Q&A: First year macro hedge fund analyst

I remember when I first got interested in finance I got a lot of useful information from this site, so I wanted to pay it back. I noticed there isn't a lot of content about Macro funds on this site (or really anywhere on the internet that I know of) so maybe this will help some people out.

First, some basic background:

I've been working at a Macro HF for about a year now. I came straight out of undergrad, although I did the standard junior year summer analyst stint at a BB investment bank. My coworkers and the work environment at my IB were actually amazing, but I realized the job wasn't really for me for a variety of reasons, so I actually quit about halfway through the internship. Pretty dumb decision in retrospect, but I wouldn't have wound up where I am today if I didn't make that choice. One of those weird fortuitous life events.

After I quit I spent a couple weeks lamenting my decision while voraciously reading, writing up investment theses, doing the whole value investing thing, etc. and applying to virtually every buy-side gig I could find. I was focused on long-only asset managers and hedge funds because I figured my skillset was the best fit for those kinds of roles, even though I was developing more and more of a passion for macro. 

I had interviews at several places during my senior year including citadel, a small long-only hedge fund (got an offer here, but didn't wind up accepting), a MM PE firm, and even a couple of FT IB analyst roles - but I didn't really feel strongly enough about any of these places. I thought that it was probably too late to recruit for S&T roles and wasn't sure what direction I should head in.

I had been doing my own macro research stuff for 6-9 months by the time COVID rolled around and I was starting to trade my own money at that time and managed to do well for myself with some of what I had learned (as well as with a healthy amount of luck). Around that time one of my friends notified me that he knew of a small hedge fund who was looking for a macro analyst - so I took the job and haven't looked back since.

A bit about my firm:

AUM is in the $100 - $500 million bucket. We have a quant side that focuses on risk management and execution and a qualitative/discretionary side that focuses on investment thesis generation. We cover basically every asset class you can think of.

I work on the qualitative/discretionary macro side on idea generation, not on the execution side.

As an example, something I'm currently working on is the outlook for inflation and status of the USD as a reserve currency to determine what type of country exposures we want and whether UST rates will pop. I obviously don't have exclusive decision-making power, but my research is/has been influential in establishing new positions or increasing/decreasing the weight of different asset classes in our portfolio.

I work directly with our PM (single manager) and have a lot of freedom in my research projects. He gives me a general direction that he wants me to go in, but sets me loose after that and checks in with me once a week to keep up with my progress. I spend most of my time researching fundamental economic data, market data, reading, and writing. My research projects might take anywhere from 1-3 months, depending on how complicated they are. 

One of my favorite sources of macro news/information has actually been twitter - there's a lot of good traders and investors on there that I share views with on a regular basis.

Career progression:

Honestly not entirely sure where I'm going to go after this. I assume that there are similar roles at other funds, although I didn't even know this type of position existed when I was in college (i.e. non-trader, non-statistical/quantitative macro research analyst/strategist). I don't even know what you would call this type of role (Macro Analyst? Macro Strategist? - my official title is "Macroeconomic Research Analyst") or how many there are on the buy-side (maybe more roles like this at family offices?). I'm thinking I might move over to do sell-side macro research (maybe STIR or general rates strategy), but not sure if my experience would be a good fit or if I would enjoy that type of work environment. 

Honestly I'm just enjoying where I am right now, and focusing on developing my skills and I figure that if I'm good at my job then I'll find manage to find a position somewhere in the future.

Edit: Removed some personally identifying details.

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Comments (54)

Aug 5, 2021 - 2:39pm

Any free resources (not Bloomberg) that someone looking to learn more about macro could use to get information and data from? 

Aug 6, 2021 - 2:30am

Like I said, many people are surprisingly generous about sharing ideas on twitter and you find a wide variety of viewpoints. Some of the best accounts are the sub-2,000 follower anon accounts. I tend to stay away from the big names (i.e. Howard Marks, Ray Dalio, Mohamed El-Erian, etc.) and stick with the people who aren't trying to uphold a reputation.

Aside from that, before I joined my firm I read a bunch of staff papers from the Fed, IMF, BIS, ECB, etc as well as some academic papers. I still do this pretty frequently. There's a lot of crap, but there are also some real quality researchers whose work is worth following. In no particular order I like Hyun Song Shin (BIS), Claudio Borio (BIS), Zoltan Poszar (Former Fed/Treasury/IMF now at Credit Suisse), Manmohan Singh (IMF), Jeremy Stein (former Fed), and Perry Mehrling (Boston University).

Even if you can't check the prices of stuff like CDS, FX basis, FRA - OIS, etc. you can still understand the mechanics of how these things work.

There's also some semi-decent podcasts available: JPM Rates, Macrovoices, Bloomberg's Odd Lots, etc. 

In terms of data sources, you can use: tradingview and tradingeconomics to access most prices and economic data releases you might want. FRED from the St. Louis Fed is also great.

I don't think there are any books that cover macro from a practioner's perspective that well.

  • Developer in HF - Other
Aug 5, 2021 - 5:29pm

Fascinating post, thank you for sharing. Could you please talk a little bit about how research projects and formed macro views turn into actual positions and with what time frames? Perhaps you could give a couple of examples. Thank you.

Aug 6, 2021 - 4:29am

Sure, I'll try and describe as best as I can without going into too much detail. 

The deliverable on most of my research projects is a report identifying some secular drivers of price action, the most important variables, and return expectations. Sometimes its not possible to give return expectations with any real degree of certainty and instead it will just be a general conclusion (i.e. "given our outlook for inflation in the US I believe this will be bullish/bearish for US rates, bullish/bearish for the value of the USD relative to EM currencies, etc.").

Notably at this point, I haven't really discussed prices. After we have a strong opinion on something that we think we might have an edge in, I'll do some basic scenario analysis with expected upside and downside given various cases.

After all this is finished it gets turned over to the quant team who monitor various signals to determine an entry point, stops, etc. and what instruments would make the most sense given our risk limits and investment horizon. I'm honestly not familiar with what they look at specifically. When they identify a good entry point (which takes anywhere from 0-6 months+) we have another discussion about how large of a position this should be in our portfolio (which depends on what instruments we're using and our degree of conviction). If we're using options/futures obviously our position will be smaller than if we were using something like ETFs. I have some input on the general time horizon that I expect the market to confirm/disconfirm my views over, but most of the execution choices are out of my hands.

Sometimes something changes during this process (either the market confirms my viewpoint which reduces future expected returns) or something big changes in the world (i.e. geopolitical). In that case, we reevaluate our thesis. If the fundamental/secular drivers still make sense, we'll keep it on the backburner looking for a favorable entry point in the future. If the fundamentals have changed, then we scrap the idea and move to something else.

After that it's just monitoring important updates, but I don't deal with the day-to-day position management. If there's a big development I'll revisit the idea and give my opinion on how this might change our outlook going forward, but that's it. 

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  • Developer in HF - Other
Aug 6, 2021 - 9:19am

Thank you, I really appreciate the response. As someone coming from a technical background, I am always wondering how one (eg a portfolio manager) goes from research/views to something actionable in the market.

Do you also get involved in the selection of the right vehicles/instruments to express views in relation to the topic you are researching?  

Aug 5, 2021 - 9:00pm

I know that your intent is to be kind / helpful to others, but I would advise you to cut out many of the details (performance, strategy, location, client base, et al...). It doesn't add a ton (i.e. people understand what you do without it).

edit: My initial response may have been a bit too harsh (I was just trying to offer perspective to a 23 year old) and I revised.

  • Intern in AM - Other
Aug 5, 2021 - 9:51pm

What is your comp? Did you go to a target school? How did you prepare for what you're doing on the job?

Aug 6, 2021 - 3:19am

Base is a bit lower than BB IB, plus discretionary bonus depending on overall firm performance and my specific recommendations. I went to what most would probably consider to be a "target school". See above post for how I prepared for the research side of things.

In addition to the research, generally following markets, etc. I also paper traded my own portfolio for 3-4 years before launching a real money PA. I think trading your own money gives you more credibility (even if you're on the research side) because it forces you to be more honest about picking a viewpoint and sticking with it. There are a lot of things that affect market prices which aren't covered in the news and you won't get a good understanding for how the market actually behaves if you don't have money on the line. This could be something as simple as just picking an asset allocation via ETFs or something that requires more active trading risk management like options/futures - as long as you're putting money behind your ideas.

Aug 7, 2021 - 11:09am

I took a single Python "CS with Applications" type of class in undergrad, I wouldn't really say I know how to code. For some types of positions its required (i.e. more quanty roles or traditional "macroeconomist" roles on the sellside), for some its helpful but not necessary (discretionary traders either on the buyside or rates traders on the sellside and other positions like mine). I am planning on learning some basic programming in  the future, but its not required for all positions.

Aug 6, 2021 - 4:44pm

+1, thanks for this! Glad to hear your recruiting endeavors went well.

Also curious about any technical skills you may have and what your major(s) in college were (don't need to share if you don't want to).

Lastly, how would you say your work and fund's strategy compares to Systematic Global Macro strategies? Obviously you guys have some quants for implementation and execution, so I guess I'm more curious to hear your thoughts on leveraging quant methodologies to generate alpha.

Thanks and good luck!

Aug 7, 2021 - 11:21am

I was an econ major in undergrad so not a ton of technical skills but I took the basic math classes (Calculus I-III, Linear Algebra, Statistics, Econometrics, etc.). I mentioned to the commenter above that I took a single CS class. I definitely wouldn't say I have a lot of STEM oriented technical skills, but I can more or less understand the level of math used in most econ papers. That being said, I don't use any complicated math/statistics/programming on the job.

Tbh I think there's a huge lack of conceptual understanding in the macro world (for example: Why is QE not inflationary? What exactly are "bank reserves" and what function do they serve since there are no more reserve requirements since March 2020? Are low interest rates stimulative?) that is more crippling than a lack of technical skills. 

When I think of Systematic Global Macro, I think of basically just using cross-asset correlations to make inferences about what type of market regime we are in and how that will affect various assets over a 3-6 month time horizon. There's no fundamental understanding here, its mostly/all just statistical inferences using macroeconomic data and asset prices and assuming that correlations that have held in in the past will continue to hold. There's value in this kind of analysis, and it can be profitable, but it's not my cup of tea. Something they might say is like "during the previous instances of QE and subsequent taper, equities had an average return of X% and govt bonds had an average return of X%". 

​​​​​​The kind of quant stuff we do is very different. Like Ed Thorpe vs. Fisher Black/Myron Scholes. 

I think in general, it's difficult to properly use both quant methodologies and financial/economic intuition. If I had to guess, I think that quant methodologies can add the most in regards to risk management but can't tell you when to initiate a position and why.

  • Developer in HF - Other
Aug 7, 2021 - 3:42pm

Fuggernaut I'm with you on this one. The importance of technical skills is often overstated (at least in this forum), but in reality there is a plethora of people who can code and do maths while there is a real scarcity of people who can have some informed opinion how the world works and the interplay of the world's economies, public policy and the markets. Not to mention the lack of knowledge of economic history and how we ended up where we are today.

Would you care to clarify what you mean with "Ed Thorpe vs. Fisher Black/Myron Scholes"?

Thank you again for the brilliant thread. For me personally one of the very best I have ever come across on here.

Aug 8, 2021 - 12:25am

We have a small BTC and ETH position, but I don't have a strong opinion on any of the currently existing cryptos from a price appreciation standpoint - mostly because I haven't done enough research yet in the space. I would be inclined to say that the current price levels are looking a bit bubbly and that we've probably seen the end of this bull phase in crypto for the moment, but what do I know.

The current regulatory crackdowns could destroy the space (especially if central banks force this digital currency idea i.e. make the liabilities of the central bank legal tender for everyone in a govt. sponsored crypto-type coin) or it could give it a legitimate framework from which to really take off from here after washing out all the scam artists (i.e. Tether, TITAN, etc.). I'm pretty optimistic about defi in general and think that it could fix a lot of the current problems with our financial system which is too centralized and reliant on primary dealers to promote market functioning. 

I'll be taking a closer look at crypo in the future, so I'll let you know how it plays out.

  • Research Analyst in HF - Other
Aug 7, 2021 - 6:22pm

Thanks for doing this. Few questions:

1) What skills do you think differentiate a good macro analyst from a bad one? For value investing you could say ability to dig up and absorb information and for quant you could say pure mathematical horsepower, but for macro, I'm not sure what distinguishes the best of the best.

2) How's the work-life balance? It must be a small team, so do you feel lonely working there at times? If so, do you do anything to try to socialize more? I hear people working in small shops right out of college often like to join some hobby group or club.

3) What do you enjoy most about the job? Why did you choose macro instead of value investing / PE / LO HF? (I group these three together because they all do a similar type of fundamental research on specific companies and then invest in them.)

Appreciate your insights.

Most Helpful
Aug 8, 2021 - 1:52am

1. I think a good macro analyst will have a logical framework, a "map" if you will, that you can use to fit every other piece of data into and see what it changes rather than making individual inferences based on disparate data points. This is difficult to balance against being honest and not having religious adherence to something that repeatedly turns out to be false or misleading - so you have to constantly check your predictions against actual market behavior and make sure that what you infer is actually being validated. 

For example, when I see RRP go up to a trillion at the same time as we see long-term yields falling and 4w/8w/13w bill yields fall below RRP - that screams collateral shortage to me. However others only looking at the rate of Fed balance sheet expansion and RRP usage along with the "money printing" narrative will immediately move to "too much cash." The truth is that it's kind of both, but IMO the cash side of things is far less important than the collateral side and "too much cash" is kind of a benign problem whereas collateral shortage can be very dangerous.

2. I think if you're worried about work-life balance this isn't really the job for you. Granted, I feel like I kind of lucked out and my team is pretty tight. We usually go to lunch together several times a week and I frequently message my PM during the week when I'm not working with interesting developments and vice versa. I typically spend maybe 40-60 hours per week in the office on average, but I'm almost constantly working and thinking about markets outside of the office so my total hours spent "working" per week is close to 90-100. I could probably get away without working that much, but I genuinely enjoy what I'm doing so it doesn't feel that much like work to me, and I think that I would lose a bit of my edge if I wasn't so obsessive.

In regards to loneliness, I don't know if I'm just weird/autistic, but I don't feel lonely at all and honestly prefer doing this vs. going drinking/clubbing every Friday/Saturday. I have a small group of friends that I stay in regular contact with, but for the most part I prefer to be working/researching/reading vs. interacting with other people. 

3. There were a couple main things that pushed me towards macro vs. other types of fundamental investing. One is that I feel like many fundamental investors artificially limit their scope of opportunities. There's something to be said for circle of competence, but who says that circle has to be static your whole life/career? Aren't people supposed to learn new things and understand things they previously didn't have an "edge" in? It kind of hit me when I was in my final round interview for the LO HF and one of the PMs said something to the effect of "investing philosophies are kind of like religion." I thought that was an incredibly narrow way to view investing and antithetical to what the idea of searching for "alpha" is supposed to be. Two, sort of related to the problem above is that I think for the most part, equities are kind of a crapshot. Passive flows have distorted the equity market so much that it makes it difficult for an investor paying attention to fundamentals to outperform (see Mike Green's research on how passive flows make it difficult for active managers to outperform). People think macro is kind of a crapshot, and it is with respect to unexpected geopolitical developments, but IMO it makes more "sense" if you can fit the pieces together. 

I think ultimately everybody is really a macro investor taking active macro bets, but some people are aware of this and some are not. If you're a LO HF analyst, you're likely betting on small-mid cap US equities, if you're at a PE firm you're betting on mid-market size levered US companies, if you're at a credit HF you're betting on private credit (CLOs, IG Corp, HY Corp, leveraged loans, etc.). Everybody's making a macro bet, why not open up your set of opportunities? Why limit yourself to just one part of the market? 

That's the thing I enjoy post about this job, is that I'm not restrained. I can focus on what I think truly matters from a big picture perspective instead of trying to worry about whether this company's ROIC > WACC or whether we should buy at 7x EBTIDA with 3 turns of debt or if we can afford to pay 10x EBITDA with 5 turns of debt. Because honestly both of those strategies are going to get fucked if something like March 2020 comes around and there's no way to prepare or counteract something like that except hope that everyone believes the Fed will always come to the rescue and be able to save asset markets yet again. If you're not married to a certain ideology or type of investing then you can make money in every market regime, if you're correct.

Aug 8, 2021 - 8:04am

Hi, thanks for doing this.

In terms of equity allocation, if you have a certain directional view, do you have to stick to ETFs to express it, or can you use direct stock investments if you have high enough conviction that there'll be certain winners within a broader sleeve?

Also, is your research process structured more thematically around potential secular trends, or do you start with catalysts that you've recently noticed and game out the implications, or even look at consensus and then break it down to see what the market's over-/underestimating/missing completely?

Aug 9, 2021 - 12:12am

For equities, we don't have to stick to ETFs, but we usually do. As we grow our AUM, this will change as there won't be enough liquidity for our strategies, but there are advantages to using ETFs especially for expressing a sector/thematic view. Think about how the return of the S&P 500 is significantly greater than the return of its median constituent. I think something like the top 5 stocks outperform the S&P, the rest underperform, but the index does well because of survivorship bias. The same is true of most sector ETFs - over time you'll wind up owning more of the best performing stocks in an industry and your return could wind up higher than the return of even the top performing stock because these ETFs are constantly rotating the top holdings. Granted, this depends on the specific methodologies that a given ETF uses and you have to be careful with selection, but that's the general idea.

In terms of research process, it's a little bit of all three. Typically most of what we're looking at any given time has some type of potential catalyst or is timely/relevant. I think in order to properly understand most trades/investments you really have to look at all of these in detail. We don't tend to put on a position just because we think the market is overextended and vulnerable to a counter-move, usually there also has to be some sort of secular/fundamental driver which makes us more confident in our conclusion and provides a bit more flexibility if we don't time it exactly right. Many times, especially in today's market environment, there are moves which seem totally irrational but are always capable of becoming more irrational if there isn't a strong fundamental reason why they should not, which is one of the reasons why we tend to stay away from those types of trades.

Aug 8, 2021 - 9:17am

Thanks for that. Is there a way to do a DCF on the whole market as a whole so SP500 cash flows and how would you think about the discount rate. Is 6% normal to use.  If you look at the stock to flow model (which is used for commodities like gold / silver / platinum, which measures stock circulating in the market relative to new stock being added to circulation) you can see significant alpha is reasonable especially when you see the continued collapse of the USD. People look at the absolute number of BTC and think gee it's a bubble. Once you have countries legalizing it as a legal tender (think El Salvador), companies putting it on their balance sheet (think Tesla), and poor people in dictator run countries escaping their currency for BTC, you will see it's only in the second inning. Also BTC supply is increasing 2%, while demand is much much higher. I'm no macro guy but my Econ 101 told me that price should increase. 

Aug 9, 2021 - 1:02am

I suppose you could do something like a DCF on the whole market, but I don't know how much value that would really add. Selection of a discount rate would probably be market regime dependent (i.e. a lot of people are justifying high levels of equity valuations b/c low interest rates), but once you get to the level of whole markets I think the idea of a DCF kind of stops being valid. 

A few things regarding BTC:

1. I'm familiar with the stock-flow type models for BTC. The problem is that for these types of assets (precious metals included), is that at the end of the day they're only worth what someone is willing to pay for them (i.e. the don't have any intrinsic utility - they're just a scarce asset).

2. While you have El Salvador trying to adopt BTC as legal tender, the World Bank already said no to helping them. Moreover, you have far more countries who have outright banned bitcoin holding/trading/mining/exchanges (Turkey, Nigeria, Bolivia, China - this one is big, etc.). We're having a big experiment right now with the COVID vaccine passport issue seeing how willing people are to resist the government. I suspect that if developed world governments were to ban bitcoin that most individuals would not be willing to become outlaws or have the technological sophistication (putting their BTC in a wall in cold storage, etc.) to be able to actually utilize BTC in the way that a lot of BTC maximalists imagine.

3. The best future I see for BTC is if it gets utilized as a kind of reserve asset for some type of higher level blockchain protocol, but not as the actual medium of exchange. It's too slow and inefficient to be used as a medium of exchange and too volatile to be used as a real store of value. 

4. Finally, I'm not at all convinced that the USD is going to collapse, kind of the opposite in fact. I think most people have a very poor understanding of what a world reserve currency actually is and what that entails. It doesn't just mean that oil or gold are denominated in USD. There are literally hundreds of trillions of dollars worth of financial contracts and securities that are denominated in USD. Nothing else has even close to the same amount of depth and infrastructure behind it. Fedwire/CHIPS process more than $1 quadrillion in payments every year. The international bank settlement system works through SWIFT and the correspondent banking network, which is all set up to use USD. The US Navy is the only military with the means to patrol/police the world's oceans and make sure that global trade and shipping is actually functional and possible so that there aren't constant hijackings.

Look at how much difficulty regulators are having trying to get everyone to just move from LIBOR to SOFR, which IMO is far simpler than switching from USD to RMB/EUR/BTC.

Countries and companies around the world issue debt securities and get loans in USD from non-US banks all the time because no other currency has the same depth or liquidity.

There's more than $6T daily turnover in FX markets, more than 3/4 of which has the USD on one side or another. The share of the USD in interdealer FX swaps (about $96T outstanding IIRC) is 96%. Non-US financial and non-financial institutions' own $ liabilities (both on- and off-balance sheet) are growing, not shrinking, relative to other currencies. This represents a recurring demand for dollars which basically amounts to a synthetic short position for everybody outside the US. 

US T-bills are the best form of repo collateral and accepted all over the world at the lowest haircuts even in the worst kind of market environments. The only thing that comes even close to this are German bunds, which are mostly used in Europe. Long bonds didn't sell off in March 2020 because foreigners thought the USD was going to collapse b/c "money printing," they were trying to fund trillions of dollars of dollar-denominated investment portfolios and everyone herded into T-bills and on-the-run treasuries probably because their long bonds were being repudiated as repo collateral due to market volatility.

There's a lot more to this that I don't have time to get into here. If people are interested I might make a separate thread doing a brief overview of my macro framework.

Edit: Just wanted to emphasize that this isn't necessarily a bullish US growth argument. I just think that as of right now, there isn't a realistic replacement option for the current money/banking system - most of which happens to be dollar denominated. This is where I think defi might actually be disruptive, but that's probably at least 5 years down the road, if not further, and I haven't done enough in-depth research to definitively conclude one way or the other.

  • Developer in HF - Other
Aug 9, 2021 - 10:12am

Same as @D2A2NY-would definitely be interested in hearing more about your macro framework, either on this thread or more in-depth on a seperate one.

Aug 8, 2021 - 1:21pm

Sounds like you've learned a lot in a year- it's a great role and (I'm biased) but I think one of the most fascinating career paths.  I always enjoy reading other macro analysts' and traders' write ups to see them try to articulate what has often become harder for me to put in words after many years- really good content.  I wish we could find more 23 (?) year olds who "get it" after a year.    

Aug 9, 2021 - 7:22am

Thank you for the kind words! It's been difficult balancing humility as a fresh college graduate in a challenging field where most others have more experience than I do vs. coming up with unique, differentiated, and profitable market views and being confident enough to pitch those ideas. Although, I think having an objective scoreboard and seeing real-time feedback helps a lot in that respect (whether you're correct or incorrect).

Regarding the alluring (and perhaps enigmatic) nature of macro, I couldn't agree more. As I mentioned to another commenter, even though this is far from the path of least resistance I couldn't imagine myself doing anything else.

There's something special about macro that I think requires one to be an economist, philosopher, political-scientist, mathematician/statistician, trader, investor etc. all at once in a way that just isn't present in any other career (or maybe that's just my arrogance). 

Aug 9, 2021 - 4:38am

You might have missed this (or maybe I didn't emphasize it properly), but I work at at HF that one would consider to be, generally speaking "quantitative." Of the 5 investment professionals on our team (including myself), 4 are either primarily or exclusively quants. My PM is the only one aside from me who looks at macro themes, and he came from a quant background and learned macro by necessity. I think that even at many of these quant-oriented firms there is room for qualitative macro judgements because there have to be sensible inputs to the algorithms. That's the reason why my PM even brought me on in the first place (or at least so he said) - because he has to make qualitative judgements (aside from managing the algorithms) but he also needs to focus on portfolio management and talking to investors so he brought me on to assist with the development of qualitative macro themes.

I think there will always be room for intelligent discretionary macro strategy/investing/trading. Many of the traditional quant firms (like AQR, etc.) were very close to blowing up in March 2020 and even RenTech's public funds suffered $11B in withdrawals. Quant strategies, IMO, tend to do well in market environments that are by definition similar to the past. Qualitatively informed or driven strategies have the opportunity to really shine when there are fundamental or structural changes in the world that invalidate past experience. That's not to say that all qualitative strategies WILL do well in new/unconventional market environments, but its just that they have the capability of being more flexible and adapting to or anticipating change.

That being said, I understand your viewpoint and I spend a lot of time thinking about this myself. The conclusion I've come to after lots of internal debate is that so long as I'm actually good at my job and capable of adding value or making money for others - I'll be able to find a spot somewhere. I really can't see myself anywhere else, certainly not going back to IB. I fully understand that this is not the path of least resistance, but I'm not doing this because it is easy. 

I have considered going back to school for a Masters/PhD, and might do that at some point in the future, (both as a reset and to pick up some more technical skills) but I'm not at that point in my life yet.

Aug 9, 2021 - 4:31pm

You are young and it sounds like you enjoy what you are doing right now. That's great. But I would think carefully about your next steps. You can't generate alpha anymore by being a jack of all trades, master of none. It is not clear how your fund can compete with RenCap or the big pods in the quant space. You don't want to do a PhD when you are in your 30s, trust me. But you also have optionality to specialise in an asset class later on (ie: pharma equity etc.) , where fundamental analysis will always have a place. People should be aware that the set up you describe is a specimen of a bygone era.

  • Developer in HF - Other
Aug 9, 2021 - 5:16am

My understanding is that macro quant strategies are statistical simpletons, which by their very nature don't do well in market regimes and structural shifts that aren't adequately represented in the data these strategies were drawn from.

In the '20s at a time when the world is undergoing so much structural change, it would probably be myopic to leave a 'quantamental' macro fund (which are rare AFAIK) that seems to have a recipe of combining quantitative and qualitative macro effectively (at least based on their past returns and OP's descriptions), to go to a quant fund where the spectrum of intellectual inquiry would typically be both more limited and limiting.

Also, even if you do have data showing that "Qualitative macro is a dying breed and quant strategies is where AuM is increasingly flowing", it doesn't mean that this trend won't change (as these things often do).

Edit: removed an apostrophe and added a 'to' that was missing.

Aug 9, 2021 - 5:52am

I agree - one thing that I neglected to mention in my response is that sure, maybe AUM is flowing towards certain kinds of strategies right now because allocators like to have something tangible to hang their hat on (read: not get fired when things go sideways, "they had good backtests!") and discretionary funds are kind of the villain right now, but think about the kind of people allocators are by necessity.

One of my favorite investors whose work I read a lot (Daniel Want from Prerequisite Capital) talks about there being several different types of market participants by psychological profile and incentive structure. Allocators are incentivized to go with what has worked well in the recent past and to minimize their own chances of being fired for making a poor decision in choosing managers (i.e. "nobody gets fired for buying IBM" logic). Because allocators face career risk, but don't have real skin in the game, they tend to make procyclical decisions at exactly the wrong point in the cycle. I suspect that the obsession with quants, "objective data" (no data is truly ever objective, everything requires humans to collect, process, categorize, interpret, etc.) is similarly at an extreme point. These decisions don't usually tend to work out well in the long run and it will be people who are more capable of being flexible that will probably profit the most.

That's not to say that I'm anti-quant or anti-technology. I definitely think that quantitative and algorithmic methods can and do add a ton of value (and will quickly become mandatory if they aren't already). I'm not sure I'm experienced enough to comment on where exactly quant methods are capable of adding the most value, but I think that they are a very useful tool, not a substitute for critical thinking.  

  • PM in HF - Other
Aug 8, 2021 - 10:53pm

Great Q&A, very in depth responses and good advice. When I started reading was super shocked you landed all those interviews after quitting an internship but clearly your overall profile and work ethic is very strong so firms see that cognitive ability. Surprised you are confused on your future career moves sounds like you really enjoy what you doing and excelling at it...but reality is your firm seems too small for you to grow and I am sure your PM even realizes that so hopefully next step he helps try to move to a larger firm on buyside.

Aug 9, 2021 - 9:22am

Thanks for your advice and kind words. 

Quitting that internship was probably the riskiest personal decision I've ever made, but after realizing that IB wasn't the path to what I ultimately wanted, I couldn't continue to waste my time in banking (in my opinion for my circumstances) and I felt like I would regret it for the rest of my life if I stuck with what was easier/more comfortable. On the positive side, burning that safety net/bridge also really lit a fire in me and motivated me to succeed in a way that probably wouldn't have happened if I had stuck with the more conventional route. That being said, I still recognize what a dumb decision it was in retrospect and I'm just thankful that it worked out.

Regarding confusion about my future career moves - I just meant that the HF world, and macro in particular, is much less linear than other career paths and I wasn't certain what the next logical step is supposed to be for someone like me. For example, is there a hard and fast line between research and trading in terms of career development, or are they kind of blended together? Or do you only start running risk once you reach the junior PM/PM level so everything before that is basically "research"? 

I agree that my firm is probably too small for me to continue to grow forever, but I love what I'm doing now and I'm still continuing to learn new things.

  • Intern in IB - Gen
Aug 9, 2021 - 12:25am

Amazing insights, thanks so much for sharing and congrats! Just a couple of quick questions: how did you frame your summer experience in the full-time IB interviews? You mentioned you were looking into LO asset managers -- was the plan to do that for a couple of years and then pivot into macro, long/short, etc.?

Aug 9, 2021 - 5:19am

Honestly I probably wouldn't be much help regarding the IB interviews. By that point I was pretty much done with the idea of going back into IB and was just going through the motions with those because they reached out to me through career advancement resume books (I didn't apply). 

Someone PM'ed me asking about something similar so I'll paste my response below for others who might be interested:

"[Regarding interviews after my internship] I was just honest with them. It took me few tries before I really got a polished way to deliver it, but for all the ex-IB roles I just said something along the lines of "I realized that IB wasn't really for me, I didn't like XYZ nature of the job even though I liked my coworkers, etc. I really just want to move to the investing side." It helped that I actually had good relationships with my coworkers and MDs from that firm (try and keep in contact with them if you can) and my leaving wasn't due to job performance - so I was able to give my interviewers references if they wanted.

It helped that I genuinely loved investing and I think most of the interviewers could tell. I had some pretty decent research I could show them and I suspect this is why I did well in the interview process for HFs, even compared to candidates with IB experience. This worked better for roles further away from IB (i.e. I had a superday with a MM PE firm and I suspect I got dinged because I botched my delivery of "did you get a return offer?", but the HFs I interviewed at didn't really seem to mind and basically understood).

This is because PE, while about investing, is still very much process driven and there is isn't much room for creativity - a lot of the returns in PE come from deal structuring vs. good investment ideas. So a good junior analyst isn't going to be able to add much in the lower levels of PE. The HF world is very different (at least in my experience) - obviously there's going to be an apprenticeship period and you're not going to be running risk right away, but its more meritocratic (and perhaps fairly luck-driven as well) so that if your ideas work, you get much more responsibility and respect right away."

Regarding the LO asset managers - that was more or less my plan. I figured that it would be better to get some experience on the buyside (where I could at least practice the skill of researching, developing an investment thesis, etc. even if it wasn't what I ultimately wanted to wind up doing) while continuing to develop my macro views on the side (assuming I couldn't get a macro-facing role somewhere) and try to lateral after I had some more experience.

Aug 10, 2021 - 3:09pm

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Aug 12, 2021 - 8:16pm

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Aug 13, 2021 - 8:35pm

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