Random musings that sound like venting
Mod Note (Andy) - We're reposting the top discussions from 2015, this one ranks #8 and was originally posted 8/23/2015.
There's really no point to this post.
TLDR: Sometimes it's just a job with a boss that does boss things.
1) Young PMs in a bull market
30-something year oldPM/Partner scare me...and should scare LPs. You know the type. Started career around the financial crisis and survived the purge since it was generally cheaper to keep competent junior staff around. Rode the subsequent liquidity wave to financial/career success - more often than not - acting as the bull to the gray hairs who were paranoid about downside risk and reluctant to invest in names. Almost has an investment banker vibe to them but they're really fun to go out with on the sell-side conference circuit. There are a lot of successful young investors in the market but I worry when the tide goes out there's going to be a lot of inexperienced captains causing shipwrecks.
2) Disappearing contrarian oddballs
Speaking of bankers, it's amazing to see how much the industry has institutionalized over the last few years. The kids that are coming in these days are much more polished and highly opinionated about how they look at the world and what they want to accomplish. Nothing wrong with that but the days of finding that eccentric/oddball investing contrarian is dying. That saddens me a bit. I was once asked what's the type of candidate I was looking for and I said I was looking for world class capital allocators who couldn't get an IB/consulting job to save their life.
3) This is not a Whitney Tilson reference
Some hedge funds are glorified fund of funds. The portfolio essentially reflects the "best ideas" (and I use that loosely) of their HF buddies. The fund (cough..of funds) has a "checklist" to make sure the name fits within the fund's philosophy/mandate but the conviction is tied to the rolodex and not the due diligence.
Getting ideas from smart investors is not a bad thing but few things annoy an analyst more than having a PM say "Hey I just talked to [HF buddy] and they said we should check out [that company that you've already looked at and is not a great idea and/or an uncomfortably crowded trade]". Heaven forbid that hedge fund hotel name blows up...it's the analyst's fault for not digging in deeper.
4) Monkeys throwing darts
The risk management controls at some of these multi-manager funds are getting so good it will not be long until they start hiring monkeys to throw darts and make money. Some would say they're already doing that..I kid...although I'm not surprised some PMs feel like monkeys with the restrictions put on them. But then again, many are happy to be a monkey - or a clown - for the money.
5) Clown high school
Stay in the business long enough and you'll hear [Investor/Fund] is a clown that doesn't do any real work for about 90% of the folks in the business. The other 10% are your friends and you wouldn't overtly call them clowns but...never mind. It's a small world and things do get a bit high school cliquey at times.
6) Buying the valuation patterns. TA for fundamental investors
For as much (legitimate) flack technical analysis gets, it's remarkable how many fundamental investors have their own mindless pattern recognition biases (usually in the form of a valuation framework) that can lead to awful outcomes. This is especially an issue when the amount of capital that needs to be deployed materially exceeds an investor's investment sweet spot (which could be honestly 60%+ of the AUM). That need to quickly deploy capital leads to short-cuts and heavy reliance of patterns and frameworks that can lead to poor results
7) The principal–agent problem is real [but not at my fund]
Many come into the business with an idealistic view of how investing should be done...usually it's some variation of/Klarmen value investing with thorough due diligence. Needless to say many are initially shocked/disappointed when they look behind the HF curtain and see how a lot of investment decisions are actually made...although that disappointment wears off a bit when the bonus rolls in.
That's not to say HF and LPs are recklessly misaligned. Just a friendly reminder hedge funds are investment products with principal-agent issues no different than what shareholders deal with. There's pressure to put money to work and retain AUM.
8) The pendulum swings between boredom and burnout
Life as an analyst can swing between boredom and burnout. This probably isn't a significant issue until you start reaching "the middle" of your career and begin to seriously question what's the point of it all (besides the money). To be fair, there are plenty of analysts that don't feel anything because they're Ivan Drago and everyone is in awe of their beastly productivity.