AMA: Head of Macro Strategy at Hedge Fund Taking Questions

Mentor86's picture
Rank: Baboon | 166

My Background

  • 10+ years of rigorous research experience
  • 5+ years of trading
  • Graduated with a BA in Economics from a target school. CFA
  • WSO Mentors

    Here's my mentor profile (click here) if you want to book time to chat 1 on 1.

    WSO Podcast: Member @Mentor86

    For the podcast, I talk about my journey from graduating in 2008 straight to the buyside at a hedge fund, to head of macro strategy at a hedge fund over 10 years later. Hope you enjoy (listen below).

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    ***Free WSO shirt given out to the first 50 reviewers for this new WSO Podcast (in iTunes) and then one for every episode after that!

    Comments (70)

    May 27, 2019

    Do you see cfa more as a signaling tool or as a learning experience?

      • 1
    May 28, 2019

    Hi famejranc. I'd say that depends on your initial starting point. If you majored in a non-finance program in school and are applying for investment related positions, i think the CFA would be a great learning experience. It's a mile wide but an inch deep and it'll give you a good introduction to investment management, particularly the fields of equity research and portfolio management.

    However, more than anything it's a signaling tool. As roles get increasingly specialized, you cannot exclusively rely on you CFA "knowledge". That's because most roles dive far deeper into the subject matters and because the CFA curriculum isn't typically written by working professionals.

    I think this day and age, CFA is a bit glossed over since so many folks have it and its not something that distinguishes you in any significant way. If you already have the knowledge, you can perhaps differentiate yourself by taking machine learning classes, working on a detailed investment pitch or something completely orthogonal like running a marathon, or biking across the country. There's a lot of ways to signal the skillset of endurance and tenacity without taking a 3 exams spaced 1 year apart.

    Times are changing and so the formula for getting ahead looks different now than it did 10 years ago.

      • 4
    May 27, 2019

    Any advice for interview prep as a rising senior looking for HF analyst roles? I have networked with a few small shops but want to get more aggressive after my current internship, thanks.

    May 28, 2019

    Hi Jamie'sDimon18.
    Thank you for the question. There's a lot to say on the topic of interviews as well as your intent to pursue an entry level job at smaller hedge funds. It really depends on what kind of fund, what kind of strategy etc. I'd be more than happy to arrange a call with you where we can discuss in greater detail. I think you will benefit greatly from the conversation.

      • 1
    May 27, 2019

    Favorite (free) sources of economic research?

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    May 28, 2019

    Hi Rizk Capital. By economics research, i am assuming you mean commentary around data releases, central bank events and thematic trends. '

    Bloomberg is a good place to start. https://www.bloomberg.com/markets/economics They usually have some piece about a major data release like payrolls, durable goods, retail sales, home sales and sentiment data like PMI and ISM manufacturing. They also comment extensively on central bank decisions and speeches.

    Reuters, WSJ, CNBC, market watch and yahoo finance all have similar commentaries but there audiences tend to be a bit broader.

    I wouldn't ignore linked-in as a resource. Many thought leaders in the field are posting there comments. Feel free to peruse linkedin and find an expert you like reading and follow them directly. Many times, media outlets write about certain events but don't have the credentials to really have a noteworthy opinion and resort to quoting sell-side economists.

    Not everyone has the ability to post on linkedin but the ones who run independent research shops can. For example look up Nouriel Roubini on linkedin.

      • 3
    May 27, 2019

    How did you transition from a junior monkey analyst to a PM role? Any advice to people who want to take a shot at a seat?

    May 28, 2019

    Hi john.smith578. I believe luck played a big role. I don't think there's a one-size fits all advice. If you make a good impression and you convince people that you are a responsible steward of capital and that you have well-thought investment process, then people might give you a look if such a seat becomes available. I am happy to chat in more detail.

      • 1
    May 27, 2019

    1) How should an undergrad student develop his macro view/perspective?
    2) What is your research/idea generation process?

    May 28, 2019

    Hi Rizk Capital,
    1) Developing a well thought-out view takes years of perfection. I think its important to start to understand what the consensus view point is. You can look at market prices for various instruments to get an idea how things are "priced". For example, if stocks are high and credit spreads are tight, the consensus view is that we are in an expansionary state of the economy. Then you need to evaluate whether you agree with your consensus ideally using data rather than stories or narratives. This is a fascinating subject and I'd recommend following up over the phone to hear about how this can be done in more detail.
    2) I rather not speaking directly about this in a public forum. Please sign up for a consultation and I'll be able to share further details.

      • 2
    May 28, 2019

    Mind if I send you a message regarding developing this further as well? Much appreciated and thanks for the AMA!

    May 28, 2019

    1) What are some strengths a trader at a central bank that sits in both the money markets and foreign reserves can highlight when applying for a macro fund especially against candidates that worked on macro desks on the sell side?

    2) Do you see any particular areas that a central banker could be lacking in when applying for a macro fund?

    May 28, 2019

    Hi bud_fx,
    1) You have to elaborate more about this role as a trader at a central bank. what are you trading? I think there's a lot of benefit in having a CB background when applying to funds, especially for economist roles. I think we'd have to talk through your exact situation and i can recommend a way that you can position yourself to prospective employers.
    2) It really depends on which role you had at the CB. See above.

      • 1
    May 28, 2019

    Money markets side:
    Short dated open market operations through repo / reverse repo.

    Foreign reserves side:
    I mainly trade FX swaps (tenor <3m) & a bit of repo if it yields better. Every once in a while re balance some of our FI sovereign portfolios with most of them having a 2 year duration. Then soon I'll be adding xccy basis swaps soon.

    On the "non-technical" aspects of role a lot of the time requires constant contact with STIR desks.

    Happy to go into more detail but would prefer to do it over PM. I tried PMing but WSO isn't letting me.

    Thanks

    May 29, 2019

    I can't remember his name but I believe the guy who ran the federal reserve open market operations had a fairly good hedge fund exit. The guy implementing qe. I think he exited to DE Shaw. Depending on exact role I'd think a lot of funds would have interest in a guy who really understood the plumbing of central bank operations.

    Array
      • 1
    May 28, 2019

    Hi, Can you provide any suggestions for the new guy, starting his own fund?

    May 28, 2019

    Hi xwallstreet,
    Congratulations on the bold step of launching your new fund. I'd need to hear more about your background to get a sense of what kind of advice you'd benefit from. If you can PM me and tell me more about your strategy and what you're trying to do, we can go from there.

    May 28, 2019

    Sir, PM sent

    Jun 11, 2019

    Hi, thank you for doing this. I am also in the process of starting a small fund and would appreciate your suggestions.

    May 28, 2019

    Hi and thanks for doing this. Do you know what kind of hours fund accountants tend to work? Second of all (unrelated to this first question), do you think aspiring to work in asset management isn't a good idea given the current concerns over underperformance of active managers?

    May 28, 2019

    Hi A jar,
    From what i've observed, fund accountants work 8:30-7. I am sure this varies from place to place.

    If you're an aspiring accountant and want to work on the buy-side, i don't think dynamics such as underperformance will matter all too much. Accounting is a function that all asset management firms need to have. And while there might be systemic under-performance, the AUM globally is high and continues to grow.

    The main headwind in my mind is the slew of consolidation that taking place. That might reduce the number of accounting seats throughout the industry.

      • 2
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    May 28, 2019

    How do you determine what is driving a market? For example, in FX it could be rate spreads, relative equity performance, risk on/off, gamma hedging, the list goes on...

    May 28, 2019

    Hi VolatilitySmile,
    This is a great question.

    You've correctly identified that FX is driven by rate differentials, the behavior of risky assets, among others. However, the drivers alternate in importance. A naive way of seeing current coincident factors is to take a static correlation between the FX and its universe of drivers. You'll identify which factor is experiencing the highest coincident correlation or which factor is rising or falling in importance.

    However, this approach fails in that there's correlation between all the various drivers. For example if risk-on is driving rate differentials which is driving FX, what is ultimately the causal driver?

    More complicated statistical techniques are required. Look into principal component analysis (PCA) and Granger causality testing for some answers.

      • 3
    May 29, 2019

    PCA is my favorite statistical technique

    May 28, 2019

    What is the usual background juniors at your fund have?

    May 28, 2019

    I am currently not at a fund but it typically depends. We have hired traders from various sell-side banks who made markets in the products that we traded, we hired from other buy-side firms and etc. Macro funds are different in that they typically look for sales & trading background whereas many equity and credit single-name focused funds mainly recruit from investment banking programs.

      • 1
    May 30, 2019

    What about market-makers from prop trading firms, e.g. Optiver or DRW?

    May 28, 2019

    Currently at a top II ranked SS macro research shop. Eventually, I would like to transition to the buy side as a generalist for a fund. I know that the industry itself (active mang/HF) are under tremendous pressure and was wondering what your view on the industry as a whole is moving forward? Also, any pointers on how I can make the transition from SS macro research to a fund? I have the series 7/63 and one and a half years of experiences in my role as a research associate at my current shop (first job out of college). Any pointers on how to make that transition?

      • 2
    May 28, 2019

    publish well thought out trade ideas with all the rationale and supporting data/charts...follow your model portfolio in your research...trade it like a real investor trying to convince the world to join in your trade ideas...after a few years, you should have a following and be able to get a seat as a PM or analyst somewhere on the buyside.

    just google it...you're welcome

      • 1
    Most Helpful
    May 28, 2019

    Generally, the buy-side is consolidating and most of the assets are going to a few firms who have outperformed in the last few years. These are the largest firms in the industry so there's quite a bit of re-concentration taking place. Furthermore, discretionary global macro is under pressure as a strategy as things are moving to the systematic side - which i see as a transition of tools rather than strategy.

    At the moment, to be highly desire-able in macro, you need to have a very strong quantitative skill-set and a resume that reflects it, either through prior work or academic credentials. As with anything that's being eaten by software, the winners will be few as the firms with the better mousetraps should capture more of the alpha and more of the assets.

    Thus, if you feel like you're not in the top 1% in quant skill sets, i highly recommend you start to specialize in some niche that can't easily be replicated using a systematic strategy. If you want to have a more detailed discussion which niches will likely be more lucrative, please PM me.

    If you feel like you want to break into macro-trading despite all these headwinds, the best thing i can say is become a thought-leader on a place like twitter or linkedin and you'll be recognized as someone who has great ideas or has an interesting and repeatable framework to evaluate the world. The community responds much more to favorably strong views/trade ideas than it does to commentary and narratives. There's no shortage of the web/media. This is a double edged sword, so tread carefully.

      • 6
    May 28, 2019

    Hi,

    How do you see the future of discretionnary macro and do you think it is increasingly hard to justify the relatively volatile returns to investors compared to other strategies?
    Do you think that tomorrow's high macro performers would be data scientists who are able to synthesize a lot of different metrics in an original way? or do you think fundamental people who know the market psychology and develop relations with the right people will still have a good edge (still have some programming skills,just not as developed as the former)?

    Another question:
    Do you think joining a BB EM credit desk today provides good exit opps for macro/credit HF for PM track and not just executionary one? (the BB's strength is not in EM)

    Thanks for your time.

    May 28, 2019

    Hi htmar,
    See my response above. The future looks slightly bleak at the moment given lack of strong performance and pressures around competition from systematic funds. That said, i think the pendulum will swing wildly around the trend.

    In other words, there have been several periods of extremely weak systematic fund performance as all the funds crowd into the same strategies. The pendulum tends to swing towards discretionary and then back to systematic as returns mean-revert. Ultimately, i think the trend is for skill-sets to migrate towards quantitative with a discretionary overlay.

    I think the topic of edge is extremely interesting and deserves a longer answer. I am more than happy to talk about it over the phone in more detail.

    EM credit is a indeed a niche where things aren't systematized to a great extent. I think its a great niche to pursue, irrespective of the bank's strength in the area. If a fund tends to focus on distressed credits, then they're more likely to hire an analyst while a fund that wants to trade EM credit RV will likely go with a sell-side trader.

      • 3
    May 30, 2019

    What does a sell side trader bring to RV that an analyst wouldnt? Could you elaborate on the skillset differences please?

    May 28, 2019

    I saw you mention that unlike other types of funds, global macro tends to pull recruits from sell-side S&T rather than IB. For someone who is entering IBD, but is very much interested in global macro over other types of funds (particularly the qualitative macro view side of things), how should I go about positioning myself or would I do better in trying to pivot over to S&T even if it would be a MM kind of firm and that I'm not very interested or skilled in programming/math. If in just IB, are there perhaps particular product or coverage groups that may be better suited or even a group like ECM/DCM? Thank you!

      • 1
    May 28, 2019

    If you read my comments above you'll see that it's imperative to identify your competitive advantage while being on the buy side. You need to convince yourself that you're a top 5% thinker amongst the very intelligent crowd that comprises the macro community.

    You'll find it very hard to convince someone that you have an edge in qualitative assessing macro trends. I think people have grown skeptical to this pitch.

    That said, if you're willing to sharpen the quant skills, sales and trading would be a better education than IB. In my opinion, IBD opens are more longer lasting doors. The S&T business is under attack from low volumes and Dodd Frank. IB continues to thrive in this environment.

    Long story short, be very sure that you want to do macro because If you switch to S&T, you might be handicapping your career trajectory, IMO.

      • 4
    May 29, 2019

    .

    May 29, 2019

    Thanks for the AMA Mentor86

    I have a 10 week internship at an L/S equity hedge fund in London this summer which could possibly lead to more internships there or even a full time job. If I were interning at your fund (hypothetically) and you were looking for new hires, how could I best position myself to get hired full time?

    May 28, 2019

    Global macro funds look for very different skill sets from L/S equity funds but of course the common thread is the ability to distill the signal from the noise, to come with a trade ideas that is overlooked and underappreciated by the markets. If you focus on that core competency, some funds will at least give you a look. If you want to transition to macro, maybe you can focus on the top-down part of your investment selection process.

      • 1
    May 29, 2019

    How did you arrive at your time as a WSO Mentor being worth $150 an hour instead of any higher or lower?

    May 29, 2019

    Do you think your opinion of the CFA is at least in part a function of your job? Whenever recruiters send me openings they always state that CFA and/or CAIA is required or substantial progress is strongly encouraged. At my shop (large allocator) the CFA is highly valued. I've heard mixed reviews from peers in town as to exactly how highly it's valued, but no one seems to disagree that a) it is valued and b) they would much rather have it than not. I cover alts.

      • 1
    May 28, 2019

    I think the CFA is highly valued and is a requirement for some jobs, especially those of allocators, equity research analysts and private wealth advisors. My impression is on the fast-money buy-side of the business, its not as respected. Its certainly noted nonetheless, but there are so many candidates who have CFAs, it dilutes the value. Like i said, it really depends on what kind of roles you're going for. I do take some issue with the CFA curriculum and i am biased from that perspective.

      • 1
    May 29, 2019
    Mentor86:

    I think the CFA is highly valued and is a requirement for some jobs, especially those of allocators, equity research analysts and private wealth advisors. My impression is on the fast-money buy-side of the business, its not as respected. Its certainly noted nonetheless, but there are so many candidates who have CFAs, it dilutes the value. Like i said, it really depends on what kind of roles you're going for. I do take some issue with the CFA curriculum and i am biased from that perspective.

    Gotcha. Makes sense.

      • 1
    May 30, 2019

    Thanks for the AMA.

    I am currently at a BB conducting quantitative research on a rates desk within the firm's macro group. Can sell-side researchers in this area successfully make the transition to macro HFs? Is this skill set particularly desirable?

    May 28, 2019

    Yes i think that definitely a type of role where the transition to a macro fund will be quite seamless.

      • 1
    May 31, 2019

    Hi Mentor86. Thank you for the AMA.

    Do you have any advice for students who have lower GPAs that want to get into IB? I am currently a BO intern at a bigger private equity firm and would like to get into the investment side of things. I quickly found out that that is near impossible to do without relevant M&A experience/high GPA from a target school. I have completed the CFA level 1, and I am graduating in a semester. Your advice would be greatly appreciated. Thanks!!

    May 28, 2019

    Aim at slightly lower tier boutique banks. Investment banking experience is a pre-requisite a lot o things. Don't be shy about taking an unpaid internship to ultimately land a full time seat.

    May 31, 2019

    Great AMA. How quant-y is your investment process? Do you utilize analytics from a quant team or do you run your own analysis?

    Jun 7, 2019

    It depends, it's Usually a combination of both.

    May 31, 2019

    Hi, thanks for the AMA

    Would you still recommend a Fixed Income sell-side trading role for someone just starting their career? If so, what products are best for someone looking to ultimately end up at a macro HF?

    Jun 7, 2019

    Trade web is currently gaining market share across all fixed income products. Things are slowly becoming electronic. You can join the sell-side for a few years and make the jump. Make sure you join a desk that can take proper risk where you have a benevolent mentor. You'd be surprised.. it's hard to find

      • 1
    Jun 1, 2019

    Thanks for doing AMA.

    I want to know about position sizing and deploy of strategies of a global macro fund. I am only familiar with l/s equity fund.

    1. How do you size a position in a portfolio?
    2. How do you determine when to exit a position?
    3. Which factors will affect the construction of the fund's portfolio?

    I ask these questions because a l/s equity fund has straight forward answers to them, but I cannot quite wrap my head around a macro fund.

      • 1
    Jun 7, 2019

    I'd be more than happy to answer over a phone call. Please PM me.

    Jun 1, 2019

    Hey Mentor86, thanks for taking the time to answer questions.

    I'm currently working at a boutique REPE shop in acquisitions and have my CPA. Do you have any tips on how I might transition into the hedge fund world? I'm interested in fundamental investing, but my only "track record" is personal and very amateur.

    If I was to reach out to hedge funds or recruiters, what would pique your interest? I'm from a non-target and my GPA isn't impressive, so I get that it will be a hard sell. Any tips are appreciated.

    Thanks.

    Jun 7, 2019

    Real estate private equity is a good place to be. Why are you thinking of switching?

    Jun 1, 2019

    I like real estate as an asset class, but I don't find the analysis too interesting although there's a ton more to learn at the property and regulatory levels.

    Jun 4, 2019

    .

    Jun 4, 2019

    Hi @Mentor86 , thanks for the AMA!
    I am a fresher in college, as my name suggest, also a market enthusiast. I am aiming for either snt in bb or straight into a hedge fund (I understand they dont usually hire undergrad). Currently feeling more interested in pm/prop trade but it seems prop trade is declining in the hedge fund.

    I have some questions which might be silly cuz i d really have much understanding of hedge fund tho i have been reading wso lately and get a brief overview on that.

    1. Any advice for juniors to get a hedge fund job out of college? Like what skillset do the fund expect us to have/ anything that will give us an edge in securing a job.
    2. Why did you choose to join a Macro fund instead of other type of fund like L/S Equity, sth like that. If u are given another chance, would you choose another type of fund with different strategy? and why.
    3. continue from Q2, can u explain some fundamentals difference between hedge fund with different strategy in terms of what people do (the work duties)

    And lastly, thanks again for taking questions! And sorry if questions had already been asked before

    haha just an ordinary kid with enthusiasm in the market
    -- market-enthusiast/ Hongkonger

    Jun 7, 2019

    Hi Market Enthusiast. Many times, people's career is a function of happenstance. Often times, you don't control which asset class you end up focusing on.

    It might seem like you know a lot from undergrad and perusing the forums, but there's a lot to learn in the industry. I would find a BB role where you partnered with a mentor who can teach you the ropes.

    Jun 4, 2019

    Hi intuit2k2, thanks for the advice! I have been actively networking with different industrial experts, trying to know more about the industry. However, I feel like there's sth that I wont be able to understand unless I am in that working environment. Therefore, I guess you are right, starting off in bb should be beneficial to get a sense of the real market.

    Just a quick question, what thing will make u 'WOW' if u see it in an application. Like what will make one stand out apart from internship experience and high GPA. Thanks!

    haha just an ordinary kid with enthusiasm in the market
    -- market-enthusiast/ Hongkonger

    Jun 8, 2019
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