Career trajectory for macro, post Volcker
(Yet another annoying career post from a student with limited understanding of the financial industry)
What specific area of finance would yield the best opportunities to move into an analyst/researcher/pm role (not execution trader) at a global macro fund in todays market?
Before the Volcker rule I would imagine a background in proprietary trading, at a BB, in macro oriented products (Forex, Commodities or FI) would of been ideal as it offered the opportunity to handle risk in macro products, develop trading strategies and give a quantitate description of ones talent in the form of P&L. But unfortunately this isn't an avenue anymore.
Today I see there being maybe three options but each one has pretty serious negatives.
1) S&T at BB, probably as a flow trader in a macro product. The advantages of this seems to be that you get a strong understanding of what actually drives the market you work in. The negatives are that it's likely that you'll become specialised in a specific market, you may not get the opportunity to explore you're own strategies and that moves into GM could predominantly be towards the execution side of trading.
2) Equity or fixed incomer research at BB or AM. The advantages of this seems to be that it's more centred on generating trade ideas, so offers an education in creating profitable ideas. The negatives are that it's likely that you'll become very specialised (working in a single sector), have less of an understanding of the markets themselves and are far better suited to Long/Short hedge funds, as you're skills are directly transferable.
3) IB at BB. This option to me personally is very much not what I'm interested in. But IB analysts seem to have a strong reputation for being very hard working and have strong modelling experience. The negatives, I imagine, would be very little interaction with markets.
Would really appreciate any advice on this issue.
Bump.
Have you considered structuring? I'm plotting a similar career path and the fact that structurers innovate/generate products that require indepth understanding of what moves the market as well as what risk exposure these products entail, and the fact that you are in the markets, makes it the best place to practice taking advantage of your macro views
Structuring is indeed getting big but do note that there's a lot of fee compression here. Money is made on volume of AUM, not big fees,
Maybe Bondarb can post since he would be best positioned to answer this question .. From the people I have spoken to in macro (a fair few) they are wondering the same things (ie. lots of PMs in today's world came from prop desk backgrounds)... Seemingly from what I have heard some are realizing that they will have to train the next generation (ie. there is a big difference between doing flow at a bank to working at a fund) and are figuring out how to do it. Others hire traders and salespeople they know from banks, think are smart and give them a go. I have not seen too many research types become PMs unless they have started their own shops or have been very very senior at a bank or other institution and left to start a fund. I have seen very very few investment bankers go into macro unless they did a pit stop elsewhere first (ie. switched track to a different role, or joined another HF to look at another strategy and sort of moved into macro that way... more by circumstance than by design).
It actually sounds like you understand the industry quite well. I think you're right that there's no longer a very well-defined career path, but take that as an opportunity. Your goal should be to develop a skill set that would make you indispensable as an analyst for a macro PM somewhere. Maybe that's becoming expert in a product area (in which case flow trading, or even a finance position at a trading-oriented corporate), maybe it's strong macro chops (in which case I wouldn't rule out doing a PhD), maybe it's trading expertise with your own capital or someone else's (prop shop, CTA, etc.). If you can become an expert in something transferable and you have the chops, you'll get a look.
If you've got a strong resume to begin with, focus on developing your analytical skills and try to get yourself into a role where you have some exposure to risk-taking (even if in a different strategy), then network the hell out of it like everyone else on the buyside until you find the right fit before you get pigeonholed. Good luck!
i've also been thinking about this everyday for years and i agree that a few top macro funds are looking to train new hires in a FO capacity, but to get such a role you'd probably have to 'train yourself' beforehand... there's also a huge difference between being a good research analyst and a risk taker.
i also wouldn't cross out the sell-side. i still think that it will be the dominant path to macro for the next few years, even if you can't trade "prop" exclusively. you can't go wrong with anything rates related.
above all, there isn't a clear cut path to macro, so use that to your advantage and create your own path.
Cheers for the advice. So the general consensus is that this is going to be an issue, as the applicants of our generation will be of a lower quality/less experienced than previous years. Does anyone see this damaging the future prospects of GM funds or could it have the reverse effect as there could be less competition going for the same trades? Also as we slowly move out of the 'banker bashing' days and begin to see the financial community beginning to re-leverage to some extent, should we expect to see the risk culture begin to rise again in BB's? And if so how would it be directed, as prop trading is now not an option? Just interested to get a feeling for how the job market may evolve in the next few years (graduating 2017).
1) or 2)...
The first question is you really want to ask yourself is why you're so specifically aiming at global macro. What precisely is the reasoning behind that?
First of all I'd say that although I am aiming for Global Macro I understand that other opportunities may present themselves in the future so I'm not completely set on it. But what appeals about global macro is the flexibility. I like the idea of being able to move around a very large range of markets/products in order to generate profit; it seems extremely interesting, maybe even exciting, that you get to be involved in lot's of very different global opportunities. I can't imagine having a boring day in a job like that.
Erm, I urge you to think very carefully about this. It appears that the bit that appeals to you is the whole "jack of all trades, master of none" aspect of global macro, which is a mirage. I would urge you to manage your expectations gently and conservatively. In reality, it's extremely unlikely that you will be doing the whole glamorous, globe-trotting, big-swinging macro PM thing. Possibly you might earn the right to do this once you get really senior, but maybe not even then. Furthermore, proper, bottom up, data-driven macro IS, in fact, pretty boring, so you should generally gird your loins for that.
In summary, nothing wrong with global macro, but don't get misled by the silly hype. My Z$2c...
excellent observation. By the way, something like event driven or special situations credit investing may also give you the "unconstrained go anywhere to look for trades" feel that you seem to be after. It is far from macro though. You are talking more about the freedom to invest in a broad set of asset classes. To me macro doesn't mean freedom so much as "no fundamental valuation"
I keep hearing about this lack of fundamentals in macro but every professional macro piece I've read is purely fundamental. Well, unless you think psychology isn't fundamental; then it's fundamental and behavioral I guess.
Might just be selection bias, but if I went by Seeking Alpha comments to judge "value" investing I'd have a warped sense of that too.
Appreciate these threads a lot btw
Definitely not option 3).
Also: -Being an execution trader at a macro fund might be a better path to being a PM than being a research analyst. -Plenty of prop traders have failed spectacularly once they come off their bank's credit line and are managing client money without seeing S&T flows. -Great PMs have come from all sorts of backgrounds, with the common denominator being that they understood macroeconomics or certain products very well coming in and have developed a great sense for running risk.
I'm not sure I'd agree with 'proper' global macro being boring in the sense that you are continuously being asked to stay on your toes and challenge your assumptions on your models/reading of what's going on. But yes it is a daily grind where you have to dive in on all sorts of things and get your hands dirty to figure out what's really going on. Intellectually stimulating, but not glamorous, there are no deal toys or pats on the back for finishing a project/hitting a deadline...
Again, thanks for all the advice. And I appreciate that my only understanding of the macro world comes through books/wso which does idealise allot about the job itself and that there are allot of very bright people out there who are interested in this type of thing. But still seems like a very interesting option to consider, so just want to position myself so that this door is still open later in my career.
No problem with that, just know that IBD is not the way to go in that case.
you can determine the 'fair value' of a currency without looking at its current or even historical price... not that it makes it a game changer.
This question is one that gets harder and harder to answer as sell-side risk-taking has declined...I think that sell-side S&T in fixed income is still a great place to start because you get the requisite product knowledge but truly good jobs on that side of the business seem to be fewer and fewer. I came from a prop trading operation at a dealer...that job doesnt really exist anymore. Nowadays I dont think there really is a set path...I think the future of this business is much more creative and diverse....my personal opinion is that you need genuinely unique top-down thinkers married with really good bottom-up country-specific analysts and so as a perspective employee it is about trying to come up with your own unique story as to how your background fits into that. The fact that I cant even answer this question clearly should tell aspiring monkeys there is opportunity here...come up with your own path because the business is in flux and actually there is a shortage of younger talent right now due to the lack well-respected street rates traders out there.
Really interesting point, thanks Bondarb. I sort of asked this question earlier but do you see risk taking on the sell side increasing as the perceptions of the financial community begin to soften in the public eye and strong global growth returns or do you think legislation has gone so far that the opportunities will never exist like they used to?
I'm certainly no expert but I can tell you that one BB in particular is already feeling the pain from regs and it's not going to get any better...only worse. Risk-taking is going to be monitored and limited by the feds...it's just never going to be like it was unless regs change (not happening near-term, unlikely long-term). Liquidity on the FICC side is just not there anymore. I can't see why it would be any different for FICC desks on the sell-side at any other firm.
Shocking. This wouldn't happen to be the same BB that you mentioned 46 times in that 'develop your macro view' thread, would it? Perhaps you should tell your VP+MD fixed income duo to seek counsel in the following song:
on the fair value question...no of course nobody knows what "fair value" of a currency pair is....the price is driven by ay number of factors at any given time from rate differentials, to trade flows, securities flows, M&A, politics/regulation, terms of trade, central bank intervention, etc etc the list can be endless...as a currency trader it is your job both to have views on these drivers and to have views on which ones will drive the price.
Of those three choices, I would head into IB. No question.
I would stay away from anything hedge fund related. I love trading, but exit opportunities are limited at best and the industry on the whole is in decline.
:)
I see you deleted your comment.
I think if your sole goal is to be a trader then IB is not the ideal start...I have written about this alot but generally the former IB analysts we hire tend to be pigeon-holed into research and they generally are behind the curve in terms of market knowledge. If your goal is to be able to change your mind and do something else in 3 years then IB might be ideal but if you want to trade, then three years without market exposure isnt that helpful.
I also disagree that the hedge fund industry is in decline. Assets under management in the industry sit at all-time highs, there is still a ton of new money coming into the industry all the time fromplaces like the Middle East, and actually right now the hiring environment for experienced portfolio managers is the hottest I have seen it in my career. The only part of the industry getting squeezed at all is the fee structure, but that is mostly for new funds not established ones.
"I think if your sole goal is to be a trader then IB is not the ideal start"
Correct.
"I also disagree that the hedge fund industry is in decline. Assets under management in the industry sit at all-time highs"
Also correct. You'll notice I stated t̲r̲a̲d̲i̲n̲g̲ is currently in decline.
"The only part of the industry getting squeezed at all is the fee structure, but that is mostly for new funds not established ones."
There is no reason for funds to get squeezed during a bull market (despite lagging/poor performance) and assets being at all time highs, may have something to do with the market being at all time highs. Personally I think when credit conditions normalize, the hedge fund industry will be in for a rude awakening which I won't bore you with a long explanation as to why other than to say, it is not an industry I would want to be apart of.
My advice was to stay away from trading and hedge funds as IB will more than likely provide a better livelihood (or exit opps to somewhere that will) on the 10-15 year time frame. That is my o̲p̲i̲n̲i̲o̲n̲ on the subject. I wish the OP well in his choices and pursuits.
The hedge fund industry "in decline":
http://blogs.wsj.com/moneybeat/2014/07/18/hedge-funds-notch-another-mil…
I clearly stated the trading industry on the whole is in decline which is separate from my rationale toward avoiding HFs despite being in the same paragraph. At this stage in the market cycle I would avoid a skim based business model that generally under performs the market and has poor risk management. Didn't Soros even say its a bust business model?
I don't see macro hedge funds as a skim based model that underperforms "the market". On any time horizon that includes 2007-2008 macro hedge fund returns have beaten the S&P with much much less downside volatility. I don't know about equity L/S I only speak for what I know.
Are you really going to postulate that is even remotely close to industry standard results? If I have time this weekend I will try and dredge up a study (and I recognize it may be dated) I read on the subject but the abridged version was that 85% of funds under perform the market and the 15% that outperform aren't even the same 15% year after year.
http://www.bloomberg.com/news/2014-01-08/hedge-funds-trail-stocks-for-f…
Industry standard is of under performance, skim the upside and piss poor risk management along the way (ie none), with the inherent moral hazard that those operating a fund have. Run the numbers on how much that 2% management fee and 20% performance incentive actually takes off of your 10 or 20 year returns and realize what a scam the majority (note majority, not by any means all) is. As a fact there are funds that outperform the market by all metrics in some years and have great long term success, but that is hardly indicative of the industry on the whole.
So with regards to the OP, S&T is in decline, prop trading is difficult for most, HFTs are facing quite a bit of regulatory scrutiny at the moment and have been facing rising costs and decreasing market volatility (profitability) for some time now and many smaller shops have closed up due to that dynamic. I've stated my OPINION, regarding HFs. I believe, the OP's best option will be to do a stint in IB as that will open a wide breadth of exit opportunities on the buy side and beyond.
In 1990-2009 period hedge funds returned 12.3% (1.24 sharpe ratio), world bonds 7.3% (0.54 sharpe ratio), world stocks 5.9% (0.23 sharpe ratio). It seems to me like hedge funds have historically done far better than stocks outside the recent period - higher returns at lower risk level. Sure, past performance isn't indicative of future results, hedge funds space is getting more competitive & crowded, in 2009-2013 stocks did far better, but saying that hedge funds as an asset class are a scam and equities will provide higher risk-adjusted returns is a very bold statement.
I don't know why people haggle over the management fee. If in a bad year the fund with a 2% fee can limit the downside to 20% while stocks lose 40%, then it recovers most of the fee payments for the previous 20 years. If it is 2% management fee but also lower expected returns, then it's a subjective question of what drawdown you are fine with. Fee compression is probably caused by increasing ability to replicate the HF strategies and competition within the HFs, not because geo average for HFs is below stocks.
Not to hijack the thread but would you say that the advices given above are applicable as well for someone would like to work in a commodity trading HF ? Or in this case joining a physical shop is a better idea ?
I think over the next few years BBs will start up their risk taking groups again, though it will definitely not be as abundant as it was pre-crisis. Volcker excludes govvies and munis and I am aware of groups at multiple banks that are still engaged in these activities an expanding their teams in some cases.
http://www.bloomberg.com/news/2014-06-25/citigroup-team-s-mortgage-bets…
...Yet lots of big institutions don't seem to care. The pensions, SWFs etc have tons of money that they need to put to work and who can put that to work? Large HFs/PE funds etc. They might negotiate on the fees hard, but they have to be a big enough ticket to do so. They are happy to take 8%-10% with low vol rather than a much more beta driven 15%. This is just how they are. They need to pay out cash every year and do not have the resources to manage too much in house (or the quality - pension/swf types are usually paid well below market so top talent does not stay).
a very general argument but that's how it goes...
Now for individuals and smaller institutions, its very different....
i haven't looked at any performance numbers long-term, but when hedge funds report performance it is net of fees so the numbers u see should already have the 2/20 (or whatever the funds fee structure is) taken out of them.
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