Future of HF skillset

Prospect in VC

What do you think the most important skills will be for entry level analyst at fundamental HF in the future? Would it be helpful to learn Python or take a Data Analytics course?

Comments (42)

  • Prospect in VC
Aug 21, 2019

BlUMPkin

Aug 22, 2019

I'm not a Fundamental PM. But from what I've seen,Fundamental PMs tend to concentrate on analysing various companies in great detail - so going through a large amount of information in a short period of time is likely to continue being a valuable skill.

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  • Prospect in VC
Aug 22, 2019

So some sort of course in big data analytics?

Aug 23, 2019

Analytical skills are likely more important than any programming/big data technologies. Fundamental PMs tend to read through and keep track of lots of filings as well as other data sources (including sell-side research) as they cover several dozen names ( and sometimes more). As much of the data can be unstructured and more importantly sometimes contradicting, working in that field is more about being able to make sense of all that data rather than trying to extract the data.

    • 3
Aug 22, 2019

I think that being able to work fast in python/pandas will be a huge benefit for anyone working with data (even investment banking) and it will only be a matter of time before serious employees have both excel/VBA and pandas in their arsenal of data manipulation. Besides, it just feels much more natural to automate stuff in python and you have a lot more open-source libraries which can be useful (like building some custom webscraper).

However, just taking a class is not enough. You really got to put in the time in it and experience before you start being quick enough in it for it to be relevant in the real world.

    • 1
Aug 24, 2019

Still think the analytical decision making will be the core skill set.

Programming skills can be helpful but finding people to do that type of work (I.e. outsourcing) will likely be quite easy. Tech/AI/ML will help gather more data points in a shorter amount of time, but at the end of the day the key skill is weighing the relative importance of each datapoint and translating that into a cogent thesis that can be expressed through some security transaction.

    • 1
Aug 24, 2019

do any of you actually work at a fundamental l/s fund? seriously? everyone talks about using data science, but realistically I have never even once heard of a single person doing this at a traditional fundamental l/s fund, full stop (ok an exaggeration, but maybe <1% of people are actually doing this).

i'm in no way a skeptic of the value of these skills, but I actually entered the industry thinking these data analytics skills would be valued and I have basically been laughed at whenever i bring them up (only slightly an exaggeration).

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  • Prospect in IB-M&A
Aug 24, 2019

What do you think the most important skills are to learn for an undergrad going straight to a MM HF?

Funniest
Aug 24, 2019

1) mental math (useless for investing, but important for interviewing. mental math is generally the preferred form of masturbation in this industry and perceived as a proxy for how smart you are. an important pasttime in this industry is not golf, but actually doing mental math problems in public settings. as a result, it is important to learn to participate in this past time)
2) fermi problems (believe it or not, the focus is actually on getting it right, not on understanding how you think... some folks will ask you to estimate the mass of the earth in an interview no joke)
3) corporate finance (particularly trick questions which are useless for investing but important for getting the job... rarely are these ever beyond the M&I guides etc)
4) probability brainteasers (again, very, very useless for investing, but very important for getting the job... esp for tradery shops)
5) demonstrate you are passionate about the job (very very useful for investing and getting the job)
6) get a very prestigious job in investment banking (the reality is that there's no way to actually find good investment talent via an interview. it's frankly hard to even know if a PM is talented or just lucky. pedigree and prestige is a important determinant of who gets hired. you want a bio that helps your future PM raise money. he can't actually pick a good analyst, but he can pick someone that's marketable in a text bio so he can raise more money & collect more management fees)
7) meet a lot of people in the industry
8) read books on investing (nothing you read in a book will ever be tested in an interview, but this could be useful on the job; it can be useful in case study interviews. it's important to remember that nobody can test in an interview whether you are good at investing. in real life, nobody can tell if you are a good investor or just a good talker. i made the mistake of reading too many of thes)
9) get good grades (useless to investing, but very important for getting an interview even 5 years down the line)
10) get prestigious internships (not important to becoming a good investor, but very important for getting interviews
11) be in shape / good looking / well-dressed / be born rich (this is probably one of the most important factors for getting the job
12) be a slick talker (the plain reality is that nobody has time to listen to your ideas so its more important to be heard than to have good ideas)
13) do what you need to do to get into a prestigious grad school (people don't give folks money to under-perform the money for nothing!)
14) hang around a lot of people with similar ambitions as you (eventually you'll need them to get jobs and stay in the industry)
15) be born very rich. if not date someone rich or have rich friends. join charities with rich people. be around rich people (who tf else is going to give you money for your hedge fund one day?)

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  • Prospect in IB-M&A
Aug 24, 2019

Thanks for the response. Apologies, should have been more clear- after securing the job, what skills should be focused on to excel on the job?

Most Helpful
Aug 24, 2019

You have to ask yourself: "what does being good at this job really mean?" Really ask yourself that. The reality is nobody can measure investment performance above/beyond chance. If they could, they'd be able to run one of the best fund of funds in the world. The reality is you can't even measure skill over many years for PMs. You certainly cannot objectively measure the skill of any young analyst. What matters is sticking around when you're young not "performance." "Performance" is non-sense. It's mythology used to justify absurd salaries in this industry.

Keeping your job requires being a smart-sounding talker that has a prestigious background. It is not important to have good investment ideas, but to sell the investment ideas you have very well. A good example here is Viking. They have not beaten the market in the last 10 years and generally their existence destroys value in this world. Yet, they pay like $500K a year if you get a job there after graduating from HBS. It's funny that it's described as an "eat what you kill" and "meritocratic" culture. What bullshit. Why would one of the highest paying hedge funds underperform the market so consistently? What does "meritocratic" even fully mean here? Sure, they hire impressive people - but what does that even mean when they underperform the market so consistently?

You have to be great at pitching ideas full stop. That requires you first and foremost to be the type of person that people want to listen to. Look at Bill Ackman. Horrible investor, but he sounds very smart and is very polished. Just look at this beautiful man. So well dressed. So smart. So Harvard. He was born and bred in the right way. So composed, so patrician. The most talented young analysts that will make it in this industry are younger version of him. This isn't because that helps you pick good stocks, it's because it's impossible to find good stock pickers but easier to find marketable pedigrees (since that helps you increase AUM by marketing your fund better).

You need an excellent memory for numbers and mental math. What's important is giving the whiff of an excellent analysis as though you've done an impressive level of diligence. Being good at memorizing facts and figures that may not be important for picking stocks, but creates the impression that you have a brilliant grasp of the investment opportunities in front of you. In many ways you are a highly paid actor on a stage where the primary goal is just to seem brilliant. My general finding is that there's an inverse correlation between the quality of investment ideas and the extent to which you've memorized a ridiculous amount of facts and figures. That said, there's a positive correlation between whether your ideas are taken seriously and how much you seem like you have a grasp for everything.

The market doesn't actually know how well you can do mental math and actually stocks do not go up because you can do these calculations in your head. Last time I checked, the market doesn't know if you can rattle off facts better than Bloomberg can. That said, these are important skills. I'm almost certain many "brilliant" PMs go home every night and just memorize EPS numbers (until it became second nature perhaps to just remember). This is useless to being a great investor, but it helps create the appearance of brilliance.

There are not many other skills that are particularly relevant until you become a PM. Most people in this industry aren't nearly as well-versed in finance as you think they are. I worked at one of the highest paying and best hedge funds you can work for and frankly it's embarrassing that I made the mistake of thinking that a deep understanding of finance would make a difference. That's all mythology. Of course the guys who make millions and millions want you to think they are these deep, brilliant thinkers with this deep fundamental understanding of the world economy. Are they? Frankly, I just don't believe it even for a second. Why do these guys so consistently under-perform if they are so brilliant?

If you do become a PM, then you have to become a good investor, which is somewhat difficult. I wouldn't focus on that goal though, because it's not very important until 10 years after college most likely. It may not even be particularly important even when you are a PM. In theory, if markets are efficient, then if you choose stocks randomly you should do just fine. Even for PMs, the more important thing is staying in the game and not beating the market.

    • 21
Aug 24, 2019

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    • 1
Aug 25, 2019

I know this isn't an inherent skill but I think any fund that wants to differentiate themselves these days has to be i) willing to go illiquid for some time and ii) willing to look at smaller opportunities. I realize the two go hand in hand, and I'm not directly answering your question, but the real sustainable business models in this industry these days tap into both of those qualities (asides from citadel or millennium, those guys are absurd).

Aug 25, 2019

Especially in advantage in credit but a lot of the lay ups have been swallowed up by direct lenders

Aug 27, 2019

Something has got BobbybananamA riled up and I like it!

    • 2
Aug 27, 2019

why was my post even labeled "most funny" on this thread???? probably because this industry is a joke

    • 4
Aug 27, 2019

I think there are actually a few good HF jobs out there, but they are all taken and basically inaccessible to anyone today. A few funds out there (maybe 5-10% of them, both discretionary and quant) consistently outperform, but are at hard capacity limits and have no need to attract either clients or new employees. They often have a tiny number of employees who have been there from the beginning, and they stay under the radar and never hire anyone. The strategies are usually HFT-like or involve illiquid/private instruments.

Aug 30, 2019

@BobbybananamA
Maybe you over estimated yourself? Really no harm in that but at least you went for it. I'd reckon the people that are in the industry or plan to be one day share the same disillusioned view of being a great investor. Disillusioned or a believer or whatever, if it's no longer fun then stop doing it. If it's still fun and there's sadistic side where you take pride in getting knocked out and getting back up, then you will survive, and like you said, this industry is about surviving, notbeating the market.

I have this conversation about survival periodically with my girlfriend who's also in the industry and figured the best way to approach it is to stay upbeat and positive. This goes a long way because every guy that has more years than you in the industry probably went through the exact same thing, except he/she chose to look at the cup half full.

    • 1
Aug 28, 2019

The HF model is dying quickly as performance does not justify the fees for equity long/short. Distressed and activist funds that can justify locking up capital in a hybrid PE style can still work. But with a dearth of opportunities and a pref clipping over you its not easy. if you can get 1 year hard lock and then 1/3, 1/3 1/3 of capital per year max redemption and no pref you are in a good spot, which is pretty common for non PE/control distressed funds now.

The skill set developed at distressed and at some special sits funds I believe are the most broad based and useful for business overall (biased since I am distressed/special sits). At most funds you are a generalist covering several sectors and if you are at a place for a while you will rotate through a lot of sectors as a result of employee turn over. You have to process vast amounts of information quickly, learn industries/sectors quickly and you need to understand both the legal, financial, political environment. The mega funds that force analysts to focus on a sector or a few closely related like E&P and Metals and Mining, or TMT etc, are not great places to learn. They are basically run by ex bankers who just imported all the hierarchy and politics from banking/PE. Plus you are forced to invest across the cycle even if your sector is in the toilet, you cannot tell your PM nothing to do in my sector and given the long bias (most distressed funds 80% net long on average) you cannot just run a short book ( which is also hard to do with debt that is yield 10-20% because the negative carry is too big and hard to get enough borrow) so then you are just looking at single name CDS.

You also wind up having to learn how to mange complex transactions that you cannot just rely on the ops people to manage like frozen cusips, escrow receipts, grey market desk securities, trading on distressed docs vs par docs, trade claims etc.

    • 3
Sep 8, 2019

Would you mind explaining a bit about some of those terms you used (grey market desk securities, frozen CUSIPs, etc.)?

Sep 17, 2019
Comment
Sep 9, 2019