What do you miss out on by not working at a Hedge Fund?
Vague / hypothetical scenario. You love investing and you have a demonstrable, reasonable track record investing real amounts of money in a specific style / strategy (which has nothing to do with GME or buying Mag7). You've read all the books. You are a member of VIC and MicroCap Club. You've opened communication channels / formed professional relationships through which you can deliberate with PMs / analysts of notable funds. You talk with management teams + have the necessary resources to conduct your research process. And you are employed to actively manage a sleeve of real money for your rich uncle's high-9-figure family office.
But you've never sat in an institutional investing seat before. What are you missing? When your only education goes from high-level theory to trial by error, you miss out on picking up nuances and subtitles of process and a boatload of institutional knowledge from those more experienced, passed down through generations of presumably successful investors. Investing is often thought of as an apprenticeship model. However, Haley at Alta Fox sought to dispel this notion in an interview a few years ago, suggesting that the chances you land in a seat where you are properly mentored is very small, and that the best education is reading the masters (Buffet, Greenblatt, Lynch, etc) then going off on your own. My personal thought is that you can get most of the way there on your own, but it will be slower if you're doing it by yourself and will involve numerous stumbling blocks. The institutional knowledge and processes passed down from a PM are real, but it's not like there is some magical secret to investing that you can only learn by working at a fund (this discussion more so pertains to longer-term single managers).
Based on the most helpful WSO content, here's what you might miss out on by not working at a hedge fund:
Institutional Knowledge and Nuances
Mentorship and Apprenticeship
Process and Structure
Networking and Resources
Practical Experience
Summary
While you can get most of the way there on your own by reading the masters and conducting your own research, the institutional knowledge, mentorship, established processes, networking opportunities, and practical experience provided by working at a hedge fund can significantly enhance your investing skills and career development.
Sources: Hedge Funds requiring IB experience... why?, Ho-Hum to Hedge Fund, Am I missing something about buyside exits?, Work at a Start-up Hedge Fund? (Generally) A Bad Idea, What should I know before starting a Hedge Fund?
Bump
Bump, would love some opinions from those who invested independently then joined a fund.
bump, great question
Hopefully someone with experience chimes in, would be very interesting.
Maybe a big thing is the psychology / emotional side of it? Easy to do in theory but in practice your emotions may get the better of you. Maybe working with a calm PM will teach you how to manage that more effectively.
On the other hand, I’m sure a bit of naive optimism and confidence in yourself with a bit of luck works well too haha
Wrong call on PA: lost money, got ego checked, but hey it's ok, it's not a loss until you exit.
Wrong call at HF: lost client money (lower bonus?), PM furious at you but hey it's ok, you've learned some creative insults and learned what you miss out on by not working at a hedge fund.
Working at HF is multitudes more stressful than PA
Well managing your PA has an entirely different spectrum of possible time horizons and whatever "mandate" you want; obviously its to make the most absolute $$$ over a LONG time period. Potentially you can drift however you want to drift here.
HF is about managing money to deliver a very specific product though. As you said, we can assume its a hypothetical fund that has "sticky capital + long term horizon + broad mandate for absolute returns". Even here, the pressures for quarterly performance, relative returns, and hitting those returns within specific time periods will be present. As others mentioned, this psychological impact of managing to a client base instead of just yourself will always be there (ex: might feel easier to explain that you lost money on an NVDA drawdown than some shitco at year end). This is probably an advantage though?
Outside all of that, how much more collaboration do you get when working at a company vs. working independently. Is this feedback with well respected friends the exact same as that of people working on the same strategy with you? I don't think so. Maybe more so if they are investing in the same opportunities. But I think if you are already at the point where you feel that you have a repeatable and strong process to navigate things, the differences are minor and more psychological, or about the nature of collaboration you need.
I feel like my process has relied on feedback from others at times; how often do people pitch and then invest in a vacuum with zero feedback? And then, how good is the quality of feedback if not from others with the same vested interests as you? Wor
I tend to agree with that person that you don't learn much about markets in most buy side seats, due to how the firm and role is structured, even if the firm is very profitable. This is especially true in quant where you typically won't have access to the full end-to-end strategy code, and told the minimum you need to know to be useful to the firm. But it's also true that PA strategies are very different from what a big fund does and not that useful for a big fund. I find it's still much better to collaborate with at least one other person even if you are trading a PA instead of just working by yourself in complete isolation.
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