AMA - risk analyst at hedge fund with 5 years of experience. Ask me anything

Long time user here, been wanting to do a AMA for a while but always worried about identity issues. Finally took the time to start a dummy account to post. Don't waste SB since it's a dummy account.

Background:
Engineering major in school. Did two S&T internships at BB sophomore and junior year on derivative FX and equity derivative structuring desks in NYC. Joined one of the largest real money asset managers on the west coast as a quantitative analyst, focusing on risk out of school. Worked there for two years, got bored and transitioned to a 10B AUM multi-strategy hedge fund in a relatively low cost of living city (around the dmv/nc region), nominally as a risk analyst but in reality a jack of all trade

Experience:

Your first question is probably why I didn't get a S&T job out of school, and to all you IBD/S&T or bust crowd, my reason might sound really stupid. I hated NYC after spending two summers there. I just didn't want to live in NYC, SF, London or HK due to the high cost of living, and it didn't occur to me that I could have applied to commodities trading in Houston. I got offers from a bunch of the Chicago prop shops (DRW, Optiver, CTC, Spot) but I didn't like the outlook of those business and I worry about being permanently unemployed with a highly specialized but useless skillset. I am guessing I probably would be making more by now had I chose any of the possible alternative career paths out of school.

My first two years - as a risk quant at a fundamental oriented real money shop, I hated working there. You are there so the firm can parade you around and tell people see we do quant analysis too and we have this many risk analysts so don't worry about your money with us. I do a lot of factor analysis/tracking error analysis/performance attribution/portfolio simulations, and these things go to management and PMs. They would all nod and say "oh that's useful thanks a lot man" but outside of a select few none of them really give a shit anyway.

My next three years at hedge fund - I was hired as an analyst in the risk group, run by a risk manager in his early 30s who reports to the top partner. The group in generally pretty much do many different things, but me in particular mainly because of the fact that I can semi-program in R. So on a day to day basis I do some equity/rates/FX hedging. In addition, I am expected to know understand to varying level of strategies/books the fund employs, and the position of trades being put on/taken off each book. Obviously I know some books better than others due to the nature of them. For instance, I know very little about the fundamental long/short equity books outside of what trades we have on and what hedges we have put on because frankly I have little value to add there. On the other hand on vol arb trades, fx/rates arb or basis trades, things that are more technical in nature, I tend to know a lot more. I am occasionally asked to evaluate technical aspects PM's thesis for the top partner, think about appropriate hedges etc. I also backtest trade ideas for various PMs as they dream up whatever trades they want to put on. More bizarre things I do include occasionally a partner or the CEO would read some research paper that indicates there might be opportunity somewhere, and tell me to investigate. On one hand I enjoy doing these things, but I also worry about how I would explain wtf I do to future employers.

Compensation:
1st year (half year at real money AM): 70 + 15
2nd year (1st full year at real money AM): 80 + 20
3rd year (at HF since April that year): 95 + 25 (cash) + 25 (deferred)
4th year (1st full year at HF): 100 + 40 (cash) + 35 (deferred)
5th year: 105 + 60 (cash) + 45 (deferred)

deferred comp paid out in 3 payments over the 2.5 years after grant, invested in main fund with no fees (so gross performance)

As I said, comp is on the low end of what I could have gotten with the career paths available to me out of school.

Any questions related to risk career, fire away.

Comments (51)

Jul 20, 2014

1. hours?
2. your outlook from here?
3. would you say your experience is typical of a risk analyst?

Jul 20, 2014
bearcats:

1. hours?

2. your outlook from here?

3. would you say your experience is typical of a risk analyst?

1. 6:30 am to 6pm on a good day, 6:30am to 9pm on a bad day. Maybe 5 sundays a year.
2. I want to know that myself too. I feel that I am well compensated relative to peers (as in same job same experience), but I also do a lot more. I feel that the future is somewhat bright here; I am doing interesting stuff, building a good skillset and am internally valuable, so I am happy to carry on, but I do worry about having to find a new job some day and that it would be difficult to explain things I do/value proposition, and not be viewed as just an overpaid person for my job.
3. I probably do a little more, but I think it's typical of a real risk analyst on the buyside (by real risk analyst I mean not the risk reporting/risk control/risk monitoring type).

Jul 20, 2014

how many portfolio managers at this fund? You say that you hedge the pms risk sometimes...do they know that or do you guys hedge out certain risks for "the fund" without involving the Pm responsible for the original trade?

    • 1
Jul 20, 2014
Bondarb:

how many portfolio managers at this fund? You say that you hedge the pms risk sometimes...do they know that or do you guys hedge out certain risks for "the fund" without involving the Pm responsible for the original trade?

We have 12 strategies and between PMs and people who run money but don't have the PM title, we have 15-20 PMs depending on how you look at it.

When it comes to hedges, it depends on nature. If it's more idiosyncratic in nature, for instance we are buying equity/loan of a shipping company and might want to hedge out the crude flutuation, that's more PM initiated. Half the time they would discuss with us and half the time they just do it. If it's more general but still trade specific like a rate hedge for a CDS-basis trade or a FX hedge for a cross country risk arb deal, we usually just see the trade put on and we initiate the conversation, or sometimes they just tell us to do it. We also put on bookwide hedges and that's just us doing it. This is usually the case when a fundamental equity PM run long beta or a credit PM just running duration or a European/Asia PM running FX risk bookwide, we just hedge it out and attribute cost/P&L to them. That's a mandate from the CIO so they have no control over it. It's funny and stupid at times, especially given the rates environment the last couple years, when PMs get annoyed as us for putting on their rate hedge and "costing" them returns, but that comes with the job.

    • 1
Jul 20, 2014

wow that would really suck as a PM to have someone come to you and say "well nice trade but we are taking X amount of money away from you because risk decided to go hede it out without mentioning it to you"...i could see that setup leading to a bit of tension.

Jul 21, 2014

is there any chance of you making the switch over to a pm position at your hedge fund

Jul 21, 2014
jchris82:

is there any chance of you making the switch over to a pm position at your hedge fund

There is mobility, and someone from the group has moved to the more technical side (trading volatility), but I wouldn't say it's a natural path or something you would bank on. However, the role is flexible, and I have researched trade ideas in the past.

Jul 21, 2014

What was the interview process like for the quant analyst gig out of undergrad? Highly technical, math-oriented?

Jul 21, 2014
DeepLearning:

What was the interview process like for the quant analyst gig out of undergrad? Highly technical, math-oriented?

More brainteasers than technical, while there were some stats questions. I believe they just wanted to make sure I was generally smart as opposed to being a stat geek. If they wanted a stat geek they would have gone the phd route. One thing you would find in the industry is, it's not hard to find people who know math, but it's hard to find people who know math, can apply it to the work and communicate quantitative concepts.

Jul 21, 2014

How much are you saving per year? Any investment/money-saving suggestions?

Jul 21, 2014
CuriousAnalyst:

How much are you saving per year? Any investment/money-saving suggestions?

Obviously as comp goes up I am saving more. I live in a pretty low cost of living city; I bought a 3 br townhouse for 350k last year, so my P&I + net property tax + natural negative carry (maintenance and stuff) + utilities on the house comes to about 3k a month. Discretionary spending of about 1-2k a month. Bought my car in cash. I would say my base salary covers all my expenses and I am saving my bonus and any deferred payouts. Over my 5 years I have saved about 180k (from both savings and appreciation in personal account), in addition to equity I am paying into the house. Not much but I want my savings amount to start picking up in the near future. It's tough to stay disciplined though. Most people would tell you as income goes up, so does expenses.

Jul 21, 2014

How is the R programming language used in the AM/HF universe?

Jul 21, 2014
HedgeKing:

How is the R programming language used in the AM/HF universe?

Things I have used R for:
asset allocation model, quant equity screen, credit relative value screen, back-testing trade thesis with large amount of historical data, portfolio simulations, stress-testings..

basically anything that involves a large dataset that's not convenient to model in excel, R comes in handy for.

Jul 21, 2014

What do your day to day responsibilities look like? What kind of regulations do you face and how are these regs handled around the office?

Jul 21, 2014
Thetrophyswimmer:

What do your day to day responsibilities look like? What kind of regulations do you face and how are these regs handled around the office?

Get into work, check every book to see if we have trades coming on or off, see if that affects systemic exposure, and act accordingly. Throughout the day I just do whatever I am working on that usually comes from PMs or management, be it thesis testing, looking at the portfolio, analyzing a book or hedge efficacy. I also routinely check for bookwide exposure as in FX, rates, equity beta and see if we need to act accordingly. I update the CIO/management on portfolio positions weekly. I also get called into client meetings/conference calls quite a lot as a SME, so I prep for those (especially for curve ball questions that I can anticipate). Every day is different.

Regulations don't matter to me. This is not risk control. They all go to the grunts.

Jul 21, 2014

I'll answer questions every night when I get home. Can't log in from work. I am paranoid especially with the amount of info I have put out so far.

Jul 22, 2014

With all due respect, it seems like you have a few regrets in choosing a career in risk. Are these second thoughts only a result of your salary? Maybe you can give us your opinion of the pros/cons for risk.

Jul 22, 2014
my man:

With all due respect, it seems like you have a few regrets in choosing a career in risk. Are these second thoughts only a result of your salary? Maybe you can give us your opinion of the pros/cons for risk.

i think I just have a case of the what ifs. I think a productive risk career on the buyside (and I do mean real risk as opposed to risk control/monitoring/reporting) is probably similar or slightly less in terms of expected value relative to your typical analyst, but the upside is significantly less. Top guys in risk top out below 2mm, whereas top guys in investments can make many multiples of that. But I do enjoy my work.

Jul 22, 2014

Did you not like NYC b/c of just the cost of living or b/c the city is packed in, gross, and the people/culture? What do you think about the city now? Have you evolved? (I'm trying to like it but can't.)

"Where is Knight?"

Jul 22, 2014
Prof. Hathaway:

Did you not like NYC b/c of just the cost of living or b/c the city is packed in, gross, and the people/culture? What do you think about the city now? Have you evolved? (I'm trying to like it but can't.)

Pretty much cost of living. Evolved? probably not. I am probably even more inclined to not be in NYC now. I do love to visit NYC, just would hate to live there.

Jul 22, 2014

What do you think of FRM designation in risk job space?

Jul 22, 2014
crosshatched:

What do you think of FRM designation in risk job space?

not very useful to be honest. Maybe checking the box for new comers? but other than that i give it no weight, and neither do my colleagues.

Jul 22, 2014

Amazing thread. Thanks for doing this.

Do you have the CFA or plan on taking it? What is your ideal job? Have you considered doing an MBA to make a transition?

Jul 22, 2014
mbavsmfin:

Amazing thread. Thanks for doing this.

Do you have the CFA or plan on taking it? What is your ideal job? Have you considered doing an MBA to make a transition?

Done with CFA. Firm wants me to have it because clients like to see it, and I meet with clients and will be more so as I progress. A job is a job to me never thought about an ideal job, but if money were no object i would be a book/movie critic for sure.

I think about the MBA all the time but really cant find a case to support it. So much opportunity cost and actual payout for so little to gain. I think most MBA average starting comp would be a paycut...

Jul 22, 2014

Thanks for sharing your experience. Currently I'm working in the credit risk arm in a bank and would like to switch to risk position in HF. Could you please share some insights about how to make the change? Is market risk more relevant to HF risk? Thanks!

Jul 22, 2014
chinochino:

Thanks for sharing your experience. Currently I'm working in the credit risk arm in a bank and would like to switch to risk position in HF. Could you please share some insights about how to make the change? Is market risk more relevant to HF risk? Thanks!

honestly no. but your skillset is probably a fit for treasury. The counterparty risk with banks is largely irrelevant outside of extreme distress periods like 08/09, and it's just one of the things that are very down the list of what keeps the CIO awake at night.
Actual credit risk taken in investments are the job of the credit analysts, and they are just highly unlikely to be hiring from a credit risk group at a bank. Too many IBD guys with debt skillset in the market for them to reach that deep into the pool

Jul 27, 2014
helloworld12345:
chinochino:

Thanks for sharing your experience. Currently I'm working in the credit risk arm in a bank and would like to switch to risk position in HF. Could you please share some insights about how to make the change? Is market risk more relevant to HF risk? Thanks!

honestly no. but your skillset is probably a fit for treasury. The counterparty risk with banks is largely irrelevant outside of extreme distress periods like 08/09, and it's just one of the things that are very down the list of what keeps the CIO awake at night.

Actual credit risk taken in investments are the job of the credit analysts, and they are just highly unlikely to be hiring from a credit risk group at a bank. Too many IBD guys with debt skillset in the market for them to reach that deep into the pool

I'm also working in credit risk at a BB, but covering HF counterparties that trade with us. Do you think that in this case my role would be somewhat more relevant for a switch into a HF? I'm a fresh grad doing a 1 year risk internship and am trying to explore future opportunities within risk... no idea where I can move if at all... did several months in stress testing as well. Would that be something a risk team at an HF would find interesting?

Thanks for your help! It's so hard to find someone in risk to talk to (who's not at my bank) and I have so many questions in my head haha.

Jul 22, 2014

I'm currently a Risk Analyst at a BB bank. Is there a good outlook for us looking into a HF? Is that a role a lot of HF's are looking to fill nowadays?

Jul 25, 2014
jmatt003:

I'm currently a Risk Analyst at a BB bank. Is there a good outlook for us looking into a HF? Is that a role a lot of HF's are looking to fill nowadays?

I just dont think the skillset translate as well as you'd think. BB risk analysts are very specialized, have a lot of depth in subject matters but no breadth. At most HF, risk analysts are more jack of all trades and things are more adhoc/flexible and do a lot more things as opposed to day to day tasks. HF fill these roles from real money risk analysts or other HFs. But I mean there are ex-BB risk analysts hired.
There are quite a lot of openings in these roles, hard to find the right people. We have been trying to hire 2 more risk analysts and haven't filled those for over half a year.

Jul 23, 2014

Hey man, thanks for this.

How do you learn new stuff related to your career? What are your resources? What books or websites do you recommend for those who want to learn Risk Management in HF/AM?

What risk measures/metrics do you use and find credible? Do you use VaR?

"but it's hard to find people who know math, can apply it to the work and communicate quantitative concepts."
any tips and advice on this?

Snootchie Bootchies

Jul 29, 2014
Bondholm:

Hey man, thanks for this.

How do you learn new stuff related to your career? What are your resources? What books or websites do you recommend for those who want to learn Risk Management in HF/AM?

What risk measures/metrics do you use and find credible? Do you use VaR?

"but it's hard to find people who know math, can apply it to the work and communicate quantitative concepts."

any tips and advice on this?

It's really learning by doing/seeing. The stats/math piece I knew going in, but the aspects you develop overtime are understanding the context wrt the portfolio and also your soft skills to interface with PMs.

Jul 23, 2014

Thank you for doing this. You mentioned before that you have done research and have completed your CFA. Is there good (if any) exit opps to an investment group at a HF or does being in risk hinder you from making that jump?

Jul 29, 2014
zo:

Thank you for doing this. You mentioned before that you have done research and have completed your CFA. Is there good (if any) exit opps to an investment group at a HF or does being in risk hinder you from making that jump?

I think one thing kids in school and young professionals (and that includes me) get hung up on a lot is your title, as opposed to what you actually do. The latter is far more important. I have had opportunities to join other statistical arbitrage shops in a research role, but the economics didn't make sense to me currently. Now that is not to say risk is a natural step in getting an investment role, but people can tell what type of work you actually do during interviews.

Jul 23, 2014

R is awesome!
And congrats on making the move in terms of location. :)

Jul 24, 2014

What are your hours/stress like? The pay seems pretty good for a low cost of living city.

Do you regret not going to a prop shop? I know people who turned down offers from those for similar reasons to u.

Jul 29, 2014
cauchymonkey:

What are your hours/stress like? The pay seems pretty good for a low cost of living city.

Do you regret not going to a prop shop? I know people who turned down offers from those for similar reasons to u.

6:30 am to 6pm on a good day, 6:30am to 9pm on a bad day. Maybe 5 sundays a year. Low stress.

In a what-if situation, maybe. But then I am sure had I gone to prop shop I'd wish i did something else. Grass is always greener on the other side.

Jul 24, 2014

How much R language is used in HFs?
What are the top three computer languages used in HF world?
Is it necessary for Risk people to know programming?

Sorry if questions are naive.

Jul 29, 2014
techiee:

How much R language is used in HFs?

What are the top three computer languages used in HF world?

Is it necessary for Risk people to know programming?

Sorry if questions are naive.

R is most used by the quant nerds along with matlab. python/C++ is used by programmers depending on how robust they want the insfrastructure to be.

No, but it would help tremendously.

Jul 24, 2014

Thank you for doing this.

What are the typical backgrounds of your peers? I am guessing that some people have an MSF? Also,did some people start in the sell-side, such as market risk management?

Jul 29, 2014
my man:

Thank you for doing this.

What are the typical backgrounds of your peers? I am guessing that some people have an MSF? Also,did some people start in the sell-side, such as market risk management?

2 of us have an MFE. Others have no advanced degree. At my old place, one person has MSF, everyone else has no advanced degree. I think sell side risk is far more hung up on the advanced degree than buyside risk. None of us started in sell side risk. Two of us were ex-traders, the manager was an ex-PM.

Jul 24, 2014

What type of engineering did you major in and how did that affect your college internships in S&T? Did it make it more difficult to obtain the internships, and was any of the education considerably useful or impressive? I noticed you mentioned R, so I presume that was used at some point.

Jul 25, 2014

I'm a rising senior majoring in math and CS, with a 3.8+ GPA at a non-target. I used to want to go to grad school for a PhD, and then become a quant, so I've been spending my summers doing REUs. Now I'm beginning to think that I'd like to just jump straight into industry after undergrad; what do you think would be most critical for me to do in order to prepare for a FT position? I've been reading up on basics (Hull's book, time series analysis) and also trying to learn how to trade (FX). I'm working on my network, but no one from my school that I know of is doing quant. fin. or trading.

Jul 27, 2014

Really enjoying the thread! Thanks for taking the time. Could you explain this in more detail?

[the flip side of the argument is that If a fundamental long short equity PM made money via beta because the market rallied, they shouldn't get paid for their performance because that's not their mandate. In other words the systemic piece of the "nice trade" isnt part of the "nice trade".]

Does your firm run a beta neutral L/S book? Or is there a cap that PMs can't pass in their individual book? Hope those questions make sense.

Jul 27, 2014

Great thread, thanks for doing this. Definitely value add for the site. Curious about a few things:

Can you describe how you made the transition from AM to HF in your role?

Do you use anything else technical besides R (and VBA presumably)?

Is the lack of an advanced degree (masters, phd) a hindrance in your position?

How are you (and the rest of the risk team including the CRO) perceived by the PMs? Is it generally more collaborative or more of a support feel?

Jul 27, 2014

Suppose I want to get a risk-related/operations AM internship in the fall. Currently doing a quant finance certificate (@ non-target university) in the summer where we also learn R. I have 8 informational interviews scheduled in August
1. What are nontrivial questions to ask a risk analyst or quant shop PM regarding technical aspects of their job?
2. Any general tips for finding unconventional school-year internships?
Sorry if a bit broad; thanks for the help

Jul 27, 2014

sorry i have been extremely busy last 3 days. I'll come back with answers to the rest of the question later today.

Nov 2, 2014
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Nov 2, 2014
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