AMA: Research Analyst at Event-Driven/Special Sits HF directly from "non-target"

Grizz1's picture
Rank: Senior Chimp | 24

I've been a frequent reader of WSO for the past few years and I thought it might be helpful to anyone interested in a similar career path as mine. I definitely gleaned a lot from others here so hopefully I can answer some questions people might have.

Background:

2nd Year Research Analyst at a top 5 event-driven/special situations hedge fund focused on stressed/distressed and catalyst-oriented/situational opportunities (restructurings, bankruptcies, spin-offs, etc.) in both public and private securities across the capital structure.

Joined directly out of undergrad from a "non-target" school. Previously was a summer analyst at a BB in Structured Credit Trading and also at a $8B+ buyout fund in NYC. Declined my offer at the BB I was a SA at and almost graduated without a job as a result. By some stroke of divine intervention and some hard work, landed my dream job and haven't looked back since (sounds corny I know.)

Happy to answer any questions.

Comments (22)

Oct 14, 2016

What was your strategy to reach out to firms and get in contact with HR?
What do you believe made you stand out?
What was your major/GPA? - did this matter?
Best piece of advice for a junior undergrad trying to get in the biz?

Thank you so much for taking the time to answer
Cheers

Oct 16, 2016
Nicholas-Ozyp:

What was your strategy to reach out to firms and get in contact with HR?What do you believe made you stand out?What was your major/GPA? - did this matter?Best piece of advice for a junior undergrad trying to get in the biz?

Thank you so much for taking the time to answerCheers

Strategy - networked a TON. I reached out to literally anyone, I had little shame here. I reached out directly to the fund's managers usually and expressed an interest in their strategy. It is honestly a numbers game, but "success is when preparation meets opportunity" so you need to know the industry/lingo and have your pitches down cold.

Standing Out - your passion will make you stand out. When I interviewed it was very clear I loved the investing world and I made it clear I was willing to work like a dog for them. The combination of these two things is what will separate you for the pack.

Major/GPA - I'm not going to BS you, GPA really doesn't matter on the buy side. They never even asked me about GPA, all they care about is 1) do they have to train you?, and 2) are you going to bust your a** for them?

Best Advice - get a brand name bank or fund are your resume before you start trying to get on the buy side for full-time. I'd advise to first get a top restructuring shop or S&T job after your junior summer before even thinking about buy side. You will need pedigree especially from a non-target.

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Apr 4, 2017

Hey thanks for doing this. Are you planning on getting your MBA or just moving up the ranks at this fund/a different fund? Also, what resume items really impress headhunters/funds (purely from a resume perspective) other than good IB experiences/target school?

Oct 14, 2016

The event-drive/special sits space has been hit hard this year - lots of funds are underperforming and some are even closing. What is your outlook on the space in general? What was your recruiting process like for your fund, when did you first reach out?

For background I'm a senior at a non-target sitting on an offer from a non-top 5 special sits/event-driven fund to join when I graduate.

Oct 16, 2016
ftorbust:

The event-drive/special sits space has been hit hard this year - lots of funds are underperforming and some are even closing. What is your outlook on the space in general? What was your recruiting process like for your fund, when did you first reach out?

For background I'm a senior at a non-target sitting on an offer from a non-top 5 special sits/event-driven fund to join when I graduate.

Special sits space has definitely been hit hard this year. However this is a natural process of weeding out the poor managers from the best managers. I'd say returns are lower in general, but my firm's flagship fund is up double digits this year and our clients expect us to generate alpha in any market cycle. We have a global mandate so we can glean relative value across the globe and across the cap structure so this helps a ton.

Recruiting Process - usually about 3 month process. You will meet most of the firm and have to be well received by most of them to advance. I ultimately had to do an investment pitch for 30 minutes followed by a Q&A by the fund's PMs. Your final rounds will be meeting the co-founders of the firm usually.

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Oct 14, 2016

What was your networking strategy to land your past roles and current role?
What's your day to day look like?
What's your future career aspirations?
Advice for someone coming from an unconventional background looking to break into HF? How to get on HR's radar/who to reach out to?

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Oct 15, 2016

How did you make the jump (in terms of recruiting)/how was it structured?
Why structured trading over another internship (IB/ER)?
Is your current role revolved around trading at all or solely fundamental research?
How non target? (Describe your school as best you can)

Oct 16, 2016

Recruiting -

There is no formal recruiting process for going to buy side investment jobs out of undergrad outside of Harvard and UPenn who offers a few seats a year. You basically have to make the opportunity for yourself via networking, if you are serious, you should be sending 50 emails a week.

However, what is important to realize is that most hedge funds have been getting tons of money from sovereign wealths, etc that need to generate higher IRRs so there are a lot more opportunities on the buy side from undergrad than there once were (consequently less alpha opportunities though as well...).

I think getting a job at a top CLO manager for example is quite feasible these days, and is much better than a BB IB job in my opinion. Shops like Bain Credit hire a bunch of kids nowadays.

Structured Credit -

I honestly always wanted to be a trader so I only really applied to S&T jobs after my junior year. Structured Credit is where I got placed and I just kinda had to act like I loved it to get an offer. I can't stress enough that trading is a lot more important on the buy side now so I would think hard about getting some S&T exposure as an undergrad.

I frequently have to work with our traders to see where stuff trades at and how feasible it would be to enter positions in meaningful size. A lot of the loans/bonds tend to be illiquid so sometimes we have to think hard on what the unwind cost will be if our thesis is wrong and we need to sell. A good analyst will know trading dynamics and be able to look at things like CDS curves and volatility skews with options etc. to guide their decisions.

Current Role -

I'm solely focused on research for my PM. 50% of the names I am given and 50% I source myself via sell-side contacts or proprietary research. I do however constantly monitor where my names trade and where names I am interested in trade. We are very opportunistic so we can come into a position in meaningful size if the price is right.

Non Target -

my college had about 5-6 people go to BBs in front office roles a year so hopefully this gives you a sense for how non target it was lol. It really doesn't matter honestly though, if you put in the work and are really serious, you can have any job you want. It's all a matter of finding someone that will take a shot on you, usually someone has worked their way up from nothing and can relate to you.

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Oct 15, 2016

I am curious - since I've always had a Buffett "value" approach to investing - what do you look for when looking at distressed investments? I worked for a portfolio manager back in college, and he loved distressed investing, which I didn't and still don't understand. His philosophy was there was always something big right around the corner, and his investment style was swinging for the fences (failed on a lot of investments but hit the homerun every once in awhile that somehow averaged out returns. I'm curious as to what you look for in those investments - is it just high probability of funding, and hence payout? Stock issuance? (on another note, I find it crazy interesting that managers (CEOs, et al) are more reluctant to issue stock when their company is distressed because either they own a lot of stock or they have that mindset that "it was x% higher just one month ago!" yet their reluctance doesn't help their course into bankruptcy.

Sorry if I didn't make sense there. I'm a few whiskeys in and speaking out of my ass.

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Oct 29, 2016
RobberBaron123:

I am curious - since I've always had a Buffett "value" approach to investing - what do you look for when looking at distressed investments? I worked for a portfolio manager back in college, and he loved distressed investing, which I didn't and still don't understand. His philosophy was there was always something big right around the corner, and his investment style was swinging for the fences (failed on a lot of investments but hit the homerun every once in awhile that somehow averaged out returns. I'm curious as to what you look for in those investments - is it just high probability of funding, and hence payout? Stock issuance? (on another note, I find it crazy interesting that managers (CEOs, et al) are more reluctant to issue stock when their company is distressed because either they own a lot of stock or they have that mindset that "it was x% higher just one month ago!" yet their reluctance doesn't help their course into bankruptcy.

Sorry if I didn't make sense there. I'm a few whiskeys in and speaking out of my ass.

Lol, most distressed companies can't issue stock because they are distressed. What fucking idiot would buy equity if bonds are at 60.

Not that this is my AMA, but what we do is try to identify the problem and see if there is a feasible solution. Is it a bad business? Then don't invest. Is the company just capital-starved? Then give it money on terms favorable to you. Poor management? Kick them out. Bad balance sheet? Bring them a restructuring plan to fix it. Etc... (and usually a combination of some of those)

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Oct 29, 2016

I remember my first day, I hit the job running. Fresh out of college and my exact thought, while going through a portfolio company's 10-k, was..."Who the hell would invest in something like this?" He swung for the fences with investments. Failed on a lot, but hit a homer every once in awhile that somehow brought up his return.

Oct 15, 2016

Sounds like a certain fund in Boston... anyway congrats, and thanks for doing this AMA

  1. How do you guys think about investing in adjacent opportunities within a capital structure that seem to have a similar risk-adjusted return profile? Ie, looking at a (somewhat) recent spinoff that has both common equity and preferred convertible equity - the returns for the preferred convertibles are lower (or else the investment opportunity, insofar as you believe in the business, is a no-brainer), but you're also taking less risk. What are the main considerations that you guys look at?
  2. It sounds like a significant portion of the fund's strategy is distressed for control (correct me if I'm wrong). How do you guys think about diversification given that a majority of distressed opportunities occur in certain industries in a given time period - ie, consumer retail and O&G right now, financials and industrials in 2008, steel, telecom, and tech in the early 2000's? I'm guessing that's what the catalyst driven opportunities are for, to have uncorrelated returns?
  3. Do you guys see any activity in private placement ad-hoc opportunities (ie, not traditional private equity)? I know some funds like Abrams really flex on opportunities like bridge loans with 10+% interest rates, high collateralization, and short maturities, but his funds probably have less AUM than you guys. Do you guys still try to pursue opportunities in such markets, or are the deals too small?
  4. Of the distressed opportunities, what percentage are failed LBOs where the underlying business is pretty solid but the financial sponsor overpaid or overleveraged the business?
  5. How do you guys determine new areas of opportunity for the fund? It seems that you guys have a pretty flexible mandate, and aren't constrained by having to hold x% of a certain security in your funds. Ie, if you guys wanted to start investing in Korean preferred shares how would you go about exploring the opportunity?
  6. How do you guys think about portfolio management in tail-events on a macro scale? Any creative hedges?
  7. Given that you now have access to institutional resources, do you think individual investors can ever compete with competent hedge funds? What are some resources that you wish you had known about when you were still in college?

Thanks again!

Oct 16, 2016

What is a top 5 HF? Top 5 according to whom? Returns? AUM?

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Oct 16, 2016

Good question. There is obviously no hedge fund league tables, but by Top 5 I mean hedge funds with over >$10B AUM that have most of the AUM devoted to special situations/distressed credit strategies and on average have their flagship fund generating Net IRRs >15% consistently. There are only a few players that have the track-record to fit this bill.

However, the HF space is a lot more institutionalized than it once was. The most common metric now is AUM and most headline funds are gravitating to be more "alternative asset managers". We have had to sacrifice some of our long-run returns to meet month to month return benchmarks so it is hard to say which funds are the "top" these days...guess it depends on what you look at and who you are.

Oct 16, 2016

What do you think your fund's edge over all the other distressed guys is? Or put differently, given the size of your fund, I assume you need to make big investments to move the needle, and I get the impression a lot of those are pretty crowded/competitive these days, so what makes you smarter/better?

Oct 16, 2016

The running joke with a few of my HF friends is that in order to move the needle you need to put the whole fund in names like TXU lol. In other words, it is so crowded and there are so little opportunities that it is honestly very hard to move the needle. Most of the street is getting paid out from Caesars soon as well so there will be even more dry power out there.

To be honest, we have been forced to take more beta risk than we would want these days. We bought energy in size earlier this year (I'm talking >$1B positions across the firm) and we luckily bought at the lows in February and made a ton of $ for clients, but I wouldn't exactly call this alpha.

However, I'd say we are more focused on more esoteric investments now in European NPLs and we also like the arb in sovereigns vs. quasi-sovereigns (a bit more crowded now tho).

Overall, I think our edge is our opportunistic and flexible mandate along aided by ample dry powder where we can come into a situation in size in periods of dislocation. We also have generated a lot of $ by buying into new issues from banks that got hung on LBO paper where we buy at 90 cent OIDs and sell the paper at par a few months later (we had a lot of these earlier in year).

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Feb 8, 2017
Grizz1:

Overall, I think our edge is our opportunistic and flexible mandate along aided by ample dry powder where we can come into a situation in size in periods of dislocation. We also have generated a lot of $ by buying into new issues from banks that got hung on LBO paper where we buy at 90 cent OIDs and sell the paper at par a few months later (we had a lot of these earlier in year).

This. This has been a really great strategy, especially when you see that rating agencies are still messing up a lot when it comes to rating a lot of this paper.

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Best Response
Nov 6, 2016

Was debating whether or not to comment on this, but here it goes. Congrats on landing where you are - seems like you worked your ass off to get there so good to see that. Just a word of advice though - try to not come off as as much of a douche. Realize that you know a lot less that you think you do, and to always stay humble in this industry. Your posts read like a frat bro made some final edits to a marketing deck. Here's to hoping you aren't the non target kid with a very similar background that's at my fund.

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Nov 6, 2016

i lol'ed. sb'ed.

Nov 6, 2016

Why did you decline the SA offer?
What are the last 3 names you looked at that are publically traded?

Feb 3, 2017
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Absolute truths don't exist... celebrated opinions do.

Feb 3, 2017
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