THE BRUTALITY OF WORKING AT A MULTI-MANAGER HEDGE FUND
I want to give everyone a harsh reality check, share some lessons, and ask other MM PMs and analysts to chime in. Building a career at an MM can be tough. Let me give you my story. This is all l/s equity btw. No experience with other strategies.
Meant to post this a few weeks ago but just got around to it. To be clear, this happened before the recent carnage and blowups. But it just makes this post more relevant as analysts are looking at new teams. I also think being in a shitty situation as an analyst because your PM blew up can be avoided. Many PMs are actually holding up fine in this drawdown. The narrative that everyone is blowing up is exaggerated from what I'm seeing.
Anyway, here we go. Like many of you, I worked my ass off to break in from the sell-side (think IB or ER). Wasn’t easy for all kinds of reasons, so when I landed a seat, it was a huge relief.
The first PM I worked for blew up within a year. I was able to get onto another team internally after sitting on the sidelines for a few weeks. At the time, it was gut-wrenching as I was just getting my footing as a junior analyst.
Long story short, here I am having to find another team again. You can probably guess what happened (tbh wasn’t exactly a normal situation). This time I’m taking it much better because I saw the red flags early. Second time never so scary I guess.... Luckily I now have options both internally and externally and things are slowly moving in the right direction.
I can't reveal too much, but in both cases it was because of incompetence and negligence from my PMs. I did ask around before joining the first team and heard positive things. The second time… not like I had much of a choice.
You can never tell how good a PM is, but after reflecting on what went wrong I think you can tell if they’re really bad. I’ve recently spoken to several well-respected PMs, been put in touch with other analysts at my fund who’ve been through my situation, and took a program with a former millennium PM, which all gave me useful extra perspective.
Not even gonna get into the BS politics at the MMs when it comes to switching teams and how certain analysts get protected. I actually had an opportunity to join a PM back in Jan, but after a bunch of convos, I passed. Just found out his book got shut down last week… so yeah, I think I’ve learned a thing or two about picking a PM. Your PM matters. Red flags:
- If a PM has covered only energy their whole life and now suddenly they claim to be “multi-sector” with half their book in semis and consumer names, RUN. No matter what they tell you or how well-versed they sound in the sector.
- Biggest red flag by far is if they are over-intellectualizing everything and having a process that is correlated to how many hours you work. If the entire team has to be consistently working 100 hours every week for their process to work, it's not sustainable.
- I would avoid PMs who’ve spent the majority of their career in sell-side equity research and get the PM seat right after. I’m talking more than 5 years.
- Same for PMs who spent most of their career at a single manager or a tiger cub. Nothing against those guys, but ime they’ll drag you into stuff that has nothing to do with pod investing.
- If the PM tends to not communicate to the team when things are going downhill, leave sooner rather than later.
- If the PM has bounced around between multiple places. I know this is common, but there must be some limit to it. Multiple 1yr stints at MMs means they have no idea what they're doing.
I still think MM is the best place to be if you can find a good PM to mentor you. Would love if some of the OGs and MM analysts here shared what makes a good PM. What green or red flags have you seen?
My 2 cents: It’s better to wait for the right opportunity than to jump on a sinking ship.
Not at an MM but I would assume a lot of the PMs that are attracted to the place want to run money and find a way to sneak in as much beta as possible into a portfolio. After all it’s what you’re incentivized to do if you don’t care a lot about longevity. Look at the energy traders in big yrs like 2022. Or prop trading specifically OMM how alot of traders martningale vol or run other strategies that are bound to blow up every 10 or so yrs and then dump their portfolio on the OCC after collecting more $ in premia. I would assume a decent amount of PMs want to find ways to sneak past risk limits and hoard as much of the beta for themselves after having a few lucky yrs. I’m sure if u blow up once or twice and have a pedigreed career you can find a way to convince another shittier mm to let you roll the dice. Since they are so in need of talent. What is your 2c on identifying PMs abusing this agency conflict?
what is OCC?
longtime since I did equities but given context of (OMM) options market making and chirping about martingaling premium and dumping portfolio, I'd say OCC is options clearing corp https://www.theocc.com/.
Definitely something PMs try to do, but I've heard it's much harder now because the risk team has become very sophisticated at monitoring exposures very closely. I've seen risk go after PMs for all kinds of subtle things including hidden beta exposure, so I'd be hugely surprised if they allowed it, particularly at the large 3/4 MMs. Don't think it was too relevant in my situations, though risk did play a role. When your capital gets cut, you ability to take risks is meaningfully reduced... recovery becomes even harder
that said, someone with risk expertise could probably give a better perspective. My knowledge is limited, and maybe this kind of thing happens more often than I realize and is something worth keeping an eye on
Damn this is rough. Sorry to hear. As a junior analyst at MM, this is one of those things you always hear but hope never happens to you. I'm guessing you're still quite early in your career? Couldn't agree more that the PM matters a ton. My PM has been the one leading the charge these past few weeks. Everyone else on the team, including the most senior analyst I work under, has been clueless and lowkey scared lol. I literally have no idea what we'd be doing without him.
Also agree 100% on the multisector point. We've tried expanding and it's an extremely slow and painful process. My PM says you have to be okay losing money for the first 18 months.
Yeah.. still early in my career. I'm actually quite optimistic. I've had to chance to meet some incredibly sharp analysts at my shop and they've all faced adversity in one way or another. Your PM sounds like a real star
Spot on about the losing money part. I’ve seen firsthand how going outside of your sector expertise can be disastrous. This usually happens when a PM jumps from one fund to another and suddenly decides to expand coverage... or because of FOMO (last year with semis)
Edit: mind sharing more about your PM's investment process and personality?
We keep things super simple and structured in that everyone knows exactly what they got to do. Basically follow his process 90% of the time, the other 10% is just iterating and figuring out how to improve things. Ton of discussion all the time. As the most junior guy on the team I can say and ask anything without anyone making a big deal out of it which I really like. The PM is a solid family guy, generally nice but can be strict and lowkey terrifying if you try to BS him. totally fair though lol
Here comes the question: how did those people make it to PM in the first place? Did they come from non-traditional backgrounds or because they looked good on paper?
They look decent on paper and are good “talkers”. The amount of people I meet who talk and talk and talk and then flop in action is astounding….
This observation is spot on. There is no correlation between being a good "talker" and actually making money. Talking too much and sounding sophisticated might even be negatively correlated to money-making skills. As a junior analyst clueless about the industry, it’s easy to mistake a PM for being great just because they articulate stuff about MMs well.
The best PMs I've seen are quite the opposite: humble and very thoughtful in their responses. Track record matters far more than anything they say. Anyone can talk a good game.
They are all smart people with impressive resumes and good at evaluating businesses, but stock-picking in the MM model is a different beast imo. Like anything else, there's a distribution curve of outcomes for PMs in an MM. As people have pointed out on this forum, the below average outcome isn't pretty for the bottom half of the distribution. Many PMs end up not "making it".
I think the PM also needs to be a strong team manager to make things work, a skill that is grossly underrated and increasingly rare.
The team manager part is important as this industry selects for a lot of fiercely independent people who completely lack the concept of being a team player. If you want to run a pod successfully you need to graduate from point guard to coach. Many cannot.
quiet frankly, i think that these outcomes happen all the time especially on the less seasoned PM side.
the best people to start out for are those that have built up goodwill with snr management - this is sometimes hard to find because those PMs ussually have there "guys" arent hiring like new PM that just started / building out a team
Could you elaborate on the energy bullet?
Let's say a PM spent 90% of their career as an energy analyst and did really well. Then they get promoted to PM and suddenly start "covering" consumer too, despite never really covering it before. I’m not sure if it’s to do with a bigger capital allocation or an ego thing, but obviously that PM wouldn’t know consumer nearly as well as other PMs who spent decades covering it. If consumer names quickly become a large portion of the portfolio, that's a bit concerning...
Imo MMs work because of their sector-specialized structure. Someone correct me if I’m wrong, but most PMs focus on just 1-1.5 sectors at most. It’s rare to see a PM successfully scale their book and cover multiple sectors.
I just think you have to be careful about what a PM’s real sector expertise is and whether they’re stepping outside of it and why they’re doing that in the first place (which I have no idea about).
Agreed - some of the best teams stick to small coverages and just know the names inside and out while others just try to cover as much market cap as humanly possible which typically is a mistake.
On the flip side, an energy team specifically probably can cover more stocks (maybe branch into industrials) just because the business models within-sectors (E&P, midstream, utilities, refining) are essentially identical businesses, whereas every business within the software subsector is more different and would take more time for an analyst to understand. The broad point made above definitely stands though - stick to what you know.
Not equities but "Strategy Drift" is the term our investors used. It usually arises from a combination of hubris, lack of identified ops in expertise wheelhouse, falsely identified greener pastures, in-take of large amount of assets so PM forced to get bigger but they know their strat can't handle the size, they want to tuck in a macro call... but mostly it is hubris. I got promoted to PM in part due to some hedge funds I knew drifting size into our market and pounded the table to head of fund to cover 2 of his positions and flip it. I was probably 3 days from getting fired until it went our way.
At the same time, "strategy drift" is needed as a PM to grow imo. It can be done correctly. And I'm certainly guilty of doing it wrong as well, but the position was 1.5% of my book.
also - something that i think doesnt talk about is how shady business development can be
shady (probably not the best word)
but - like they arent really forth coming on PM's every PM will sound like a stud on a bd screen etc
All you can really do is try to listen for relative quantity & quality of superlatives used ..
Talking to future analyst peers on the team is probably your best screen for any red flags.. even if they won't directly tell you anything useful you can glean things. Not being offered the opportunity to talk to them pre-hire, or a refusal if you ask would be mega red flags.
You always hear how it's a small industry where things spread quickly and you would know if someone has a bad reputation. This isn't entirely true in my experience. People are often too afraid to say anything against anyone in case it comes back to them.
The best approach is to always be slightly skeptical and try to glean insights yourself, as you said.
Yeah I think it would make sense (not sure if this is a thing) to include clawback clauses in BD bonuses for hires that end up being shit or maybe actually dock their entire bonus if someone blows up they hired then they’d be completely paranoid about the process
yeah - i think you have to just be clear with questions - its an interview of the pm as much as an analyst interview
like ask a pm what is is pnl target / whats there draw down / what has past performance been like
deff a red flag if they dont share
These are great questions to ask. I would be lying if I say I asked too many of them. Coming from the sell-side I was too focused on just breaking in.
Are they even allowed to disclose any of these figures?
really valuable info but dude your criteria excludes like 90% of PMs, genuinely curious how you think about such strict selectivity?
Totally fair point. I do think some of the bullet points I included apply to only a small minority of PMs, but they’re really meant as things to be aware of rather than strict rules for who to avoid
"... criteria excludes like 90% of (L/S equity) PMs"
That should be ringing the alarm bells of smart analysts. There's a trade there.
Where are people getting PM seats with only ER experience? that seems insane.
I've seen a sell-side MD straight to PM
I don't know about ER experience but the recent big MM launch (...something global) was notoriously unselective when hiring PMs.
Why do you think they did this? Seems intentional - they could have thrown big guarantees at established PMs but chose not to
The boos come from the cheap seats. 12 bananas and no enlightening answers. Instead of disparaging others success always run the math and maybe you'll learn something to help yourself and others.
Simplest Answer: Think of it like VC's backing 50 unestablished founders vs 5 established on a 20 year horizon. Also note you can fire the muppets and re-allocate to "good" ones/hire more.
Fun HF Launch Case Study: Compare the hf launch strategies of Jain vs Gelband (Jain Global vs Exodus).
Both ex-millenium heir apparent massive hf launches. Jain leans fundy equities, Exodus rates. Both launched when their core-competency was "tough." ('20-24 momo and '14-17 rate vol compression). All launches play conservative first year as they cannot have any bad year within the first 4 and PMs need some runway to get liftoff before they start swinging size.
Jain launched with 42 allegedly unestablished (1) PMs via "drawdown" fund (most likely 4 year horizon) and lower investor fee/performance structure. Avoid uninvested cash drag as you don't need to be forced to deploy all at once - committing capital in stages. However, you absolutely cannot have a bad year.
Gelband threw bags at 100 multiyear proven track record PMs to break their golden handcuffs which helped investor clout to exceed largest HF launch of all time and agree to unlimited pass through mgmt fees. Most of those "fees" at launch (0-4 years) = investors paying to get the best PMs into the fund.
Jain couldn't launch like Gelband because Gelband has rockstar power to investors from 08 and building Millenium's FI business from the ground up. Jain ran things very well but didn't build anything bottom up at CS/Millenium afaik. So if you believe you're really that good and know what makes a good PM and can mold at least 10% of hires into the firm allstar you have to do it the way he did it. Economically. Jury's still out if he can but anyone disparaging a large HF launch within the first year for being flat is silly.
There is a 3rd route for a "launch" of this size. The really large HFs occasionally launch 500m-10bn AUM funds in "stealth" mode to get at least a 3 year track record before quietly telling sticky current investors.
(1) If the commenter above meant Jain Global as "notoriously unselective", I didn't see any public profiles that didn't make sense fwiw. There were no ER> Jain PMs either.
Tbh I meant a combo of buy-side and sell-side ER experience with most years on the sell-side. I've seen at least a couple jumps from senior ER person to a senior analyst or PM, but yeah I'm not sure what makes them appealing candidates, perhaps sector expertise?
I'd have to guess the fund likes real public market experience as opposed to IB/PE.
What advice would you give to someone starting out at a MM? I was an intern and will be joining full-time after graduation. I've mostly heard the generic positives so far, but hoping you can share some of the real lessons you've learned. Also, what's the program with the millennium PM? Curious to learn more.
also DMed you in case that's easier
Not in a position to give too much advice on junior analyst success as you can tell from the post lol I think I've only learned things that don't work well. I think it's very important for your PM to have the ability to pick stocks in the MM model. If he does and can mentor you, you are in a great place. I'll respond to your DM
also curious about the program. Could you please share?
I can't share link but you should be able to find it if you google something like: learn from allen millennium portfolio manager
why does this post have so much traction? two of his PMs blew up but he hasn't had to switch firms yet and it sounds like he has plenty of internal and external options. this sounds like a pretty typical situation for a pod guy, def not a particularly brutal case
Because people on this board are surprised at the realization that every pod doesn’t just print $100M PnL every year.
Similar situation, coming out of a major blow up with a dishonest and incompetent PM. In my case, the PM was also new, and because the firm had recently invested in him, he was able to blame everything on the analysts. Obviously, the leadership at the firm knows he is the problem and not the analysts, but its convenient for them to give him another shot especially because this PM is a talented bullshit artist and performs well in reviews. Here is some of my advice:
1) if you are a new buy side analyst, DO NOT work with a new PM. It doesn't matter what his/her track record is as a buy side analyst, being a PM and managing people is a completely different skill set and needs to be learned. There is risk that this person might have been a successful analyst by taking credit for others' work or simply catching a good cycle.
2) be skeptical of your due diligence and channel checks. Very few people will say something bad about someone if asked. Simply reaching out to a contact and saying "what do you think about this guy?" will not be enough, and you'll get useless feedback. you must understand the culture of the teams any PM has worked on the past, what habits they have learned and how people are treated.
3) a lot of buyside work frankly doesn't yield anything sustainable. most people advance on the buyside by developing a very rote process that works for a certain period of time, which they then leverage for a career. That's why so many people blow up: what works in one year might not work in the next, or really in any other year. Further, by leaning into these rote processes, teams don't develop any institutional knowledge or industry edge, they just learn how to run their F9 refresh. It's like the opposite of Warren Buffet, who wants to read 500 pages a day and understands knowledge is cumulative. Do you want to work for the anti-Buffet? Probably not. So when you are interviewing with the PM, make sure they are first and foremost humble in the face of the market, which is a force of nature. Anyone who thinks they have all the answers, and never need to accumulate any industry knowledge and just lean on their process is a damaged human being, not to mention a blow up waiting to happen.
Blaming it on the analysts?? And I thought I've seen it all... Great advice. Thanks for sharing
In this era of super-high guarantees and sign on bonuses for PMs, I think blaming the analysts is going to become more and more common. Cutting losers should be second nature to HFs, but I think the psychology of firing someone who you just gave a bag of money to is a bridge too far even for the most ruthless MMs. After all, the funds know these PMs can make money, their track record is why they got the job. It's just a matter of finding the right environment for them. So these PMs who come over with big guarantees will get multiple chances I think.
Unfortunately, this industry is so competitive that you may not get to decide. Getting an offer takes months and then it blows up after a week or two.
At what stage do you do all this DD?
If someone wanted to break into the buy-side coming from the sell-side but have a decent life with decent WLB (50-60 hours outside of earnings) would the only answer be long only?
I’m surprised no one is blaming nepotism for the increase in low-quality PMs OP is alluding to. Someone asked in this thread, “how did these sub par PMs get those jobs in the first place?” I guess if a white PM sucks, it doesn’t count. Lmao.
You would have to severely misunderstand the business model of MMs to blame PM quality on DEI
Oh, interesting deflection. If you had a black boss, I’m sure you would be blaming him for your woes. But go ahead and deflect.
I agree that more diversity would benefit the hedge fund industry, especially more diverse past experience. I.e., not always the same banking/PE people who then only hire identical looking backgrounds, because that's the only experience they understand.
I understand your point, but this is like a crazy strawman lmao. Its almost as if you had this thought for a while and waiting to share and jumped on the first post that was mildly applicable. Like no one ever brought up DEI in the HF world and its not even a thought. This might be one of the few areas in finance that ppl dont complain or even think abt DEI and you chose to do your rant here
Well, you said it yourself.. you can’t refute my point. There’s no need to type anything intelligent to you as a response. Mediocre people like OP need to quit finance
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