AMA: London L/S + event-driven analyst

thewaterpiper's picture
thewaterpiper - Certified Professional
Rank: King Kong | banana points 1,091

Hey guys, haven't been on here for a while, but I'm currently waiting a few weeks to start my next gig and I'm bored. I figured I'd try to give back a little, especially because I know there are people from London on here, and the amount of info available on London HFs hasn't been great historically.

Quick background:
School: Very 'target', did an IBD summer internship
IBD: Call it a lower Tier 1 BB (i.e. not GS/MS/JPM), did M&A for 3 years in London
HF 1: Classic concentrated fundamental equity L/S, multi-billion AUM - strategy/style-wise, think Tiger Cubs, Greenlight, etc. Worked for 3 years as a generalist analyst covering US + Europe. Managed a small sub-book in my last year in a kind-of junior PM / senior analyst-type role.
HF2: Moving to an event-driven fund where I will remain a sector generalist; interviewed at a lot of places incl. single-manager L/S, multi-manager L/S, event-driven and macro.

Happy to answer questions on most topics: recruiting from sellside, recruiting from buyside, day-to-day, career, stock analysis, portfolio construction, my research process, HF strategies, etc. Won't go into lots of detail about things like comp, just because there are so many funds out there and I really don't have that many data points.

Hedge Fund Interview Course

  • 814 questions across 165 hedge funds. Crowdsourced from over 500,000 members.
  • 11 Detailed Sample Pitches and 10+ hours of video.
  • Trusted by over 1,000 aspiring hedge fund professionals just like you.

Comments (57)

Jul 13, 2017

Hey, thanks so much for doing this. So I have a couple questions, if you don't mind answering:

1) Considering how saturated the HF space is and how many managers are pursuing the same trades, alpha generation is becoming increasingly difficult. Where do you see the future of equity hedge, whether it is L/S, fundamental, event-driven equity, etc.? Do you think it has a good future for new analysts over the next couple decades?

2) Considering the rise of quants & a lot more money managers as a whole, which HF strategies do you think in the next 2-3 decades will be best for alpha generation (macro, distressed debt, etc.)? Which strategies will be most impervious to being taken over by quants?

3) What is your advice for those looking to get into the HF space after 2 years in IB? What something very unique that you can do to separate yourself from the pack?

4) How do people move from one HF to another? I've heard it is often notoriously difficult (and you seem to have some experience with it).

5) How many analysts would you say burn out from the HF space, on a rough percentage basis? Let's say 5 are at a solid $3B multi-strat, how many do you think will be there 5 years later?

6) For those HF analysts that burn out, I know some can use MBA as a pivot, but what about for those who burn out in their mid-thirties or so? No one wants to hire a failed analyst and their skill set is not particularly applicable outside of financial analysis, so what do they do now (assuming they haven't made it really big)?

Best Response
Jul 19, 2017

Cool, bear in mind I am going to be biased since I do equity-hedge, but here goes:

1) I think it's indisputably much harder to generate alpha in equity L/S vs. 20-30 years ago. But vs. 5 years ago? IMO not clear. So perhaps we are in a new steady state within actively-managed equities. The new challenge is the continued rise of passive, so the most replicable strategies will be the first to fall. IMO, that will be strategies like diversified L/S, particularly heavily long-biased funds - if you have many positions and many trades, that means you have many datapoints, and computers are better at crunching large amounts of data.

Longer-term, I think passive/active mix will fluctuate and be cyclical, but nonetheless, the average share of active will be lower than it is today, so the future isn't amazing (there should be fewer HF analysts overall). That said, there are plenty of bad equity HF analysts out there today, so if you are good, you should be able to hold down a seat.

2) This is kinda similar to (1) - the least replicable strategies IMO are things like activist L/S (don't think boards will take letters written by a computer seriously); distressed debt (driven by legal system to some extent, and humans still have some advantage over computers in terms of NLP); and event-driven (more 'bespoke' situations i.e. fewer consistent datapoints, ergo harder to create pattern-recognition).

3) Preface: I feel like in the US it's common to bounce after 2 years, whereas in London you usually need 3 years unless it's a distressed fund (for some reason they're usually fine with 2 years).

I think you need to come from a modelling-heavy IB team, to the extent that any excel modelling should be easy for you. Read plenty of investing books: Einhorn, Howard Marks, Joel Greenblatt, Value Investing by Greenwald, Capital Returns by Marathon are a few of my picks. There are some good threads on WSO about books. Be very proactive in terms of reaching out to both recruiters and firms.

4) Most straightforward way to move across HFs is through personal network: prime brokers, sell-side sales / research, and other buyside contacts. Because you have someone who knows you, your work, and can vouch for you. Unless you're at a pod shop or you're a fully-fledged PM, you won't have a track record that you can shop around. Otherwise, you have go via recruiters or cold-email firms - neither is an enviable prospect.

5) In my short experience, I don't think analysts generally 'burn out' in HF the way they do in IB. It's more common to be found out that you simply don't have what it takes, e.g. not comfortable taking risk and responsibility; unable to think independently from consensus; can't handle pace of public markets; caught up in behavioural biases; insufficiently competitive.

Following your hypothetical, I would say 2 out of 5 get found out in the first 3 years. But once you know you're in the right long-term career, it's far more rare to burn out. As an analyst, you're constantly building your knowledge and refining your processes - so the job should become easier (or at least more efficient) as you go along.

The exception is multi-managers - plenty of PMs who come from directional L/S, L-O and SS do not last. But again, I guess it's not really 'burning out' because you just get fired.

6) Common to go to L-O, ER, SS equity strategist. Possibly PE if you've only been doing HF for a couple of years. Sometimes you see guys who go back to IBD (shudder).

    • 17
Jul 13, 2017
  • SB, thanks for the thorough responses
Feb 9, 2018
thewaterpiper:

5) In my short experience, I don't think analysts generally 'burn out' in HF the way they do in IB.

6) Sometimes you see guys who go back to IBD (shudder).

How common are (abbreviated) 5) and 6)?????? Is 6) an easy move. Is 5) better for associates and not analysts??

Jul 13, 2017

Appreciate your time.

By way of background, I'm currently in a PE gig and am looking to attend a European MBA (LBS, Oxford, Cambridge, etc) for a 2018 intake and then hoping to secure a role at a distressed fund thereafter. Hoping to get some insight on European/London hedge fund recruiting in general/things to keep in mind.

My expectation is that it'll be a lot of networking to secure a role, but anything I can do in addition to that (do euro HFs want pitches as part of hiring?), expectation of technical skills/starting knowledge would be helpful to know.

    • 1
Learn More

814 questions across 165 hedge funds. 10+ Sample Pitches (Short and Long) with Template Files. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside. Learn more.

Jul 19, 2017

I have limited knowledge of European distressed but I'll try and answer the best I can. Also did you do IBD before your current gig?

I feel like networking to break into HFs in London / Europe isn't as easy vs. US because of cultural differences, but obviously do as much as you can. Would definitely try reaching out to firms directly - and it can be helpful to send pitches with cold emails as well (but they need to contain some original thinking / research). Also use job boards (mainly eFinancial), and reach out to recruiters (but they seem to have become less relevant in the last couple of years in London). Also based on anecdotal experience, I feel like many distressed funds want to hire people with an European language.

Definitely worth working on pitches - you'll need to have ideas to talk about in interviews anyway. Ideally some variation in terms of sector and style. Could develop 1-2 of them into full investment memos so you have something to show the funds you apply to in terms of your writing ability.

With technicals, at the interview stage, it's typically things like what makes a good / bad company, and what makes a good / bad investment. Then it's down to having an appreciation of risk / reward across the cap structure, and an appreciation for markets, i.e. why different instruments can be mispriced relative to each other - try and find some case studies to look at. I assume you will have read Moyer and the other distressed textbooks, which will cover off most of the process-based technical knowledge (albeit it is US-focused and I have no idea if there's a more European-centric equivalent out there).

    • 2
Jul 13, 2017

Thanks. In response, I did not do IBD before PE, but commercial banking. Also a CFA charterholder.

Any thoughts on how picky funds are with European languages? I'm planning to study French with the aim of getting a practical knowledge of it going into my MBA. I've heard that there's a preference for garlic belt languages given all the NPLs there at the moment.

    • 1
Jul 19, 2017

Anecdotally I've probably seen the most asks for Italian but I think Spanish / French / German are often in demand too.

Jul 23, 2017

The funds are very, very picky with languages - even most native Brits don't stand a chance. Many, if not most, Continental Europeans in the analyst classes at the BBs and EBs in London speak 2-3 European languages in addition to English. Italian, Dutch, Spanish and Nordic languages are very important for Distressed/SS, but French and German are also very handy and though slightly more geared towards more vanilla PE and RE PE -focused funds.

As an example, my German colleague was passed over for a role at a top Distressed Debt fund in favour of another German with more or less identical credentials and experience because the other guy spoke Dutch too - they mentioned this directly in his feedback "The other German speaks 1 more language than you so we're selecting him" or something on those lines. My colleague also said that the final 5 candidate were polyglots - 4 Europeans, and 1 Lebanese guy (French & Arabic). You should know that it's binary, you're either at the C1 level, or nothing.

Jul 13, 2017

Is it more a matter of grinding until you get traction with the right firm, or would I be SOL with English and French, for example?

Jul 19, 2017

Only some funds are that picky about languages. There are plenty of people who only speak English. You'll be fine with English + French, it just takes the right firm.

Jul 23, 2017

Yeah, but it'll be harder for you to break in than the plenty of people who were already in the same space on the sell-side so their other strengths compensate for their lack of language skills. Have a look at the job postings on efinancialcareers.co.uk or the European equivalents for a better idea - many ads specifically mention which languages they need so you can get an idea of the numbers, and the split between "required" vs "preferable" - which is a distinction without a difference nowadays. But remember, you absolutely have to be C1 level fluent or better, so go all in with the language training.
Si vous voulez trouver un travail, vous ne devez pas y aller de main morte.

Jul 13, 2017

Thanks for doing this. You already touched on jumping from IB to HFs a bit above. I have a few follow ups (I asked these questions in another recent HF AMA but value different perspectives here):

  1. What are your thoughts on recruiting on-cycle vs deferring a year until after you have more transaction/deal/modeling experience as an IB analyst? What aspects/experiences of an IB analyst role contribute most towards success in HF interviews?
  2. Thoughts on going IB > PE > HF vs making the jump straight from IB to HF w.r.t. ease of recruiting/interview opportunities? I imagine this is relatively fund specific, and I also realize that this may be different in the US vs the UK, but still would appreciate any general insight here.
  3. I'm US based but would love working in London. How difficult would it be to recruit for HF opportunities in London as a US IB analyst?

Thanks!

    • 1
Jul 19, 2017

1) We don't really have as much of a cycle mentality in London because historically it's 3 years analyst with automatic promotion to associate, so there is less pressure to get a buyside seat within a specific window of time.

Generally I'd say recruit as early as possible and get interview experience, you don't have much to lose. If it ends up taking a year longer to land a seat, it doesn't really matter in the grand scheme of things?

Most important aspects of the IB experience for me are: ability to work independently (esp. modelling); being trusted to communicate with clients (both written and in-person); valuation / analytical work; and ideally have transaction experience with listed companies

2) I'm generalising so much, but I'd say IB > PE > HF is easier than IB > HF. Mainly because PE on the whole has a much more structured recruiting process, and there are way more seats available for banking analysts. Once you're in, PE > HF is a well-trodden path. Also there are some (usually higher quality) HFs that only recruit people with prior buyside experience, so PE guys arguably have more options available.

Conversely IB > HF often opens the doors to some crappy funds which just want to hire an excel monkey to grind out models. You can end up not learning that much about investing, and not getting much responsibility.

My personal stance was that I knew I wanted to do HF, so I figured I might as well try and take the shortest route there and skip PE, but it meant I had to be very picky with funds, so I spent a great deal of time recruiting for my first HF job. Aside, I would say IB > HF is a little easier in US vs. London.

3) If you have the right to work in the UK (or Europe - but who knows how long that'll be relevant in the UK), it's certainly possible. Otherwise, very unlikely.

    • 2
Jul 13, 2017

Why the switch?

Jul 19, 2017

Combination of factors. Some of the senior guys I liked a lot left the fund, and I didn't want to stick around as I felt AUM and performance would be impaired. I also wanted to move out of generic value L/S because I think the space is getting more commoditised, hence the move into event-driven.

Jul 13, 2017

Makes sense. It's interesting that you think event-driven is less 'generic' than L/S concentrated value. I was under the impression that the event-driven equities space is every bit as crowded especially with the smaller universe of opportunities and less flexible investment horizon.

Jul 19, 2017

Fair points. Firstly, I think there are diminishing returns to expanding the universe of opportunities beyond a point anyway. It's not like you can cover 3000 stocks as a L/S analyst.

The way I think about alpha, you have 3 types: informational, analytical, and behavioural.

In event-driven, I think there is more opportunity for informational and analytical edge because you're often dealing with binary situations with large price movements. That allows you to commit to very in-depth, focused research on very specific issues (e.g. antitrust / legal / shareholder approvals), because you know it will play out in a pre-defined timeframe, and the payoff will be significant.

When I contrast that with my experience of concentrated L/S, there are just too many factors in L/S that affect stock performance. Sometimes you find a stock where there are truly only a couple of factors that the market cares about, and you can commit to doing in-depth work. But even then you might end up coming to the consensus conclusion, and fail to generate positive returns (let alone alpha). Thus, getting a (legal) informational edge is really hard in L/S. Analytical edge is tough too, because L/S is driven by quantifiable factors like valuation to such a large extent, unlike event-driven which can be very qualitative.

Don't get me wrong, I loved doing L/S and I'm gonna miss it a lot. But I really fear the rise of the computers in traditional L/S and I'm nowhere near being ready to retire.

    • 4
Learn More

814 questions across 165 hedge funds. 10+ Sample Pitches (Short and Long) with Template Files. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside. Learn more.

Jul 13, 2017

Thank you for doing this AMA, SB'd. You may not know/have any opinion on this since you do equity hedge.

I am wondering, do you think there will be a lot of room to generate alpha in fixed income and credit opportunities going in to the future? I have asked a few people about this and a lot of them think there will higher opportunity to generate alpha in fixed income/credit as opposed to equities, was just wondering your take.

Appreciate the AMA it has already been very informative.

Jul 19, 2017

Well firstly, I wouldn't say there is 'a lot of room' to generate alpha in any conventional strategy going forward. Secondly, it's important whether you define alpha as being before or after fees.

From a human vs. passive / quant / AI perspective, I would say distressed debt is still attractive as an asset class, as I don't think computers are welcome on bondholder committees (yet). But from a human vs. human perspective, you could argue that the space is getting a little crowded i.e. too many managers, so it's really not that clear-cut for me.

But If you're talking about vanilla fixed income funds, then alpha (esp. net of fees) will get harder to come by as there is a lot of room for passive / quant to increase share. It's such a data and maths intensive field that I have to imagine that quant-type strategies will outperform long term.

Similar story with equities where the less replicable strategies have better short-term prospects for alpha. But everyone is trying to pile into them, which will reduce that alpha opportunity.

So long story short, my take is that when you look at asset classes as a whole, alpha will be cyclical. Unless you can truly do things that no one else can, e.g. RenTec / Madoff until he got busted.

    • 3
Jul 14, 2017
  1. What is your research process like?
  2. Why are most hedge funds lagging behind the benchmark in terms of returns?
Jul 19, 2017
  1. I like to be fairly methodical. Condensed version: I generate my initial ideas from (1) sector coverage; (2) fundamental screens; (3) thematic ideas. Once I have a potential idea, I'll spend a few hours reading the 10-k, latest Q, transcript and maybe an initiation note.

Then I decide if it's worth pursuing further. This is usually based on whether I think I could have a variant view to the market that is (a) valid; (b) significant to the share price; and (c) will not be overwhelmed by other factors.

I'll go through a few sell-side models to see how other people model the company. I'll adapt one of the models for myself, or build my own if I hate them all. Then I'll spend most of my time on the few key factors that drive the stock - maybe it's an upcoming product launch, or a poorly-understood accounting issue, or a change in the industry dynamics - it could be anything. That entails lots of reading, and sometimes calls with management, competitors, suppliers, customers, or industry experts. If my thesis is still standing, I'll model out a few scenarios and calculate a target price. Then I'll go through a checklist of mainly behavioural factors to try and minimise my biases.

Then I'll write-up the investment case, typically with a focus on measurability - what specific things need to happen for my thesis to be proven right; and thesis-breakers - what things would compel me to admit my thesis is wrong and exit the position.

  1. Firstly, fees. Secondly, I don't really know the exact details of how hedge fund aggregations are calculated, but I don't think they adjust for net beta exposure.

If you take an index like the S&P to be a benchmark, it's going to be 100% long, and you're comparing that to funds that might be running 30-50% net long. That's arguably a fundamentally different product from a risk/return perspective. Sophisticated investors understand that, which is why HF AUM has not collapsed completely.

That said there are plenty of crap funds out there who have no business managing money. But I don't think HF underperformance is quite as bad as the media make it out to be.

    • 9
Jul 16, 2017

Interesting to hear your method. Would really appreciate more commentary on the "behavioral factors" point and how you weed out/check for biases? Are these biases to your sector view/previous trades?

Thank you for doing this!

Jul 19, 2017

See my reply to rugbyladdy below. The biases are more about subconscious behaviours that lead to missing or misinterpreting information - a lot of it is based on previous trades.

Jul 14, 2017

Hey thanks for doing the AMA!
As mentioned above, there's been a lot of consolidation in the HF and PE space in London. I've noticed a lot more job postings such as 'Risk Arbitrage Analyst' or 'Research at Risk Arbitrage Fund'. As someone working at an Event Driven fund, do you think this space is gaining more momentum in the HF industry as managers look for alternatives to L/S or do you think this a trend which will die down soon?
Appreciate the info!

Jul 19, 2017

Yeah, I'd say risk-arb is seeing some momentum right now. A lot of funds try to market the strategy as a low-correlation, 'yield'-type product, so that can be attractive in a low yield environment. The downside is that some risk-arb funds have probably lured in a lot of less sophisticated allocators who don't understand risk-arb that well, so those funds may pay the price further down the line.

I think allocators will continue to seek alternatives to L/S for the near future. There is some pent-up nervousness about the outlook for L/S because a lot of funds make most of their money on the long side and we've been in a bull market for an extended period now. There also aren't that many funds who have successfully managed money through a downturn, so that creates some nervousness too.

Disclaimer: I'm obviously extremely biased because I just moved from L/S to do event-driven and risk-arb. Ask me again in a few years.

    • 1
Jul 14, 2017

Thanks for the explanation! When you say those funds may pay the price further down the line, do you mean that by allocators pulling the plug on their funds, or something else entirely?

Jul 19, 2017

Yeah, pretty much. At some point, performance will inevitably dip, and that's a difficult conversation to have if your investors don't understand your product. Those are the guys who will withdraw AUM at the worst possible time as well - when you are underperforming.

Jul 14, 2017

Thanks a lot. quick question: I have a non-traditional background but just proved to an HF I've got the analysis to help. Senior people at the fund requested my resume, though I do not know if it implies they are actively considering. Any suggestions on next steps, if/when to follow up, etc.? I'd like to maximize my chances with said HF and I'd rather not keep social proofing for consideration by demonstrating my investment theses.

Jul 19, 2017

Don't have much to add sorry, I guess follow up with an email to whoever your contact person is in a week or so? General advice: it's really important to hustle with HFs by following up (you have nothing to lose), but you also need to make sure they actually have an open position they're hiring for.

Jul 14, 2017

Thanks. I literally have had people tell me to go as aggressive as possible on this and others who have said to hold back a bit (that I already made my splash in the original email to garner the request). They are a big name, so not sure they even need to advertise the open position. But I did show my calls would have made them 4x the S&P.

Jul 15, 2017

How does L/S equity and event driven funds view people from equities in L-O asset managers like BlackRock and Fidelity?

Jul 19, 2017

In general, not very favourably (although like everything in finance, there are exceptions). At the junior level it's mainly about the experience level - M&A and even ER guys have simply worked more hours at the end of a 2-3 year stint. There's mentality - there's a feeling that L-O guys need to be 'retrained' to unlearn the things they know about investing / Asset Management. Lastly there are still widely-held biases that M&A is the most selective and hardest to get into, so that's where the brightest people come from.

At the end of the day though, most people are biased and want to hire themselves. So if you have a L-O background, you are likely to be much more successful interviewing with a HF PM who came from L-O, etc.

    • 2
Jul 16, 2017

"Then I'll go through a checklist of mainly behavioural factors to try and minimise my biases."

Could you post the checklist or summarize it? How did it develop over time?

Jul 19, 2017

Here's a good place to start: http://www.psyfitec.com/p/the-big-list-of-behavior...
I initially went through a list similar to that one and narrowed down to the biases I felt I was most susceptible to. I run through my personalised shortlist on each position to think about how I could have slipped up. I also refine the list over time based on my own mistakes as well as learnings from other people I know.

I also have a list of what I call 'bad investment theses' which are based on common ways that investors slip up. A few examples: long positions that are overly reliant on NOLs (everyone can calculate these); SOTP valuation (ditto); ex-cash valuation (ditto); paid to wait (this is just an excuse for "share price didn't go up"). Short positions that are overly reliant on a single metric e.g. ROIC (some other people care about earnings) or EPS (some other people have longer time horizons or care about other metrics). It's really just about eliminating false heuristics.

I find stuff by Kahneman, Mauboussin and Montier to be helpful too.

    • 3
Jul 17, 2017

This list of "bad investment theses" is excellent. I have worked as a L/S equities analyst for 3 years and got trapped in some variation of these earlier in my career.

Question: How does your investment process for risk-arb differ from what you outlined before for fundamental research (if it differs at all)? Do you use outside consultants such as legal firms, market consultants, etc?

Jul 19, 2017

I suppose the individual elements of the process are largely the same - the focus is just different. With origination, it's more of a case of deals coming to you, rather than scouring the investable universe for investments, but you still have filters to try and guess future M&A targets. Not because you're trying to get in before the deal, but it's so that if a deal gets announced, you've done the work to pull the trigger and get first mover advantage.

In terms of research, the main difference is having to work on qualitative aspects like M&A timetables (timing matters a lot more b/c hold periods are shorter vs. L/S and returns are calculate on IRR basis) and anti-trust. Also lots of analysis of shareholder registers and management teams - because M&A is based on human decisions, not just numbers. Other than that the fundamental-type analysis is about the same - you're still doing the same valuation work to determine things like break price or counter-offer price.

Occasionally use outside consultants. Mainly expert networks for regulatory issues and industry experts.

    • 3
Jul 16, 2017

Thanks for doing this AMA.
I would like to ask about the mobility among strategies.
I have 4 years experience and I am working in Asia at one of the largest Asia home grown hedge funds (multi billion US$ AUM for the whole group). The team I work in also employs a highly concentrated value equity L/S strategy. I don't have prior sell side (IBD nor ER) exp, I started out in a smaller local fund and got the chance to jump to this larger shop.
So far we are doing fine and I enjoy it a lot. But I also feel the pressure on the overall equity L/S industry.
Do you think doing a top MBA (M7 or the higher ranked S16) can increase my mobility to other strategies such as event driven? And do you think having MBA adds value in general given I am already in the industry?
Thanks.

Jul 19, 2017

I'm strongly against MBAs in this situation because you wouldn't even be making that big a change by switching to another equity hedge strategy. The basic dynamics and skill set required is the same. The only skill set that would be value-add for event-driven is probably IBD - and an MBA can't replace that.

I think at 4 years of experience, you'd still have pretty good mobility and you can supplement by reading books / case studies / investment research from other strategies you're interested in. There are a couple of risk-arb books out there, and you can get research on sites like SumZero (although the quality is VERY variable).

    • 1
Jul 17, 2017

Thanks for doing this. Few questions:

  1. What type of analysis were you doing as part of the value l/s? Similar to what a baupost or TCI would do? How deep were you going into the details (segment by segment super detailed model that takes a week to build with the help of industry experts or something more simple)? How long would you spend on the analysis of an investment idea....few hrs , a day, a week or few weeks?
  2. How will the type of analysis/level of detail differ now as part of doing event? Is it a pure arb opportunity or arb mixed with other types of events?
  3. How did you manage to move from a fundamental value l/s to event driven? Risk arb is a very very specific type of strategy that requires a particular mindset, unlike any other strategies and you need to know quite a bit about the regulatory and antitrust processes so did you do some prep on your own?
Jul 19, 2017

No problem.

  1. Level of detail was varied. Some investment theses require that segment-by-segment, product-by-product approach, and some (IMO most?) really don't. On the larger positions (5-6%), might be 3-4 weeks initial work before entering position. I would say we did the same kind of deep-dive work you describe (contacting experts, suppliers, customers, competitors, former employees etc.), but only on the key elements of the thesis, rather than every single facet of the company. Definitely no 300-page decks.

Other times, we might have an edge on a name just because it's a competitor or supplier to one of our portfolio positions, and it might only take 2-3 days of incremental work to put on a position.

  1. Answered this a couple of posts above. Will be a mix of merger-arb and other events e.g. corporate reorgs, cap structure arb, regulatory, and the occasional distressed opportunity.
  2. Good question, as it's not a natural switch. I used to think risk-arb was a terrible strategy (pennies / train tracks) in my early L/S days when I had a very purist value investing mindset. But then I learned more about the product, met more risk-arb people and actually thought it was pretty compelling (I have a preference for low vol / low drawdown / high diversification).

I had the advantage of having done a lot of public M&A when I did IBD, so I have a pretty good foundation in terms of process / regulatory / antitrust. So event-driven was attractive in the sense that I could combine those skills with the fundamental analysis stuff I developed whilst doing L/S.

    • 3
Jul 18, 2017

Thanks for doing this!

I also come from a similar background - SS ER 2 years and will be starting at an event-driven fund as a generalist. Some questions if I may:

1) Job security - As a junior in a HF do you come under the line of fire when fund is under-performing or is the PM more at risk?

2) Tips - Any advice for acing the job in a junior role? Would love to listen and learn from your experience.

3) Fundamental Work - Any books or websites to recommend to pick up the basics of merger-arb, cap structure, corp restructuring? Would imagine it's not just simple valuation.

4) Quantitative Skills - Are funds increasingly adopting a 'quantimental' style of investing? How would to be part of and capture that trend?

Thanks so much again for doing this. Really appreciate it.

Jul 19, 2017

1) The PM / CIO is the ultimate risk-taker, not the analyst. So overall fund performance is their responsibility. At a fund where PM and analyst work together in close-knit pods, your job security can depend entirely on the PM being employed. At other funds, analysts have more protection (i.e. a PM could get fired but their analyst could still have a job).

Obviously if you screw up really badly on a position, then the outlook for job security won't be great. But the reality is that HF job security primarily depends on factors you have little control over - fund performance and AUM flows.

2) Read a lot, especially when you're out of the office, to build informational edge. Develop your own methodical research processes over time, which will help you earn more responsibility and freedom once people realise you can be left alone to do analysis. Also very useful to build network with corporates, investment bankers, and other buysiders.

3) Risk Arbitrage by Wyser-Pratte; Merger Arbitrage by Kirchner; Merger Arbitrage by Melka / Shabi. Moyer is somewhat useful on the restructuring side.

4) Short answer: yes. For now it's more on the risk management side (a lot of factor exposure analysis), and idea screening (again, factoring). I think it's more within L/S rather than event-driven. In event-driven, ideas come to us, and we usually have fewer factors to analyse b/c typical event-driven portfolio should have less cross-correlation vs. a typical L/S portfolio.

At this stage probably most useful to just get educated on application of quant methods, perhaps via your prime brokers. I suppose you could learn Python if you really wanted to get hands on with manipulating large data sets.

NLP would be really interesting in terms of analysing regulatory stuff, so that could be an interesting tool for the future.

I'm pretty skeptical on quant applications on the idea generation side for traditional fundamental strategies.

    • 4
Jul 18, 2017

Very helpful! One last quick one if possible on point 3). Do you guys do relative value as well? Any books or resources to recommend?

Jul 19, 2017

I assume you mean relative value between instruments / cap structure? We do the very occasional RV trade in stuff like dual-listed companies. Usually driven by regulatory changes, e.g. a change in one of the country's tax code on dividends, stuff like that, which would change the spread b/w the two listings. Haven't really come across any resources though.

Jul 19, 2017

Thanks for the AMA

In your opinion which are the most respected event driven funds in London?

Jul 16, 2017

Thanks for the answer. You mentioned in an earlier reply that you thought going from equity l/s to MBA back to equity l/s didn't make sense; when does it make sense for folks with prior buy-side exp? I am 1yr into a role at a large L-O shop and still am trying to figure out what asset class/strategy I would like to pursue long-term. Thinking pretty seriously about getting an MBA in a few yrs (Columbia B-school would likely be my top choice given their focus on investing) and am curious what you think are the pros and cons of going back to school are. Thanks!

Jul 19, 2017

I think of MBA in terms of (1) will it open doors that you don't have access to; and (2) will the benefit outweigh cost and lost earnings + work experience during the program.

For finance, I think you need to have a really clear idea of what you want to do post-MBA, otherwise you can't target the right doors to open. I've seen more than a handful of people who went IBD > MBA > back to IBD and I guess that's the example of what not to do.

With buyside specifically, I honestly think that with enough hustle and some luck, it's possible to transition between any combination of L-O / HF / PE. So, I kinda feel MBAs don't represent great value. It's not like doing an MBA guarantees you a job at Greenlight / Third Point / Tiger cubs, or even necessarily improves your odds meaningfully. Those guys who get jobs at top funds benefit from luck too.

Then there's the earnings side. If you're already starting from a pretty high level of comp in a job with good progression (i.e. PE / HF), it'll be hard to recoup the lost earnings (again, because an MBA doesn't guarantee you a top job). For L-O where pay might not be as great, perhaps there is more justification.

I think if you work in an industry like healthcare or tech, where there are many dedicated buyside strategies devoted to those sectors, then an MBA can be very compelling because you will actually acquire some new skills and gain a network you don't have access to. Whereas if you're already on the buyside, you already have those skills, and it's really easy to network with people in finance because you work with them every day.

    • 2
Jul 20, 2017

Thanks for taking the time to do this AMA. Are people who have a central banking background (finc markets research / money markets desk / FX desk) desirable for macro orientated HF?

Thanks

Jul 19, 2017

Not really my area of expertise I'm afraid, but I would think yes as long as you have direct exposure to markets? I've interviewed with a a couple of macro funds in the past, and IME having an economics background can be viewed favourably too.

Jul 20, 2017

Thanks

Jul 21, 2017

You mentioned above that the LO asset managers are not viewed too favorably at L/S funds. I'm working in high yield research now at one of the bigger fixed-income asset managers, and want to make the transition over to a distressed debt/special situations hedge fund. Do you think that background would be competitive vs. the IBD or leveraged finance guys?

Jul 19, 2017

LevFin / restructuring guys are usually the natural choice for those roles, but you have the advantage of prior buyside experience and should play that up, and there are funds who will prioritise that - just the case of finding the right one. Also good to target funds where there are people from the same background - as I mentioned in an earlier response, people like to hire younger versions of themselves.

    • 1
Aug 17, 2017

Hi - thanks a lot for this! Any idea on what the work-life balance is in event driven? (in absolute terms and relative to long-short?)

Thanks!

Jul 19, 2017
    • 1
Feb 26, 2018
Mar 10, 2018