Let’s say you’re fresh out of college, have an offer in hand for a short-only hedge fund that takes a very activist approach to their investments. In other words, they’re finding companies that are mismanaged, fraudulent, and/or unsustainable, and aggressively publicizing their thesis.
Assume salary is in line with banking, with potential for higher bonus. Very small team, good AUM, but there is the risk inherent in short-only funds. Most of these end up closing down because the overall market tends to go up (on average). Plus, there’s also the added risk of taking on leverage when shorting, making it more likely for the fund to blow up.
Given these pros and cons, would you ever start your career at a place like this?
Really interesting question & situation, i would make the following points:
1) Firstly the key question is, is it a known or respected PM. if its muddy waters / kynikos, super unique opportunity that would stand you out from everybody else 2-3 years down the line and really differentiate you. if the track record is poor or there isnt one, it completely changes the equation.
2) I am at a HF and was in AM for a few years before. The number 1 concern for my fund in interviews was me having no prior experience shorting. This must be a common concern, as per my point above that being at a short-only would give you a very differentiated background when interviewing in 3 years time at L/S funds.
3) There was a point above saying in the short term it would be a great learning experience, but in the long term it is a more difficult way to make money - i would agree 100% with that.
So to conclude, if it is was me, i would take the job with the aim of moving to a good L/S in 3 years time - on the key caveat that it must be a well-respected or well-known PM and not a no-name shop.
Fair point for sure. My view would remain though that the pushback to that concern would be the experience & opportunity were too unique to pass up (again on the key caveat that the short-only firm is good / respected), and you wanted to get that training in what is generally seen as a more difficult to acquire (or simply more rare) skill set.
It's a good point though and I wouldn't underestimate how hard it is to identify long opportunities. I just believe that every opportunity should be weighed on balance vs. the other potential options available at the time, and if there is an opportunity at a high calibre short-only it is a unique chance that should be seriously considered - I wouldn't choose it over Baupost but if the choice is vs. a lower tier L/S then I think it's a great option that would really differentiate your profile. Your point is fair but I would imagine that hurdle could be easily overcome via demonstrating proactive learning in identifying long opportunities alongside the "day job" of finding opportunities on the short side.