Hey everyone, I’ve been a long time user of this site, which was instrumental in getting me to where I am today. If it weren’t for the help of everyone on here I certainly would not be in the position I am in today. I’ve been meaning to do this for a while but I would finally like to give back to the community. I am happy to answer any question from internship recruiting to PE/HF recruiting, my current role, the macro environment, investment analysis etc. All questions are welcome. I’ll try and be as prudent as possible regarding answering questions and my goal is to log in a few times a day as my schedule allows.
Quick Background:
School:
Went to a non-target regional school in the northeast that places 1-2 kids a year in FO IB or S&T roles. We are a big feeder into ops, wealth management and accounting roles. Largely because of this site I went from being completely clueless of anything to do with banking my sophomore year to winning a summer and eventually FT IB offer.
Ibanking:
Landed a full time offer for IB in a well-regarded M&A focused industry group of an upper middle market bank (think Jefferies, RBC, Baird). Also, I was in a regional non-NYC location, which definitely made private equity/hedge fund recruiting a challenge (happy to talk about this). I ended up moving to a hedge fund a few weeks after I hit my 1-year mark and haven’t looked back.
Hedge Fund:
Currently I am at a long/short equity focused hedge fund with just over $1 billion in AUM located just outside of NYC (think Greenwich, Westchester). I‘ve been a research/investment analyst covering mainly financial names, though it is not the overall focus of our fund. Thus far, I’ve been on the job for ~8 months and am really enjoying the space. I’ve always had a passion for public investing and I can’t imagine being in a better environment. Happy to answer your questions, fire away…
I am at a single-manager fund.
The work life situation is surprisingly good. I probably work between 50-60 hours a week on average. I am at a value fund that has a medium/long term holding strategy which helps in the work/life balance department. I think it varies from fund to fund but from what I've heard if you are at the Point 72s of the world you are going to be clocking in 60+ hours a week.
The recruiting process was interesting to say the least. I actually happened to get the job through a Linkedin job posting since the fund had poor experiences with recruiters in the past (worked out for me). I went through 2 phone interviews a few in person with one of those interviews having a model. I utilized the WSO PE interview prep course for all the PE interviews I had and it was a great set of materials that helped me get up to speed on all the behavioral and technical aspects of the interview (including the infamous modeling tests)...(Additionally, I wanted to give a shout out to the new HF interview prep course. I thought it was well constructed and gave a great overview of how to construct investment pitches, win HF interviews, must-know technical knowledge etc. I would recommend it to anyone trying to go from IB to a HF.)
Looking back I would say that not being in NYC dramatically stacks the odds against you, especially if you are looking for your next job to be in that area. Headhunters aren't too open in regards to NYC candidates looking to move to the NYC area. Also, I had 2nd tier IB experience and I've certainly learned that having Goldman, MS or JPM on your resume makes a big difference, especially if you are in a regional location looking to move to NYC. If I had to do it again I would have done everything I could to switch my offer to be in NYC, makes a big difference in the eyes of recruiters as they can actually meet you in person and know you are a quick subway ride from any last minute interviews that come about rather than a long drive/flight.
My post above gives some insight but here was my strategy:
1) Reached out to every recruiter under the sun and built up a good rapport (I can write a book about the pros and cons of recruiters, they are an interesting bunch) 2) Reached out to all the alumni in hedge funds I could find and tried to build a network over time 3) Surprisingly the linkedin job board yielded ~3 HF interviews for me and ~8 PE interviews, though there were a lot of applicants, I could always get past a headhunter (they never liked the fact that I came from a regional office). Going on recruiter sites directly, especially the smaller ones and applying on their job boards helped as well. 4) Studied like crazy and had 3 well developed long ideas and 1 short idea - I also spent a lot of time working on basic 3 statement operating models for interviews and lbo models for PE interviews (PE was my backup industry, though I had low points where I thought I would never get an offer for either a HF or PE fund, its a tough recruiting environment out there) 5) I tailored my responses to the fund, to value funds I gave value ideas and tried to sound as if I spent my childhood reading Benjamin Graham...For more macro funds I gave macro trade ideas and tailored my thought process in interviews to meet their style of thinking
So far, a decent amount of ideas have come from valuation screens. Generally I limit my screen criteria to come up with ~40 or so names. From there I circle perhaps the 10 "best" ideas given profitability/valuation/my prior knowledge on the name. From there I spend 20-30 min on each name and try to understand each "story". From there I may be down to 2-3 names where I like the valuation/story the best.
After, I'll start doing a deep dive into their financials, investor presentations, research reports etc. Maybe I'll do a quick initial model if I think it is warranted. From there I'll usually set up a call with equity research if they cover the name or I'll try and set up a call with someone on their management team if the name still interests me to answer any questions we may have/get a gauge on management.
Then, I'll continue to do ad hoc analysis based on any unanswered questions in my mind. For the majority of this process (beyond screening) I'm discussing the idea with my PM and we hash out the name. After all this, we generally decide to start an initial position or take a pass. In the end, its up to the PM to make the final decision which is how most funds work (but the analyst's opinion usually falls in line with the PM's).
This process isn't universal for every name we end up investing in but it is fairly reflective. Hope this helps.
romy How often do you use equity research in finding new investment opps? If so, will you use equity analysts models? (of course need to take with a grain of salt). Also, I know you mentioned your in a macro environment themed fund...Are you specialized into any Market Cap equities or is it free reigns? (of course excluding nano and microcap). Last thing, can you walk us through a day as a HF analyst at your shop? Thanks!
We use research a good amount. I think they tend to get a bad wrap by many but they are a great resource. While I never put a lot of weight on their recommendation to buy/sell, they are a great resource to get familiar with companies we do not know well and they always are taking to management teams and have a pretty good hold on what is going on within the company that you can't get from a 10k. I tend to create my own model vs asking for their model, I would rather go through the thought process myself, plus it is much easier to tweak assumptions in my model vs their model.
I am actually in a L/S equity fund, not a macro fund (though macro themes are big drivers of financial names). That said it is generally free reign though I spent most of my time on simpler small/mid cap names (some of the larger financial names are very complex and the PMs who have been in the business for years have a much better grasp on them than I ever could)
Typical Day:
7:30am - 9am = catch up on emails, global news, holding specific news
9am - 9:30am = sit down with my PM to discuss an idea(s) or existing position(s)
9:30am - 10:30am = have a call or two with equity research or a management team member (usually the CEO/CFO) for a prospective investment / one of our holdings
10:30am -12pm = work on a model or related analysis on a name or 2
12pm - 1:30pm = lunch/quick workout
1:30pm - 5pm = could be any combination of working on existing models/analysis, another sit down with my PM, another call with ER or a management team, idea generation, screening etc.
5pm - 6pm = work on my end of day summary for the PM and send out any emails I didn't get a chance to get around to earlier in the day for setting up calls with ER/management/arranging internal discussions
6pm = head home
There is no doubt that passive investing is becoming ever more popular and active management is being looked down upon. That said, I think the trend to passive investments is partly due to the fact that we are in a unique 10+ year bull market which has shown minimal volatility compared to past cycles. As a result, the value add from active managers and hedge funds has been nonexistent due to a general lack of volatility over the length of this bull market. All we need to see is a resurgence of volatility (starting to see) and / or a market correction. If you are a true hedge fund, in theory your value add is significant in this scenario and there is a high likelihood you can achieve significant outperformance while the market corrects / becomes volatile.
So will the trend to passive continue? In my opinion that is a resounding yes. Will active management / hedge funds go away? Absolutely not. There will always be a demand from some individuals to be with managers who have the potential to produce alpha. In my opinion this bull market has been especially detrimental to active managers for the reasons I made above.
So should you avoid public equities investing if thats your passion? Absolutely not. There will always be a place for talented investors who are able to produce alpha which I believe is possible in any market (though it has seemed especially difficult in recent history). I believe the pendulum has swung too hard to passive investing and we will likely see a period where active management becomes more popular going forward (though there will be an overall continued trend to passive investing).
Last thing to think about - the market cannot become 100% passive in theory. There will always need to be active managers.