AMA Discretionary Hedge Fund Trader

derivstrading's picture
Rank: Neanderthal | 2,549

I did one of these before a couple years back when i was on the sellside, and figured why not do another one since these threads seem to get a lot of traction and provide a lot of useful info for kids.

My background:
-Discretionary trader at a large hedge fund, focusing on credit and convertibles
-Previously traded equity derivatives on the sell side

Feel free to ask anything outside of compensation.

Comments (39)

May 15, 2015

-When you were trading derivatives, what kind were they? How do you choose between vanilla/exotic derivatives, and recruit for that?
-Is mental math speed or high level math ability more important for trading derivatives?
-When interviewing for a derivatives position, should you prepare for it like a normal S&T role and know the product, or should you treat it like a prop trading position and study probability/brainteasers?
-Do you like fixed income more than equities?

May 18, 2015
chobani:

-When you were trading derivatives, what kind were they? How do you choose between vanilla/exotic derivatives, and recruit for that?
-Is mental math speed or high level math ability more important for trading derivatives?
-When interviewing for a derivatives position, should you prepare for it like a normal S&T role and know the product, or should you treat it like a prop trading position and study probability/brainteasers?
-Do you like fixed income more than equities?

1) I traded vanilla single stock options. Essentially volatility on single name equities. I chose that rather than the more exotic desks because I found flow derivatives that perfect mix of analytics and trading. In my opinion when you get into the exotics it becomes more about models and quants and its really just a retail product game at the end of the day. Flow derivatives is less complex product wise, but more fun to trade in my opinion. Heavily depends on the personality though, but i found it had the maths/analytics of derivatives but the fun and speed of cash equities

2) uhm i would say the most important thing is to be able to conceptually grasp concepts which are mathematical in nature. The most important thing is to understand the product you trade, and the more complex the product, the more you need to grasp the maths behind it. As a trader you dont do high level maths on the desk, but you need to know how the risks behave, and often times this means you need to think in a mathematical space. I have a B.A. in economics, and never needed any more math beyond that. In terms of mental math, it helps, but i have never not used my calculator anyway. I think the whole metnal math is a bit overblown (at least for the products ive traded). What is important in terms of metnal maths is being able to spot when something is completely out of the ballpark. I.e. if something doesnt make sense magnitude wise, because that usually means there is an error, and errrors and unacceptable.

3) do both in terms of prep, cant be overprepared

4) there are aspects I like in both, but id say equities is easier to come up with systematic strategies/ideas as you data. Credit becomes a lot more murky as its OTC in Europe, and therefore finding patterns etc becomes trickier

3)

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May 22, 2015
derivstrading:

because that usually means there is an error, and errrors and unacceptable

Not trying to be a dick, but this made me chuckle

May 15, 2015

Any advice for lateral move from middle office to credit trading./credit desk analyst?

May 18, 2015
BufT:

Any advice for lateral move from middle office to credit trading./credit desk analyst?

Learn how to analyze companies/credits. Do the necessary reading and self study and then once you are comfortable with that network. Networking is great and all, but networking without the skills to back you up is usually futile.

    • 1
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May 15, 2015

What kind of background do the flow vol traders generally have/need on the sell-side? I'm assuming most, if not all of the exotic guys have masters/PHDs, but figured you could trade vanilla stuff with just a quant-ish undergrad?

What's your trading strategy at the fund? Mostly fundamental work or do you take technical/RV views as well? Time frame on trades?

How big of a deal is the lack of liquidity in credit that seems to be getting mentioned much more often recently?

Do you do execution trading or just strictly manage your own book? Also, how common/difficult is it to move from S&T to the buy-side to manage your own discretionary trading book?

Thanks, really appreciate the thread

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Best Response
May 18, 2015
eastcoastnontarget:

What kind of background do the flow vol traders generally have/need on the sell-side? I'm assuming most, if not all of the exotic guys have masters/PHDs, but figured you could trade vanilla stuff with just a quant-ish undergrad?

What's your trading strategy at the fund? Mostly fundamental work or do you take technical/RV views as well? Time frame on trades?

How big of a deal is the lack of liquidity in credit that seems to be getting mentioned much more often recently?

Do you do execution trading or just strictly manage your own book? Also, how common/difficult is it to move from S&T to the buy-side to manage your own discretionary trading book?

Thanks, really appreciate the thread

1) most guys on the vanilla desk i was on were undergrad econ (including me). Some maths, some arts based, some didnt have degrees. On the exotic side, depends, it was heavily skewed towards the grand ecoles students from France, whcih is a bit of a different system but known for producing mathematical talent. Id say to trade vanilla options and even light exotics you dont in theory need mroe than what you get taught as part of a more mathsy econ degree. Its much more about understanding mathematical concepts as they relate to the products you trade. I met very few Phds onthe sellside if im perfectly honest, maybe some of the quants were. The need for maths gets way overblown on this site for trading positions on the sellside.

2) mix of fundamental and RV, id say a lot of is quant overlayed with fundamental analysis

3) in Europe its a huge deal. You can definitely notice that market makers on the sell side just cant have the same inventory as they used to. And it is a bit worrying for whenever sell offs happen because you can definitely feel the volatility be exacerbated by the fact that there just isnt that system in place to absorb risk.

4) I manage a book on a discretionary basis along with a senior trader, but there is some execution help for other desks that are more fundamental based where I help out

5) Going from sell side S&T to a discretionary book is very difficult these days. I think you either have to be very senior on the sell side and responsible for a lot of risk, or you find an opening at a junior level like I did and make the move early. I think its very difficult if you are like a VP on a sellside desk and want to move unless you have a great connections. The reason its easier on a junior level is because you are still mouldable into a different product, so i could still jump from equities to credit, if you are a VP on the sell side you are sort of stuck in the product you are in for a large part. The tircky part is finding an opening on the junior level, but there is stuff out there, you just have to be constantly looking. I found my job posted on the companies website randomly so you never know.

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May 15, 2015

Thank you for doing this!!!

1) I'm an engineering undergrad looking to break into trading (probably sellside). I have to decide between two quant finance Masters programs which offered me admission: UC Berkeley Financial Engineering & Carnegie Mellon Computational Finance ---> in terms of respect of the program on the trading floor and likelihood of getting into a trading seat eventually, which one would you recommend if you had to?

Info for you: the CMU program has an integrated summer internship which makes recruiting probably more straight forward, but CMU's brand name is not on the same level as Ivy/MIT/Stanford/Berkeley; the UCB program has more brand name, but it only offers an autum internship which is offcycle, potentially making recruiting into S&T more difficult.

2) could you describe in a bit more detail your transition process from sellside to buyside?

3) if discretionary HF trading/portfolio-management is the end goal, would you recommend a fresh graduate today to start at a BB (more brand name, great training, more regulation, less pay), or at a prop trading firm (less brand name, still good training, less regulation, potentially more pay early on)?

May 18, 2015
SpaceMarine:

Thank you for doing this!!!

1) I'm an engineering undergrad looking to break into trading (probably sellside). I have to decide between two quant finance Masters programs which offered me admission: UC Berkeley Financial Engineering & Carnegie Mellon Computational Finance ---> in terms of respect of the program on the trading floor and likelihood of getting into a trading seat eventually, which one would you recommend if you had to?

Info for you: the CMU program has an integrated summer internship which makes recruiting probably more straight forward, but CMU's brand name is not on the same level as Ivy/MIT/Stanford/Berkeley; the UCB program has more brand name, but it only offers an autum internship which is offcycle, potentially making recruiting into S&T more difficult.

2) could you describe in a bit more detail your transition process from sellside to buyside?

3) if discretionary HF trading/portfolio-management is the end goal, would you recommend a fresh graduate today to start at a BB (more brand name, great training, more regulation, less pay), or at a prop trading firm (less brand name, still good training, less regulation, potentially more pay early on)?

1) I am European based so probably there are other people more knowledgeable on this subject. Although I can say i would consider them equal if i was interveiwing someone (and probably most people in EUrope would see it that way)

2) I got lucky. Was a week where a lot of my desk on the sell side was let go, I started thinking I need a plan B so started looking for opportunities out there. Saw a job opening on the funds website and applied online. Just goes to show you never know and you need to constantly be on the lookout.

3) Thats a very tricky question. As you sort of allude to its a different risk/reward. I havent met that many people that have gone from prop trading to PMs at large funds (its generally a different skillset and strategy). But then id think that if you can succeed at a prop shop I guess people dont feel the need to go the PM at HF route. I wouldnt do it differently because the route i took sort of worked out in the end (although i made a lot of bad decision career wise along the way), but part of me thinks knowing what i know now, and the current state of affairs on the sell side, id heavily consider going down the REPUTABLE prop shop route.

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May 15, 2015

Thanks for doing this. Feel free to answer all/some/none:

  • How did you choose the role you are in? What were your considerations when evaluating which role to accept?
  • How is your fund structured - one of the multi-manager platforms with tight limits? Is execution centralized and separate from the PM teams?
  • How did you "show" your fund your P/L track record from your sell side days before they hired you? How do they verify it - just take it on faith?
  • Do you have full discretion over our own book or are you execution only? How did/do you transition to that full discretionary role? (Assuming you are using "discretionary" in the title to mean "not systematic")
  • What is a decent/good level of return for your seat? Sharpe? Are you judged on $ P/L or % return on capital allocated?
  • How scalable is your strategy (i.e. to what level of capital before you start seeing diminishing returns)? How scalable does your strategy need to be to get you a seat?
  • If you had to move to another fund for whatever reason, how would you do it? Headhunters? Network?
May 18, 2015
Acidophilus:

Thanks for doing this. Feel free to answer all/some/none:

- How did you choose the role you are in? What were your considerations when evaluating which role to accept?

- How is your fund structured - one of the multi-manager platforms with tight limits? Is execution centralized and separate from the PM teams?

- How did you "show" your fund your P/L track record from your sell side days before they hired you? How do they verify it - just take it on faith?

- Do you have full discretion over our own book or are you execution only? How did/do you transition to that full discretionary role? (Assuming you are using "discretionary" in the title to mean "not systematic")

- What is a decent/good level of return for your seat? Sharpe? Are you judged on $ P/L or % return on capital allocated?

- How scalable is your strategy (i.e. to what level of capital before you start seeing diminishing returns)? How scalable does your strategy need to be to get you a seat?

- If you had to move to another fund for whatever reason, how would you do it? Headhunters? Network?

1) Chose me in a way. I was only starting the buyside process and this was the first firm that i met with.

2) Cant say too much, but very team oriented as opposed to some of the reknown churn em and burn em HFs, i guess you would use the word centralized

3) I came in at enough of a junior level (i.e. non MD PM) that there wasnt a track record process

4) I work with a senior trader who is the PM and its discretionary. Again, it comes down to transitioning at the right time. There was an opening for a trader to come in underneath the senior PM in an apprenticeship capacity and you sort of go from there. If i had tried to come in as a VP from the sellside and tried to go right into that senior PM role then it would have been much harder.

5) Probably cant comment on the specifics there

6) Again thats probably a question that more affects someone at a fund like Brevan, where you get X amount of money and if you dont hit targets you are out as opposed to a very centralized team structure where you can find yourself working on very various things/investments

7) I get headhunter calls on a weekly basis, so thats probably the way to go. One piece of advice, keep friendly and in contact with any HHs you know, they can be a valuable info source and you want them to ahve you on the top of their list. Same advice for real estate agents.

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May 18, 2015

thanks +1'ed you

just one more if you don't mind. you said you are in sort of an apprentice capacity to the senior PM - i assume you are planning to stay there and then develop over time into having your own carve out and generally more discretion. let's say after a year or two you realize you're really good and want to go off to a multi-manager (believe they generally have higher payouts than single-manager/'team culture" shops that you describe). how would you be able to provide a track record for HH's/other funds to verify? i know you didn't do that coming from sell-side, but do you at least have an idea about the mechanics of how that would work?

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May 16, 2015
  • What role in the equity derivatives space do you think offers the most upside for non-execution buy-side trading/portfolio management? Any thoughts on index vs. single stock?
  • Do you regret not starting your career in a product more intensely focused on rates?
  • I read a previous AMA where you were concerned about layoffs hitting your desk - did you ever consider internal mobility/lateraling to another desk, or did you only come into interest with buy-side opportunities?
  • I've heard of a "bottleneck" effect where if you stay too long at a bank you no longer become an attractive candidate for buy-side firms and lasts until you become truly senior - did this affect your decision to start looking early?
  • What advice can you give on marketing yourself to the buy-side, as someone with a background that isn't directly parallel to your current role? Also, how did you "catch up" and transition into convertibles- was it self-teaching, or did you take on an intermediate role between the sell-side and your current role?

~Sorry if the below is naive, I don't know much about the convertible space~

  • Is your strategy primarily finding traditional convertible arb opportunities (long/short convertible and delta hedge with stock)? Are there other vaguely RV trades you seek to make, like imp vol spreads between converts and vanilla options?
  • How would you hedge against a convertible arb blow up like GM in 2011?
  • Credit spread often seems to be positively correlated with imp vol - is this a unique pitfall of hedging convertible debt risk with CDS, or is there something I'm missing?
  • How is the liquidity in the convertibles space vs. the listed options space? Does your background in single stock options help in dealing with illiquid situations?
  • With the size you run, does share dilution upon conversion enter the picture when it comes to how you trade?
May 18, 2015
qs344:

- What role in the equity derivatives space do you think offers the most upside for non-execution buy-side trading/portfolio management? Any thoughts on index vs. single stock?

- Do you regret not starting your career in a product more intensely focused on rates?

- I read a previous AMA where you were concerned about layoffs hitting your desk - did you ever consider internal mobility/lateraling to another desk, or did you only come into interest with buy-side opportunities?

- I've heard of a "bottleneck" effect where if you stay too long at a bank you no longer become an attractive candidate for buy-side firms and lasts until you become truly senior - did this affect your decision to start looking early?

- What advice can you give on marketing yourself to the buy-side, as someone with a background that isn't directly parallel to your current role? Also, how did you "catch up" and transition into convertibles- was it self-teaching, or did you take on an intermediate role between the sell-side and your current role?

~Sorry if the below is naive, I don't know much about the convertible space~

- Is your strategy primarily finding traditional convertible arb opportunities (long/short convertible and delta hedge with stock)? Are there other vaguely RV trades you seek to make, like imp vol spreads between converts and vanilla options?

- How would you hedge against a convertible arb blow up like GM in 2011?

- Credit spread often seems to be positively correlated with imp vol - is this a unique pitfall of hedging convertible debt risk with CDS, or is there something I'm missing?

- How is the liquidity in the convertibles space vs. the listed options space? Does your background in single stock options help in dealing with illiquid situations?

- With the size you run, does share dilution upon conversion enter the picture when it comes to how you trade?

1) Uhm thats a very good question. I would say that equity derivatives isnt actually a fantastic starting point at a BB for discretionary HF. THe problem is that you really are just trading vol, so your exit opp is a vol fund, and there just arent that many discretionary vol funds these days (as in not quant vol arb funds). So your best bet is to go to some sort of macro oriented strategy where they are open to trading vol where you can add value, in which case arguably index has a leg up. However, if you can somehow develop fundamental analysis skills (i.e. via CFA or something like that), you could potentially transition from a single stock vol guy to a more fundamental oriented HF, because at that point if you can be a fundamental guy but at the same have trading experience thats def a plus. In terms of exotics vs vanilla, I am biased towards vanilla, but also because the exotic market is very retail product focused. The issue it boils down is that for any vol trading job, its usually very niche so its hard to find the opportunities. Its not like there are tons of HFs like there is for fundamental analysts kind of thing if that makes sense.

2) Not really, i know that rates are considered to be the building blocks but they just never really interested me. Ive read several rates books to know something, but it was more to be aware, never had a desire to trade the product. I have never found my lack of rates trading to be a hinderance, and i get enough sellside research to know roughly whats going on.

3) there was concern across the firm

4) Definitely. There is a window where you are running risk on the sellside and have a book, but are not yet VP, and I think this is a window where anyone interested in buyside opportunities should be looking for roles. At this point you are essentially in the bucket for junior trader roles at HFs but you have a good experience relative to the candidate pool (i.e. some kids considered will be 1 year expeirence or even out of university in some cases). I think most kids dont consider this option because they are managing a small amount of risk on the sell side, and in their eyes its a step back, but the payback time is about a year. I definitely took a step back in terms of responsibility initially because i had to build up my trust and credit with the desk, but you need to think long term.

5) In terms of catching up, there was just an understanding that there would be a transitional learning period, and importantly both me and my new employer understood that.

6) on the CB book yes its mainly traditional CB arb. In terms of single stock vol vs CB vol, its not done that often tbh, you are just paying too much slippage between the products in this market, and there actually isnt that big of an overlap between single stocks that are liquid in the vol amrket and CB issuers. You can sometimes think about a general vol hedge on the book using SX5E vol, but at the end of the day those can get out of whack quite significantly as its very different investors and differnet driving forces.

7) either CDS, cash bonds, or sizing where you are comfortable iwth the risk. Always knwo your worst loss and be comfortable with it. If you arent then your size is wrong.

8) both are crap :), the trading aspect definitely helps

9) depends on how big the convertible is relative to the existing market cap. Its definitly something you consider when an issue comes out, and how the convertible is struck (as the share price will usually drop day 1)

Feel free to re ask any of the CB questions if i wasnt clear enough.

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May 16, 2015

thanks for doing this! will frontpage now and again next week

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May 17, 2015

What has been the toughest adjustment to make switching to the buyside?

May 18, 2015
GoodBread:

What has been the toughest adjustment to make switching to the buyside?

Probably 2 things:

1) In general you dont have client flow, which is mainly good as it means you can actually work on projects and have your own pace, instead of alwasy reacting and having the speed determined by others. A lot of times on a sellside desk when its busy you dont even have time to think. However, this does mean you need to be a lot more proactive as pnl will never be brought to you as it is on the sell side. There are a lot of desks on the sellside where you get X MM per year of pnl just on flow.

2) In terms of transitioning to credit and CBs from a listed exchange traded product like listed options, there was a big adjustment in terms of reading prospectuses and being able to absorb the legal language. Theres just no need to ever read a prospectus when trading single stock vol aside from corporate actions, in which case its like a 2 page notice, but in credit/CBs a lot of money can be made or lost on them so you need to be able to read them very accurately.

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May 17, 2015

Thanks for doing this. I am currently doing an off-cycle internship on the FICC e-commerce sales desk at a BB (GS/CS/BAML). It is fun and I am learning a tremendous amount while doing my internship.

I would like to get your thoughts on the how the space is increasing from the sellside perspective and exit opportunities for sellside e-commerce folks whether that is into Tech or Finance.

How much interaction (Hi or Low touch) do you have with the sellside sales force?

Thanks.

Si Vis Pacem Para Bellum

May 18, 2015

I know you said you were single name vol trader, what are your thoughts on single name equity vol vs equity index vol desks on the sell side? I feel like index vol desks would give you a better macro view which would be more beneficial for a buy side type role. But, I'm guessing the index desks are probably becoming automated (lower head count) and I'm sure it's a tough environment as spreads are probably very tight in that space.

May 22, 2015
eastcoastnontarget:

I know you said you were single name vol trader, what are your thoughts on single name equity vol vs equity index vol desks on the sell side? I feel like index vol desks would give you a better macro view which would be more beneficial for a buy side type role. But, I'm guessing the index desks are probably becoming automated (lower head count) and I'm sure it's a tough environment as spreads are probably very tight in that space.

Ha yea the index vs single stocks debate. One side will argue that its tough for them because there arent any spread to make money, the other side will say that there are spreads but just no liquidity, the great trading debate haha. Im probably biased, but single stocks is a bit more fundamental, i.e. its a lot mroe about company news, corporate actions etc. As liquidity drops you need to be more informed. I mean i knew when i traded the chems/industrial book about various types of performance paint used on ships. On index, its mroe about trading the product rather than the underlying. The book is a lot more complex and you can trade in a lot more different dimensions. You arent really a macro trader punting index futures, but you can trade the vol surface much more actively essentially, and you can look at second order and third order greeks and trade spot/vol correlation actively etc.

I guess the way id sum it up would be, single stocks you trade the underlying via the product, in index you trade the product.

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May 19, 2015

Have you ever heard of someone in an operations capacity (more of an administrative role) on the buy side making a jump to a more analytically focused position? If so, what would you suggest the is the best way to navigate that transition?

May 22, 2015
FrankR313:

Have you ever heard of someone in an operations capacity (more of an administrative role) on the buy side making a jump to a more analytically focused position? If so, what would you suggest the is the best way to navigate that transition?

Depends on the office and how close knit it is. In a large office its more difficult, but if you are in an office with 20-40 people, you are probably in cotnact and friends with the FO on a day to day basis. So there are 2 key things:
1) develop your skills, whether that be quant skills, fundamental skills etc, whatever it is, do the work so that even though you may not have previous experience, you at least have as much knoweldge as you can have without having the experience
2) keep an eye out for when there are new junior people being looked for in FO

if you have (1), when (2) happens you shoudl be able to at least be considered. Its really all about how much you work at it and how personable you are. HUGE part of hiring is whether people want to work with you, and if they already like you a lot, you are actually at an advantage.

May 24, 2015
derivstrading:

FrankR313: Have you ever heard of someone in an operations capacity (more of an administrative role) on the buy side making a jump to a more analytically focused position? If so, what would you suggest the is the best way to navigate that transition?

Depends on the office and how close knit it is. In a large office its more difficult, but if you are in an office with 20-40 people, you are probably in cotnact and friends with the FO on a day to day basis. So there are 2 key things:
1) develop your skills, whether that be quant skills, fundamental skills etc, whatever it is, do the work so that even though you may not have previous experience, you at least have as much knoweldge as you can have without having the experience
2) keep an eye out for when there are new junior people being looked for in FO

if you have (1), when (2) happens you shoudl be able to at least be considered. Its really all about how much you work at it and how personable you are. HUGE part of hiring is whether people want to work with you, and if they already like you a lot, you are actually at an advantage.

This is great advice for anyone trying to get into a more FO position from any product or BO/MO type role. Do not waste your opportunities you get through networking / being likable by not having #1 down for whatever job you are pursuing.

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May 22, 2015

with regards to interviewing for a junior (recent graduate) derivs based position, how much do you already need to know? the greeks? specific option combination profiles? how the probability distributions map out? it seems quite daunting at the more complicated end of the scale. thanks for all your replies so far btw!

May 31, 2015
thenewernewguy:

with regards to interviewing for a junior (recent graduate) derivs based position, how much do you already need to know? the greeks? specific option combination profiles? how the probability distributions map out? it seems quite daunting at the more complicated end of the scale. thanks for all your replies so far btw!

You are asking the wrong question. "How much do you need to know?" implies you need to hit some satisfactory minimum level. Its not a college exam. You should know as much as you can know. Why would you know any less? When I interviewed kids for eq. derivs positions, id always stretch them to the edge of their knowledge, find that point, and then go a couple steps beyond to see if they could apply the knowledge to something they havent learnt yet and come up with an answer. Obviously the kids who could go farther naturally id consider better all else equal.

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May 23, 2015

Why won't u discuss compensation? This is a finance site full of ppl trying to get rich (or stay rich) I think compensation is pretty relevant.

    • 1
May 31, 2015
BobTheBaker:

Why won't u discuss compensation? This is a finance site full of ppl trying to get rich (or stay rich) I think compensation is pretty relevant.

Because even thought people might find it interesting, as a general rule of thumb id advise never to discuss compensation unless its in a scenario of a new job/raise etc. Your future career will thank you for it.

Jun 1, 2015

Could you expand more on the part where you said our future career will thank us for it? I'm not interested in hearing about your compensation but I get the feeling that this could be great advice.

May 24, 2015

Thnx for doing multiple AMA's now.
What can you say about portfolio turnover?

Jun 1, 2015

How do you calculate your risk-adjusted returns?

Jun 1, 2015

What kind of car do u drive

Jun 1, 2015
Poultry:

What kind of car do u drive

In London, why would I need a car? Just a depreciating asset that eats up money via gas/insurance/MOT/repairs etc etc.

Jun 1, 2015

Pm'ed you earlier, but better to ask publicly I guess:

1) How tough is the job market for junior BB trading positions in London right now? Do you see a gradual increase or decrease in recruiting going forward?

2) Are most junior people in trading in London hired through summer internships? How difficult is it to get a fulltime position directly, without doing a summer internship before?

3) Could you walk us through a typical trade at your current fund, from idea generation to exit?

Many thanks and best regards.

Jun 2, 2015
SpaceMarine:

Pm'ed you earlier, but better to ask publicly I guess:

1) How tough is the job market for junior BB trading positions in London right now? Do you see a gradual increase or decrease in recruiting going forward?

2) Are most junior people in trading in London hired through summer internships? How difficult is it to get a fulltime position directly, without doing a summer internship before?

3) Could you walk us through a typical trade at your current fund, from idea generation to exit?

  1. I havent been in tune with the sell side job market in several years now, and while its not a walk in the park, i think even when i was coming through which was a particularly bad time if you were good there were spots. The thing I find about London is that a lot of kids in the summer internship programs and even grad programs are not that technically adept finance wise. As in they knwo what they ahve been taught in school, but there just isnt that much trading specific knowledge. Part of this is a general attitude of UK students to be a bit less go-getter I find than in America but in the end who knows. This allows someone who has their technicals down to be able to stand out. I remember in my summer internship I was competing with tons of kids from really solid academic backgrounds, but i had a huge leg up because i knew a lot more about options, so when they were learning about first order greeks, i was doing project work on spot-vol correlation etc.
  2. Does happen, but I think most spots these days are filled with either summer interns, or summer interns that got offers at other banks
  3. Varies a lot. Because we work on a very wide range of projects/ideas, there is a whole spectrum of investment processes. As a general rule of thumb, the less liquid an instrument the more research oriented work you have to do. For example for a liquid convertible bond taht you think is a couple points cheap you can put on a trade fairly quickly, where the investment process is fairly short, but on the other hand in situations where there isnt a lot of liquidity you have to be a lot more comfortable. Essentially liquidity provides room for error at the end of the day.

There are really 2 categories of trades (and naturally a whole spectrum in between), a 51/49 bet that you want to do a 1000 times over and over, and a 95/5 bet that you can only do once. And these two types have different investment processes. So for a 95/5 that you do once, you have to be very confident in the details of that one case, in the 51/49 types you have to be confident in the general strategy (that there is actually some sort of edge).

In terms of logisitcs, it comes down to a discussion around whether the risk adjusted returns make sense, and in your risk adjusted calcs you need to factor in capital costs, liquidity premium etc etc)

Many thanks and best regards.

    • 1
Jun 9, 2015
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