Quant vs Equity Long Short
I'm 5.5 YOE (initially a quant at a bank, QR/QT/Q Dev hybrid at a big MMHF). All my time has been in equity vol field with some time in single stock fundamental event based vol strategies. I just think the pot in these and most other quant strategies is pretty limited with wild amounts of competition. During my time with fundamental vol, I felt most of the edge actually came from fundamentals and not from quant vol. Based on this and personal interest, I have been debating a move to pure fundamentals equity L/S. I also think the right tail is much more fat in fundamentals and th book sizes are multiples of quant, and you can really scale if you are good. I do listen to a bunch of podcasts and spoke to a few LS PMs at my current HF and they were quite open to exploring a position within their pods or other colleagues of them who are hiring. The one thing I'm very vary of is wild work hours. Right now I do 11-12h a day,sure it varies a lot but not sure how much to expect on a median. Currently, I'm getting a lot of recruiters reaching out for vol based capital management roles and I am thinking through what I want to do long term(so thinking of 15 year horizon). Very curious to see what experienced folks here who've made the same switch or even in general in the LS industry think about my thoughts and the potential blind spots.
Based on the most helpful WSO content, your situation and considerations are quite common for professionals with a quant background contemplating a move to fundamental equity L/S. Here are some key insights and considerations:
1. Quant vs. Fundamental Equity L/S:
2. Work Hours in Fundamental Equity L/S:
3. Long-Term Career Horizon (15 Years):
4. Potential Blind Spots:
5. Next Steps:
In summary, your reasoning for considering a move to fundamental equity L/S is sound, but be prepared for the challenges of longer hours, a steeper learning curve, and a different cultural environment. Balancing your long-term goals with these considerations will help you make the best decision.
Sources: Compensation Structure At Quant VS Fundamental Funds, Compensation Structure At Quant VS Fundamental Funds, Good time for a new analyst to join L/S hedge fund?, So you want to be a Quant?, https://www.wallstreetoasis.com/forum/hedge-fund/quant-hedge-fund-career-progression?customgpt=1
So you feel like you have a stronger edge in fundamental L/S? What is that edge?
Apologies if I wasn’t clear. I have worked on fundamentals/event based vol pod. To put positions on, I used to read earnings statements and talk to sell side research. While I understand this is far from enough to be a full time analyst on a LS pod, I found that way more interesting than anything I ever did in quant. I also felt the median scales in fundamental are way bigger (with the exception of some flow strategies and index rebalance) So I’d like to learn and develop an edge over time(I’m 29 and wondering if it’s too late, LS PMs in my current MMHF don’t think it is).
I was just trying to say that equity L/S is also commoditized and very competitive.
I moved around in quant and some semi fundamental stuff. Honestly, maybe look at macro. All the people I know who left quant for more fundamental left to macro and are doing great.
Also, if you haven't considered Market making, 100% consider it. When I was at a prop shop, the top traders made an absolute killing, and the edge is so insane on those desks compared to hedge funds.
Thank you for your response! Yes, I really like macro/commodities actually. I’m quite interested in the field. From what I’ve felt so far, I think working in macro vol or commodity vol gives a smoother transition long term. As of now I’m in a team which is doing “well” in equity vol. Due to that, I have some traction outside but most of these teams are equity vol. These include both prop and HF. I’m speaking with some of them - prop seems very collaborative and good for learning. Depending on how these go, I can think of how to approach this further. If I can ask, are your friends in macro vol or pure discretionary macro? In case you don’t feel comfortable replying to that here, I can DM you whatever works the best.
Most macro funds do some element of both. Because macro and quant go very hand and hand, most macro funds are going to have at least some quant basis, even in discretionary funds. Prop shops are much alike. Even the more discretionary shops like Akuna are still very quantitative. There isn't a whole lot of room for pure discretionary, as you should have some sort of data to back up a hunch IMO. Prop shops are definitely a great place to be, I'll probably go back to one after a few years here.
May I ask for the Quant requirement for market making? many thanks!
Admittedly I haven’t worked on market making professionally. I think it will depend on which firm you work at and what’s your source of edge.
JS/SIG - understanding of distributions, game theory, Headlands/IMC - more execution focused edge
For Market making, is math/physics degree a pre-requisite to break into that career? Many thanks!
Depends. At a bank? Not necessarily. At a prop shop? Almost definitely. I'd also say you should do math/cs/stats if you're interested in working in the markets. The markets are so quant and data driven that you'll likely fail in the modern entry level without a degree. Older traders still get by fine because they have the intuition and experience to carry them, but younger folk without that need to have some edge.
No, you’re good with anything as long as you understand discrete probability well as a fresher.
May I ask specifically what draws you to the fundamental side? Tbh I find talking to third parties and company IR extremely boring and would rather crank out some research on my computer and write investment strategies. I guess this can be called "quantamental"? since after graduation I worked in IB mostly and am now a private banker.
Fwiw, my Excel financial modeling skills are great and this is not why I don't want to do traditional fundamental analysis. I still read 10-Ks and 10-Qs.
Where I'm at is not as prestigious as yours and in my PA I am doing mostly fundamental and more and more systematic trading with discretionary caution to protect the downside or put on a little bit of leverage on high conviction trades/investments. YTD is 30%+, not too bad I think, although definitely not great since a friend of mine has 150%+ YTD.
I think my personality type and experience so far in finance is that relationships and friends in high places go way farther than technical skill (in most cases) especially for the more senior levels. I don’t like coding - I’m a CS major but I don’t want to do it at 40 staring at a computer screen. I’d much rather go to a macro or fundamental conference, make friends and get my alpha from there. I love understanding business models(I have not done it in a professional capacity so I understand it could be romanticism). I follow a bunch of podcasts and I find them way more interesting than what I do day to day. Obviously the hours and prolly excel modeling sucks, but the right tail is really fat cause fundamentals have scale unlike most quantitative strategies(except maybe index rebal which is also not really quantitative). The other main issue is barrier to entry is too low. Any MIT stats phd can do quant better than me but they can’t trade natural gas better than a career natural gas trader. With that and the wild capability of AI coming in next few years, I am not even sure about the trajectory of purely quantitative strategies over the next few years. Amazing returns btw I am very curious to know more about asset classes and approach you and your friend use!
I see, that makes a lot of sense ! What matters is finding the strategy/mechanism that suits each one's own personality and view of how the world works.
And I might have beaten down the joy side of fundamental a bit too much. Getting to know different businesses models is definitely intriguing.
Excel modeling: I've seen people using it as a guidance or a reference point, and anchoring bias can be prevalent here, but it's just personal preference. I believe barrier of entry to a quant position is higher because those positions pay more. A lot of fundamental entry/mid level positions pay poorly/mediocrely.
My friend: she trades strictly a certain group of Chinese stocks. It's her 7th year and this is the most lucrative fiscal year so far. I only know her system partially, and am not very comfortable with her system. I won't trade/invest using her system. She trades short/medium term on a few names she's comfortable with. Not high concentration portfolios.
Me: I focus on the Hong Kong market, look at the US market within a couple of sectors, and very occasionally the European market. Right now, only comfortable with very selected sectors. No experience in these sectors when I did IB other than personal interest.
I have very high concentration positions as core, medium-to-long term holdings and then I look for short/medium term trade opportunities. The latter part is still under development and has seen terrible results so far. I made ~30 trades that lasted less than or equal to ~7 trading days. Only 2/3 of them made a little bit of money. In a nutshell, all my emotional, short-term trades lost money. That's precisely why I'm developing a systematic approach haha.
The thing I am focusing on right now is mitigating volatility and risk management. I wrote the first comment 17 days ago. Since then, my return has gone from 30%->40%->28%. It is a natural downside of highly concentrated portfolio and my largest position has down ~12% within 2 weeks (thesis unchanged so holding), and I think there's a lot to learn from these numbers.
Philosophy wise, she adopts the pure fundamental approach: talking to a lot of industry contacts.
Me, I do a lot of computerized research on the general markets and on individual stocks. Not some mathematically sophisticated models for sure. Not remotely comparable to that of MIT PhDs.
5% of my time is talking to people. I am more comfortable this way. This is only my 1.5 year doing PA so overall I like where I am because compared to myself I have made progress.
What do you think of the career as a Private banker?
It depends on which side you are on. Some banks like Goldman structures their roles as relationship manager + investment advisor in one person. While some other like JPM and HSBC have 2 separate roles. For me personally, the only thing I care about is whether I can make investment plans for clients.
I believe it is a great option if you:
It’s wild how big the books for fundamental PMs are
Curious to hear more about your current role. What are the day to day tasks and skills needed to achieve tasks? Figuring if you go from equity vol to macro it would be the same job for a different asset class - maybe I just don’t understand the nuances between the two enough.
Currently what I do is closer to systematic vol. I feel this might not work long term specially any RV stuff.
When I say macro vol, I mean focusing more on punts/taking view on underliers.
In the current/most roles, you bet on statistical RV/spreads as edge of alpha. For disc macro/cross asset vol I think the alpha would come more from understanding markets and underlying products, vol would just be to express the trade idea
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