Most academic style of investing that requires the most thought?
Hi all,
Pretty much just asking the title. I'm a physics major at Caltech/Princeton/Stanford and really love the complexity and deep thought my classes require, but I've come to realize I just don't fit culturally into academia. However, I have also always liked finance and have found I fit in much better with finance folks based on a couple of hedge fund/PE summer internships I've had. I've decided to pursue finance, but I'd really like to get similar-ish intellectual stimulation out of my work if possible. I understand it won't be exactly the same, but I have read on this forum that certain firms are more "scholarly" than others (example I saw: Wellington Management). So, what type of investing is generally considered more academic and requires deep thinking, and which specific firms lean into this methodology? Thanks!
I have a good friend who was a Princeton physics major, and then enrolled in a combined masters/PhD program at Stanford to continue to pursue physics. About two years into that program he came to the conclusion that although he was a literal genius/rocket scientist, the other handful of candidates in the program were well beyond his capabilities. He was ultimately hired by a BB to manage risk for collateralized securities and has since earned his way up to Director level. I say all of this because what you're going through isn't unique or unheard of.
You need to look at the different aspects of 'investing' or 'banking' and determine what you enjoy most. Do you want to continue solving difficult math problems? Do you want to be in a position to interact with people? Do you you want to be working with clients? Are you comfortable on the phone/Zoom presenting ideas? Depending on how you answer those questions different roles and responsibilities will become apparent. There is always something like the GS Special Situations group where you can apply your math skills to banking problems, but that group needs to be hiring. You could look at value investing roles with hedge funds, but you'll need to be able to read and understand financial statements, research reports and other analysis. You could even look at traditional investing roles at places like P72, Citadel, Bridgewater, etc. but they are going to weigh your math/computational skills along with your finance skills. Consider all of that and feel free to come back with any questions/follow-up.
Take your point, but just wanted to flag that despite the name, GS Special Sits not some rocket science level of finance. It's simply a principal investing group that focuses on minority equity, structured securities (read: prefs / mezzanine), and direct lending. It is decidedly not any more quantitative than any other generic cross-capital-structure buyside seat, and a very deal / process-driven role similar to banking and regular PE.
Re: OP, I don't think any process-driven role, whether in private equity or distressed credit, will fit the mold of 'academic' investing since deal dynamics will trump intellectual honesty in most cases. A macro or quantitative hedge fund would, as would an equity research seat (whether in industry, macro, or commodity coverage), and certain L/S hedge funds (excluding tiger cubs / activist funds - again, process-driven) and certain LO funds (an area I am admittedly less familiar with).
Must be cool to have Peter Sullivan as your friend
Bump, interested
FWIW, I’ve heard Bain Capital (for PE/credit) been described as a firm with a very academic style of investing. Can anyone add more color to this?
It comes from the consulting background. Think b-school type academic, if you're coming from a hard sciences type background it's not going to be that much more academic / intellectually stimulating than at firms with a more "financial engineering" type approach.
Could you elaborate on what you mean about how the firm’s consulting background (and the b-school academic level) makes investing more academic?
As someone at Bain, I actually do think this is largely true relative to my friends at other PE shops. I have to use my brain nonstop here. We're arguably academic to a fault, as it can mean we get into "analysis paralysis" and lose deals as a result. For evidence just look at the ridiculous backgrounds of folks on the website. I'd say it's very intellectually stimulating here if you're interested in broad-based problem solving, and many folks do have mathematical backgrounds. Of course, it depends what kind of academic stimulation OP wants. If it's more interesting to think deeply about math theory, then becoming a quant at one of the top HFs is a great option. Conversely, if you consider yourself more of an interdisciplinary polymath then a shop like Bain could be a good fit.
If you want quant, then quant at Citadel Securities, Jane Street, and whatever else.
Otherwise, Special situations investing and its not even close. Top special sits funds have groups that invest across the capital structure in both public and private investments while navigating complex chapter 11 bankruptcy situations where it is up to the debtors/creditors to get as creative as possible to realize a return. The wide range of opportunities that this type of investing offers just make it so much more intellectual, creative, and complex than your vanilla LBO or LO equities.
What would you consider the top special sits groups to be ?
It depends if you want to take the megafund route or hedge fund route. For megafunds:
Apollo Hybrid Value, Oaktree Special Situations. Blackstone Tactical Opportunities, Ares Special Opportunities, Sixth Street Strategic Capital, Bain Capital Credit
Can you speak a little bit about how "getting creative" plays out in real life? Special situations investing seems interesting based on its complexity, but I've never seen any posts actually talking about specifics
As someone who's worked in both SS and PE, this is hyperbole for sure. SS isn't nearly as sexy as it's made out to be here. Nothing in finance is.
A lot of these shops mostly do vanilla mezz or minorities for most of their capital. Nothing sexy or ‘intellectual’ about it
Is it truly more intellectual or just more process driven with a lot of things considered? Perhaps the level of business analysis/linking to marco and thinking about upside is less though given the focus on downside protection.
I'm biased, but I would say multi-strat and value oriented HFs tend to have more intellectual teams and approaches. Ultimately, some PE firms are more academic than others, but PE applies a pretty established and similar model across the board. And while the PE investment process is a very pure form of investing and you go very deep on potential targets/portcos, because you tend to analyze a specific business in relative isolation, you have fewer variables to consider. Some HFs (e.g. the pod shops) do very short term stuff and tend to play Qs etc. [Side note: quant funds are incredibly academic and some don't really do any finance at all, but basically solve abstract math problems. Given your background, maybe TwoSigma or RenTech or something might make sense for you]. Back to the more fundamental oriented landscape, the longer biased funds and the all weather funds also go quite deep on the fundamentals of businesses, but also need to layer on market behavior, macro trends, sizing and exit considerations, maybe activism and corp governance, etc. Activists are especially intellectual imo because you need to understand the business incredibly well to develop a thesis about why it is undervalued, and articulate to other shareholders basically why you can run it better than management over the course of several quarters of changing performance, macro climate, etc. Value funds like Baupost and flexible distressed platforms like Oaktree tend to have very risk averse and academic cultures (both Oak and BP in particular, given their leadership, approach, and culture). They go very deep, and since they can invest in quite a lot, can get quite creative with structures. Many of the smarter distressed platforms can feel quite academic as well. I don't do VC, but some say it can feel very academic in certain verticals and at certain more serious funds (although a lot of what you're doing in VC IMO is sales oriented and you fundamentally lack sufficient data to have genuinely rigorous analysis).
I agree with some of the prior commentary, especially the anonymous "PE - Other".
Special situations, true across the capital structure mandate, is going to be the most intellectually stimulating in terms of the diversity of opportunities you'll see and requisite work you experience.
The only knock you might find is that many of those investment opportunities come with deal dynamics.
See if you can find a seat at a place where the goal is getting the smartest people in the room period, irrespective of prior experience or finance skill-set. Check out TGS. Two public reads at WSJ and Bloomberg are old, but given where you're in school you can probably find people to talk to.
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