never won the day in investing.

Thanks for that.

I tend to get online sometime before the open, so say 6-630am here.  Market closes 1pm & after that its analysis / marketing / admin time.  I see my kids every day.

You can do everything from everywhere all the time in this world.  I enjoyed living in London best and would say it's generally worth whatever accommodation that would require marketwise. 

Hard to say; there are so many.  I still think the personal network / warm intro counts for a lot.