Q&A: I'm the head trader for a Multi-strat HF
Went to a top 25 undergrad program, been at HF trading for past 10+ years, ask me anything. been at same HF the whole time so my experience may not be typical
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I have no knowledge of the industry, but interested in trading, how did you get started, as you are not the atypical candidate?
There are better forums on here for you to read for tips on that.
There are other forums on here for this guy to figure out how you got started trading? Weird, I thought this was an AMA, my bad chief
What all do you trade? Are you an active trader with a P&L you're responsible for or are you doing execution for PMs? What's a typical day like?
I'll probably have some more. Thanks for doing this!
I trade everything, equities, fixed income (cash, futures, irs, swaptions, cds, converts, corps), fx, fx options, etc. everything except mbs. I have my own book but honestly trading macro is the one discipline where over time you don't naturally gain a high level of proficiency. I'm not much better now than I was 10 years ago. Mkt is so dynamic. So haven't generated consistent pnl so I only trade for myself sporadically. It's been positive bot not hugely so. So I do execution for two pms, manage risk, do VaR, cash mgmt, help macro pm w managing his book, risk, find best ways to put on ideas. Morning is going through news and summarizing for team. During day, trading, reading, analyzing economic releases, keeping team up w relevant news and trends, book trades, fix crap ops comes to us with, (trade breaks, swap resets, margin calls, signing wires), fielding calls from street, updating positions spreadsheets, reviewing prev days pnl, then dealing w earnings, listening to calls to help the analysts. Then special projects, setting up prime broker accts, negotiating fees, researching trade ideas, new asset classes or products, etc
"I have my own book but honestly trading macro is the one discipline where over time you don't naturally gain a high level of proficiency."
Curious to hear your reasoning as to why you believe this
every other discipline i've looked at there's a much more natural curve to gain proficiency... a process and procedure that much more static... merger arb, distressed debt, credit, equity long/short, FX. you're usually in a seat w/ a specific investment horizon and you can tailor your process to that. there's a way you approach looking at a company balance sheet, looking at liquidity ratios, barriers to entry, competition, margins, top line or ebitda growth, valuation multiples, absolute and relative, the regulatory environment, etc.. and after a year, two years of learning how to model the cash flows, understand what the main drivers are of that sector, the bull/bear view points, you can come up with your differentiated view. Macro process is much more dynamic and open ended and you're competing against people quite often with better access to relevant data points. you have to balance know the economic fundamentals, the political landscape, who all the buyers and sellers are and what drives them, FOR ALL MARKETS. you don't have to trade every market, but i've been in a spot where we trade everything, so being a jack of all trades, master of none i think is very very challenging. trying to figure out how unconventional monetary policy limits, demographics, labor reform will affect longer term japanese bond yields or longer term fiscal solvency one day and looking at an Emerging market the next which is full of corruption, illiquid markets, unstable political landscape the next, and then trying to figure out italian good bank/bad bank and it's affect on the pace of non performing loan sales and their ultimate recovery level another, to what the CNY is going to do, it's affect on risk assets, the fed, and other em countries. it's just so much to look at and it's always changing. i just feel being a credit analyst, or being a consumer staples equity analyst is much easier in the amt of info you need to absorb, and the process at looking at valuation is much more stable over time.
Typically candidates you look for?
I interview for our ops positions often. We haven't had as much turnover on the trading desk. Usually look for guys w fixed income background. They can learn equities quicker than Eq guys can learn fixed income and the Greeks.
Thanks for doing this. How do you think the skills necessary to succeed in the HF world have changed over the past ten years, and how do you expect them to change in the next ten? Do you expect math and programming skills to become more crucial? Or is this more dependent on fund strategy? Is IB still good prep for HFs in general?
Trading is a dying field. Eventually much of it will get automated by computers that figure out best way to minimize transaction costs, maximize liquidity, and lower mkt impact. Certainly now a world for quants and guys who study high freq finance. Before it was ruled by relationships w the street and a feel for the tape. Now it's managing and fighting against the high freq guys and min your footprint and information leakage. Math has always been important but quant/programming skills have become more and more important. Desks will prob still need human traders but it'll be less of them. Just like the cashiers at McDonald's. A big shop that had 5-10'traders will need 2 in the future. That's for the trading desk. For analyst/pm roles, ib, Eq research, trading for sell side will still be the feeders for hfs. Alpha generation keeps falling w the Information Age and technology and competition. More and more hf will go under or have to cut fees as 2/20 is hard to justify.
Describe the types of strategies that you use.
Eq l/s, macro, merger arb
How do you generate trade ideas?
I'm a grad trying to break in the industry and I run a blog on WSO. Would you be willing to review it if you have time? Criticism, even harsh is welcome as long as constructive.
Also, where are you based? How was your Q1, especially when it comes to fixed income?
Post the link, if it's not too lengthy I'll have a look. Ny, q1 down a little like most, FI mixed, there're relative value type positions so up on some down on others. We don't have a huge view right now, slightly bearish on rates but not hugely so. Not much of a position on credit spreads
Thanks. Is q2 going better than q1? Your view on June's expected rate hike? How did you get started out of uni?
My blog is here but it's rather longish. 500-800 words a week and I'm in week 6 already but I guess you can read just the first and the last entry.
Yea q2 is better. Pain trade for most is higher so that's prob where we'll go. So many funds force teams to run high gross but mkt neutral. Names r so crowded so subject to these massive unwinds. Plus more and more funds running risk parity strategies. Re: your blog, I skimmed the first and last notes. It's good in theory to be self reflective about your approach, your views, where you're wrong and right, creating a process and refining it. Keep reading as much as u can. Follow other blogs, macro man, zero hedge, etc. realize your tendencies, circle of competence, your risk tolerance, your time horizon. Learn what u can from others but don't feel the pressure to be follow advice given in comments. The quality of responders is mixed at best. There are lots of ways to make money. I would caution against latching onto a perspective and view based on cursory reading. The issue is since you're still so green and your exposure to differing views, and even consensus views, positioning, sentiment, etc is limited. So when you are wrong, I'm not sure that you really know why you're wrong and when your right, whether you were really right or were just lucky. If it's the later, it may give u a false sense of confidence and validation of a process that may still be flawed. Certain indexes you may track like dry bulk are antiquated and are not materially relevant imho. Honestly, I'd say learn about different asset types, eq l/s, credit, mbs, whatever. Most have a more natural learning curve and path to proficiency than just general macro trading.
FYI I started on sell side at a bb for a few years through a standard analyst program in the 90s before my time on the buy side.
edit...i missed that OP already said he was an execution trader who ALSO has his own risk book. i'm only familiar with bank traders, and "trader platform" hedge funds (like Millennium, BlueCrest, Breven, ect..)...so this seems like a grey area from what i've seen...but maybe this is more common that my experience has led me to believe.
I didn't know there was a difference, Tks for letting me know.
difference is blurred.. experienced execution traders are also allowed to take risk at many shops (sometimes significant, more than most PMs).
Oh and opinion on hike, most r leaning towards July. This next week will be telling. A nfp report over 200k w decent revisions and strong aver hourly earnings, core pce and ism solid and I think we get a June hike. If any are like warm, prob July. Most of street thinks July or sept to see what happens w brexit, but there are always risks and I think fed doesn't want to feel like they missed another window to hike
Thank you very much for both answers.
You are going for pain trade because you expect a downturn or I'm reading too much into it?
Best or your favourite trading book?
Traits you like/hate in a candidate?
As for my blog, I prefer a macro approach because: a) that's my university background b) for now I can use simulators only about equities/etfs/futures and the possibility to test whatever I learn is quite the incentive compared to fixed income products or others. I don't dismiss reading about them, it just has a lower priority for the moment.
How do you spend your weekends?
I am long risk but not solely because it is the path of most pain. I liked mkt wizards too and flash boys. Look for candidates who are smart and humble, someone who is willing to give 110 perc and understands every job has its share of boring grunt work but will do it without complaining or feel they are above it. Someone who's a good person too, trustworthy w/ integrity. Avoid arrogant know it alls who aren't willing to learn or listen.
Weekends I spend w wife and kids, family and friends
Do you know of any media sources (television, radio, podcasts, blog etc.) that provides interesting and informative market news/ analysis?
I usually get most of my info from Bloomberg and the street. Other than that just macro man, zero hedge and there are specific traders I consistently read like Brent Donnelly at Citi or Dennis gartman and certain sector traders at the banks
Sat with Brent a lot last summer. Great dude
How have you done for it so long? Finding execution traders are harder and harder to come by BC I can give GS or any sell side shop my risk parameters and outsource your kind.
It's because the buyside doesn't trust the sell side. We try to use as much low touch (algos) as possible and less high touch (sell side sales traders) only for blocks. Less information leakage.
Sounds like you have the luxury of using your own algos to execute and that makes complete sense. If you're simply using common sell side algos, then we're back to square 1 and even more proof that execution traders are a dying breed.
Is it still worth learning about value investing and other old school investment books?
Absolutely. Given that fear and greed still drive the mkts, there are always inefficiencies. Those books just neglect the concept of value traps and stocks that are in secular decline (vs cyclical) and cheap for a reason. But the old style of investing in bottom decile of p/b and expecting it to consistently outperform maybe over
Thanks. I guess it's time to fuse the new school with the old. In terms of new school, have you got any book recommendations or key topics to focus on? (I know you have been doing this for a long time so you might not know but just incase).
Thanks for your time
So would you recommend learning something like Python? Do you see the future as a bunch of algos trying to frontrun each other? If we stick to Flash Boys, the High Frequency industry contributed quite a lot to the last crisis and they were hit pretty badly. Do you see that happening again?
really depends on what your end goal is, what do you want to be doing? do you want to run a risk book at macro hf? do you what to go to a small prop shop? would you be happy trading on the sell side? or maybe if you enjoy the economic side of things, do you want to work on sell side being a macro strategist or credit analyst, or work in research. there are plenty of position on the sell or buy side where you a programming background won't necessarily give you a leg up (won't hurt, but not really necessary) .
i don't think HF guys had much of a role in the fin'l crisis. banking crisis is unlikely in near term like what we had. leverage is massively reduced and banks are fairly well capitalized. all the regulation will create liquidity runs though. banks can't do much prop trading if any, and warehouse very little in bonds, so when there will be no buyers when real money or any sizeable outflows happen in fixed income mkt. everyone on the FI side knows this is going to happen one day.
Interested in your views on my forum topic of 'Transition into Multi-Strat'. Please visit/comment.
Are you still taking questions?
I recently had a phone call with an alum who snapped at me for beginning my initial outreach email with Mr. [Lastname]. Just use first names, he said. If he would email JPM's CEO, it would start with "Jamie".
What are your thoughts on email formality with respect to disparity in age, experience, etc? Does it annoy you when people send you emails that are a little too formal in tone, lacking brevity, etc?
Looking back at last 20 or so thank you letters, i'd say 30% addressed me as Mr. So it's certainly not something that is unheard of. I think generally, first name is fine. With very large disparities in age/experience, I certainly see Mr. X used. I'd say most people reaching out for the first time to my boss use Mr. X out of respect and i certainly don't think it's too formal. depends on the circumstance and if i've met them before. usually people i've met or interviewed, they prob should just use my first name. people i haven't met, i think it's fine to be cautious and more formal w/ Mr. I don't feel strongly about it, it's not a dealbreaker one way or another. content of email has more weight. don't be vague.
Thank you for the serious answer to my Monkey Shit question, Mr. jasonastor1.
I think for me, the equation is: college kid wanting internship => (cold outreach) => VP+ merits starting the email with a "Mr." Would be curious to hear others' comfort ranges, but I recognize that most of WSO is beyond these sorts of details.
But concision and specificity is everything, isn't it?
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Good stuff jasonator1,
Read in the thread that your fund also does merger arbs. what is your thoughts on the strategy? Are there still sizable demand for merger arb guys on the street? With 2015 record deal volumes and 2016 being a pretty good year so far, there has been minor comeback in the strategy's popularity. Wonder how you think the long term potential of the strategy is.
Thanks.
it ends up being a tangent strategy for most. merger arb depends on you being able to put in 20-30 deals to mitigate idiosyncratic risk (blow up risk) as you're collecting pennies in front of a bulldozer. you make a little, make a little, make a little, then have a blow up w/ a deal breaking. m&A volumes ebb and flow so hard to have a dedicated merger arb fund. then more and more people have it as an ad hoc strategy and when risk aversion hits, are the first ones to blow out of the entire book. then from time to time, really large crowded arb deals blow up and make the entire sector more gun shy like past two years. lately the admin and DoJ have been very deal unfriendly. a disproportionate amt of deals have been blocked and the more protectionist as a country we grow or populist, that doesn't make for a good environment for merger arb.
Thanks for doing this. I am an analyst at sell side trading desk, and I want to be a macro trader with riskbook just as you. Is there specific asset classes/products/desks that are more likely to increase my chance ending up in macro hf? I just feel like there is not a standard way of breaking into hf industry from sell side trading, making it somewhat difficult to have good plan for future career path
i think it's pretty clear path from sell side trading desk to macro hf. but given how much less prop risk the banks can take, it's getting harder and harder. you should know plenty of people who have made that transition. ones i've seen have been mostly were on the Sov or corp cds desk, EM Fixed income options desk, MBS trader, quant, or any of the macro prop desks in banks.
Thanks for doing this.
Was curious on how much transaction costs eat away at a HF's returns. For example, if the fund is up 20% before fees & excluding transaction costs, what is the fund's return post-transaction costs (but before fees).
depends on the fund and the gross/net they run, but if i had to generalize, admin fee 10-15bp, commissions 40bp-1%, short rebate (cost to borrow to short), 40bp-1%.
just found this thread...if OP is still around...i'd ask...have you tried to get your own seat at the multi-strat as a PM? if not....why not?
too old to try. i'm comfy, value the quality of life i have, time w/ kids/family, vacay, etc. hopefully i won't have to be doing this too much longer before i can walk away to pursue other interests.
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