Q&A: Quant Research Analyst at Startup Fund

Hey, I'm research analyst at a small startup quant/systematic fund (<1bn AUM) located in a major city in the midwest. We have a broad mandate with a focus currently on event driven equity strategies, which is the PM/founder's background.

There's just a few of us and I work on the main strategy but spend most of my time developing and running new signals/strategies. Aside from a nominal base almost all of my comp comes from my strategies for which I have direct, formulaic pnl linkage. We're not large and I don't run much GMV yet, but the hope is that both will grow as the fund raises capital and I develop strategies that perform.

I've found previous Q&As on WSO very helpful so if anyone has any questions - ask away. If there's interest I can describe my background and current role in grater detail.

4 Comments

ST

Associate 2 in S&T - Comm

4y

What does quant/systematic mean in an event driven context? you either work in higher frequencies around events or you place smart bets around events? (thus the holding period is short either way?)
What is your background and why did you join a startup fund?
Are you the only quant? How has the tech/engineering been?
How did you get recruited there? Do you have a lot of trust in the team?
Very surprising you have directly link to % cut. Did you have prev experience in this?
How did you negotiate that deal? What about drawdown limits and criteria for firing?
Do you work strictly on your own strategies or do the other folks use you for their stuff?

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Authored by: Certified Sales & Trading Professional - Investment AnalystCertified Sales & Trading Pro

quantyboi

HF

4y

We will trade on any frequency that our infra can handle and that will work net of relevant frictions/tcosts (commissions, market impact, financing, borrow, etc). The length of the holding period can vary by strategy, event type, economic intuition for the edge/inefficiency and the empirical data. Sorry if that's a little to vague, but generally holding periods are on the shorter side, and yes we will try to place smart bets around events and aim for enough events for the return profile to make money in aggregate.
I studied math at a top university on the west coast with some CS and econ, and graduated a decade ago with a below avg GPA (esp for this industry). I went right to the buy side and have worked at a couple of large reputable blue chip funds, both as a quant and as a data scientist supporting fundamental investment teams. I decided to join the startup because of the opportunity to develop and run my own strategies. Without this as a prominent part of the position I probably would have joined a more established, larger fund or stayed at my old fund. I'm at a point in my career where I realize that ultimately, in the HF space, I do want to be managing my strategies. This is a very high volatility route, that statistically speaking, is not likely to work out. I'm underwriting myself, am at a phase in my life where I can take the risk, and if it doesn't work out I have the skillset to pivot to software engineer/data engineer/data science at a more tradition tech company, and would be ok doing so. Given my goals in the HF space this seemed like a good opportunity at the right time.
We have one other more junior quant who strictly helps with the main strategy. We have 2 other non investment people. For most asset classes we trade with our main prime broker and the back office/middle office/and execution infrastructure is there and adequate. For everything else front office related - i.e. research infrastructure, data ingestion/management, and productionization of any strategy - I have to do myself. Being a startup with no dedicated tech/engineering team I do wear many hats. This is ok - I have the background to this type of work and for the most part once it's done, the maintenance for bug fixes, vendor API changes, etc. is minimal. Also it's nice being able to custom build the research tools to my exact specifications and workflow.
I had worked with the PM before and he reached out to me when starting his fund. He has a solid track record, is smart and competent. But importantly the team also has trust in me. I have more responsibility that I have had before vis-a-vis pnl. And the trust both ways needs to be there.
This is my first time managing strategies live and also first time having a direct pnl cut. We go over major details of strategies I want to run and I've also improved my process since working here by getting feedback from the pm. Keep in mind I start out small, and size up over time if/when a given book performs. I need to demonstrate sharpe (or IR) and good drawdown profile live before getting significant size. So it can likely be a while before the cut becomes meaningful. I'm making a fair amount less to start that my previous job. I'm betting on both my and the fund's ability to perform over time.
There was no big negotiation. The deal was offered by the founder, and I found it fair. If I hit certain agreed upon performance targets my cut will increase. Also I have high watermarks. We discussed this in an open way - there was no "hard negotiation tactics" or anything like that. Almost no strat returns will be normal, most things have pretty fat tails. So while drawdowns are not desirable, all else constant, strats with higher returns can handle larger drawdowns (as long as the thesis/signal remains). We determine thresholds on a strat-by-strat basis depending on a bunch of different factors (asset class, GMV, target volatility, target return) at which point we will size down. There's no firm agreement about firing or pulling all risk, but there's an understanding that if I'm not making money, or net down by a few years out - that's not ideal.
I do help with the main strategy a bit but mostly work on my own strategies. I also look into ideas the PM has using the tools and research infrastructure I've built.

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Authored by: Certified Hedge Fund Professional - Research AnalystCertified Hedge Fund Pro

ST

Associate 2 in S&T - Comm

4y

Most Helpful

Quite interesting! I'm thinking about making a move myself to a startup fund as well.

Is your job at the firm to augment existing strategies (aka work with your PM on every step) or provide the main portfolio some diversification through quant thinking (more independent)?
Do you think being at a smaller start up firm offers more growth opportunities than a larger firm where you only work on one thing?
If your old firm gave you a shot to run risk, would you have stayed or still continued to your current firm?
How long have you been at your new firm and what was the ramp-up process like? was it mostly coding vs sitting with the PM and learning about the markets?
What do you mean exactly by blue chip HF? were you a quant working for discretionary PMs or was it a fully systematic shop?
It wasn't clear to me if you actually ran risk at your old firm. If not, how did you make the jump (convince your current PM) to give you a shot at running risk?
Why couldn't your shop just pull guys out of HFTs or fully systematic shops? (assuming your old firm isn't fully quant) aka what's your selling point compared to the Rentechs/Citadels/Jumps of the world filled with phds running good strats? (literally imagine your PM asking you in the interview "why should I hire you over some phd from Citadel?")
How comparable is your current job vs your last one? Do you think your last job's training was irreplaceable or can someone w/ less experience just jump in and learn?
It sounds like you're in your mid-30s? Does this type of opportunity manifest most 5 years, 10 years, or 20 years into your career and when is it best to hit that bid? aka optimal exercise of career options given past experiences?
If you were 5 - 7 years younger, would you have joined your current shop directly?

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Authored by: Certified Sales & Trading Professional - Investment AnalystCertified Sales & Trading Pro

Napolii

?

4y

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Q&A: Quant Research Analyst at Startup Fund

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