Gray Fox AMA

Gray Fox's picture
Rank: King Kong | 1,773

Mod Note (Andy) - this AMA originally went up last August but Gray Fox wrote and said he could still answer questions

I've posted here for about five years, but with much less frequency the past year and a half. @xqtrack @Kenny_Powers_CFA @BlackHat and others did similar threads. Earnings season is over and it is relatively quiet, I figured I would do something similar. I've been an analyst at fundamental l/s equity manager for some time now. I'm happy to answer questions on any of the following topics:

-Fundamental L/S equity investing (with a much heavier emphasis on the L)
-HF recruiting
-CFA
-GMAT (took the test but did not go to business school)

No investing advice, I can't help you find a job, and I was never an investment banker - can't address that topic. Mods- please don't front page.

Comments (72)

Aug 11, 2015

What has caused you to stay at your firm? Have you had thoughts of leaving? What could cause you to leave? What's your long-term game plan? The number of analyst seats seem to dwindle the older you get, so I'm curious how you have thought about the issue.

Aug 11, 2015
MMmonkey:

What has caused you to stay at your firm? Have you had thoughts of leaving? What could cause you to leave? What's your long-term game plan? The number of analyst seats seem to dwindle the older you get, so I'm curious how you have thought about the issue.

-I respect the people who i work for, they have treated me well, and I believe in the investment process
-Everyone thinks about leaving at some point, I've never acted on it.
-If Ted Weschler needed an analyst or I woke up one morning with the ability to play on the PGA Tour, I'd be gone. In reality, I would probably leave if management became more focused on other endeavors or there was serious style drift. Don't see that happening.
-Long term game plan is to do the best I can at the office, invest my own money well, and be prepared for any opportunities that come down the pike. At the mid-senior level (I'm solidly in the mid camp) the decision really boils down to trying to run money vs. becoming a senior analyst with more security. Will address options for running money in separate post.

Aug 11, 2015

the CFA helps you do____? What kind of background does it take to get real looks from a HF?

Thanks for doing this.

Aug 11, 2015
anonymousbro:

the CFA helps you do____? What kind of background does it take to get real looks from a HF?

Thanks for doing this.

The CFA is a signaling device. 90% of the curriculum has no direct bearing on the investment process. Its a good general overview of related information, but the parts I found most useful were the accounting chapters related to quality of earnings. The L2 chapters on economic earnings and normalized FCF were useful as well. I don't regret taking the tests and paying the $250 annual fee.

Most PMs in the hedge fund space honestly don't care that much about the CFA. I don't think my boss knows I did the program. The mutual fund space has a dogmatic fixation on CFA though, its borderline expected at Fidelity/Wellington/Putnam etc. Headhunters like seeing it as well, and they are often the gatekeepers for hedge fund jobs.

The best way to get real looks for HF jobs is to do a two year banking stint. The majority of large hedge funds that regularly recruit analysts do so via banking classes. For people who did not do banking, my best advice is to have a really, really good write-up to send as a resume. A decent amount of HF jobs are sourced through HBS, Columbia, Wharton, Stanford, etc but a top flight MBA is by no means a guarantee.

Aug 14, 2015
Gray Fox:

anonymousbro: the CFA helps you do____? What kind of background does it take to get real looks from a HF?
Thanks for doing this.

The CFA is a signaling device. 90% of the curriculum has no direct bearing on the investment process. Its a good general overview of related information, but the parts I found most useful were the accounting chapters related to quality of earnings. The L2 chapters on economic earnings and normalized FCF were useful as well. I don't regret taking the tests and paying the $250 annual fee.

Most PMs in the hedge fund space honestly don't care that much about the CFA. I don't think my boss knows I did the program. The mutual fund space has a dogmatic fixation on CFA though, its borderline expected at Fidelity/Wellington/Putnam etc. Headhunters like seeing it as well, and they are often the gatekeepers for hedge fund jobs.

The best way to get real looks for HF jobs is to do a two year banking stint. The majority of large hedge funds that regularly recruit analysts do so via banking classes. For people who did not do banking, my best advice is to have a really, really good write-up to send as a resume. A decent amount of HF jobs are sourced through HBS, Columbia, Wharton, Stanford, etc but a top flight MBA is by no means a guarantee.

Do you have an example that people can refer to for "really really good write ups?" I'm highly interested in the space and it would be great to get some clarity around this.

Thanks again for doing this.

Jan 9, 2016

By banking, are you referring to S&T at an investment bank or do you mean corporate finance? How common would you say it is for actual investment bankers to be recruited by hedge funds? Do funds actively recruit bankers?

I find that the media labels anyone at an investment bank--back office and S&T included--a banker.

Aug 11, 2015

Thanks for doing this. How concentrated is your portfolio? Do you build very granular models or are you more focused on the qualitative aspect (catalysts, business drivers)? How long do you typically spend on a name before buying / staying on the sidelines? Are you a generalist and, if so, how do you get up to speed on industries (GLG, sellside research, network)? For recruiting, how do you view guys coming from credit / mezz funds and do you care what my IRR in my PA is?

Aug 11, 2015

Are you Frank Jaeger?

    • 3
Aug 11, 2015
Deo et Patriae:

Are you Frank Jaeger?

I'm like you, I have no name.

    • 3
Aug 11, 2015
  1. How helpful is the CFA? I got some of my PMs telling me to get a CFA and I still can't find a straight answer to whether the CFA is helpful in a HF career.
  2. What do you see as your career progression and how long would take for you to get some capital allocation?
Aug 11, 2015

Does your firm allow interns to make investment decisions?

    • 2
Aug 12, 2015
DickFuld:

Does your firm allow interns to make investment decisions?

Why not? All hands on deck. Gotta soak up all the alpha

    • 1
Aug 11, 2015

Best tips for breaking into HF from undergrad? What do you think the hurdle for the quality of an undergrads own write-ups/process should be for that?

Aug 12, 2015
Stryfe:

Best tips for breaking into HF from undergrad? What do you think the hurdle for the quality of an undergrads own write-ups/process should be for that?

I would advise the majority of people to go someplace with a formal training program out of undergrad. If your heart is set on buy-side, apply to Fidelity/Wellington/BlackRock that do actual analyst programs. Some of the large funds are starting to hire people out of undergrad (Point72), but that is separate topic.

The hurdle rate for write-up quality is going to be even higher for somebody out of undergrad vs. somebody who has tangential work experience for 2-3 years. There are a lot of job postings for smaller funds for people with 2-3 years experience that ask for a write-up, the work experience can probably be trumped by a great idea.

I would also note that an initial write-up should be no more than two pages, with the option of attaching a much longer fleshed out thesis.

Aug 12, 2015
Gray Fox:

Stryfe: Best tips for breaking into HF from undergrad? What do you think the hurdle for the quality of an undergrads own write-ups/process should be for that?

I would advise the majority of people to go someplace with a formal training program out of undergrad. If your heart is set on buy-side, apply to Fidelity/Wellington/BlackRock that do actual analyst programs. Some of the large funds are starting to hire people out of undergrad (Point72), but that is separate topic.

The hurdle rate for write-up quality is going to be even higher for somebody out of undergrad vs. somebody who has tangential work experience for 2-3 years. There are a lot of job postings for smaller funds for people with 2-3 years experience that ask for a write-up, the work experience can probably be trumped by a great idea.

I would also note that an initial write-up should be no more than two pages, with the option of attaching a much longer fleshed out thesis.

If you really are set on working at a HF out of undergrad, line up a few buy-side internships, take CFA I December of senior year, and send your resume/write-up to 20 funds that you would be willing to work for during senior year.

Aug 24, 2015
Gray Fox:

Stryfe: Best tips for breaking into HF from undergrad? What do you think the hurdle for the quality of an undergrads own write-ups/process should be for that?

I would advise the majority of people to go someplace with a formal training program out of undergrad. If your heart is set on buy-side, apply to Fidelity/Wellington/BlackRock that do actual analyst programs. Some of the large funds are starting to hire people out of undergrad (Point72), but that is separate topic.

The hurdle rate for write-up quality is going to be even higher for somebody out of undergrad vs. somebody who has tangential work experience for 2-3 years. There are a lot of job postings for smaller funds for people with 2-3 years experience that ask for a write-up, the work experience can probably be trumped by a great idea.

I would also note that an initial write-up should be no more than two pages, with the option of attaching a much longer fleshed out thesis.

Are the formal training programs at these large firms "that" valuable? I'm debating whether or not to start at a small fund (AUM: 400MM with 3 investment professionals). Do you think I should try to go somewhere bigger or scratch all together and do IB?

Aug 12, 2015

2 questions regarding recruiting:

  1. How do you view guys coming from "nontraditional" banking groups like real estate or FIG vs. more traditional groups like TMT/HC/C&R?
  2. Does having a great gmat score help at all if GPA/SAT are already very solid?
Aug 13, 2015
reib_analyst:

2 questions regarding recruiting:

1. How do you view guys coming from "nontraditional" banking groups like real estate or FIG vs. more traditional groups like TMT/HC/C&R?

2. Does having a great gmat score help at all if GPA/SAT are already very solid?

-My firm is probably not the best example given that the sample size is too small. Based on conversations with friends at other firms, the bias towards the "preftigious" banking groups is more heavy in PE recruiting rather than HF recruiting. A lot of sector focused jobs are available for FIG, Real Estate, natural resources. It may be harder to get the generalist role at a fund, but there are FIG teams at every multi-manager and most large single manager funds.

-If you already have a top flight GPA/SAT score I wouldn't take the GMAT just to help with HF recruiting. A good GPA is kind of a given and two standardized tests in the 99th percentile are not better than one test score in the 99th percentile.

Aug 12, 2015

If you've worked with developers at HFs, can you shed some light on their career or your experience with them?

Aug 17, 2015
LayeredCake:

If you've worked with developers at HFs, can you shed some light on their career or your experience with them?

Sorry I can't offer too much advice on this topic, but I would say that if you just google "hedge fund analyst jobs", a ton of them are coding/quant related.

Aug 12, 2015

a) What skills/qualities do you think would be looked into when hiring a HF analyst?
b) What would be some common interview/ informational questions asked when hiring an analyst?
c) Hypothetically, say you're back in UG, how would personally go about breaking into a HF as an UG?

Thanks for doing this, really appreciate it.

Aug 12, 2015

@Gray Fox I'll just piggy back on his so you only have to answer twice. Related to his a) what I am specifically wondering about is do you need a technical background? The cliche thing you hear about HF is that everyone has their PHD in rocket science, and they can calculate all the financial formulas in their head. If that is indeed what they're looking for, what kind of supplemental background is okay?

Aug 13, 2015
anonymousbro:

@Gray Fox I'll just piggy back on his so you only have to answer twice. Related to his a) what I am specifically wondering about is do you need a technical background? The cliche thing you hear about HF is that everyone has their PHD in rocket science, and they can calculate all the financial formulas in their head. If that is indeed what they're looking for, what kind of supplemental background is okay?

I think this is more relevant for quant funds. Analysts in the fundamental space, whether its credit or equity, are generally sharp people but they aren't Putnam fellows. IlliniProgrammer could better address that part of the HF world.

Aug 12, 2015

1) How are ER guys viewed when it comes to recruiting?

2) How much, if at all, do you rely on ER when forming a view?

3) How do you generate ideas + do you get to actively research your ideas or is all the work done on PM's picks?

4) day in the life would be great

5) best and worst thing about the job

Thanks for doing this.

Aug 14, 2015

delete

Aug 14, 2015
Zatopek:

1) How are ER guys viewed when it comes to recruiting?

2) How much, if at all, do you rely on ER when forming a view?

3) How do you generate ideas + do you get to actively research your ideas or is all the work done on PM's picks?

4) day in the life would be great

5) best and worst thing about the job

Thanks for doing this.

Also interested in your answer to these.

Aug 15, 2015
Zatopek:

1) How are ER guys viewed when it comes to recruiting?

2) How much, if at all, do you rely on ER when forming a view?

3) How do you generate ideas + do you get to actively research your ideas or is all the work done on PM's picks?

4) day in the life would be great

5) best and worst thing about the job

Thanks for doing this.

Definitely interested in this too

Aug 16, 2015

Thanks for doing this AMA.

1) I am currently an analyst at a middle market investment bank in New York City. I have only gotten a few interviews through recruiters since they seem to prioritize bulge brackets / elite boutiques. How do you recommend I go about getting interviews at hedge funds without recruiters? Should I do anything else besides sending a write-up to people at funds?

2) How often do people move from one hedge fund to another and what would that process be like? Do you think it is possible to move from a smaller, lesser-known hedge fund to a larger fund that might be considered better?

3) How much does your fund (and other funds you know about) focus on catalysts for each investment idea? One of my current ideas is a long that I argue is undervalued and represents a long-term growth play (it is growing a lot) but does not have any obvious catalyst other than earnings surprises and potentially a short squeeze.

Aug 16, 2015
jjwork100:

Zatopek: 1) How are ER guys viewed when it comes to recruiting?
2) How much, if at all, do you rely on ER when forming a view?
3) How do you generate ideas + do you get to actively research your ideas or is all the work done on PM's picks?
4) day in the life would be great
5) best and worst thing about the job
Thanks for doing this.

Definitely interested in this too

-There is a systematic preference for IB analysts over ER associates when it comes to recruiting, again I think it is all signaling value. Ceteris paribus, the banking jobs are more competitive and get slightly better candidates. The whole "sell-side analysts only care about the next quarter EPS number" mantra is way too popular and derogatory, but I think there is a small degree of truth to it. I think the best way to get to a HF via ER is at a more mid/senior level. Somebody with two years of ER experience doesn't really have an upperhand vs. a banking candidate, but an ER analyst with industry relationships and a deep knowledge base can add immediate value in a sector. If I were 3-4 years into an ER job I would stay with it until my name was on actual reports and I really knew the sector, then try to make the switch.

-I read sell-side reports occasionally, but its more out of curiosity. I would say I don't rely on sell-side ER at all, but it can useful to consult.

-Day in the life is really dependent on whether its not earnings season. Being in earnings season is about processing information and updating in a timely fashion, whereas being outside of earnings gives the flexibility for more in-depth work.

-Best thing about my job is access to PMs and mentorship. Worse thing is that the process can feel a bit iterative.

    • 1
Aug 12, 2015

Great stuff, I'll just go ahead and bombard you with questions off the top of my head. HF's have never been for me (I'm a deal-junkie), but always had some curiosity..

What's the size of your fund? How responsible are you for sourcing ideas? How do you come up with potential targets? Would you consider your fund to be highly levered? How receptive is the PM to things you say? Do you think sharpe ratio is a useful metric? And if you didn't work at a HF, then what could you see yourself potentially doing instead?

Might have gotten a bit carried away...sorry.

Aug 17, 2015
NESCAC:

Great stuff, I'll just go ahead and bombard you with questions off the top of my head. HF's have never been for me (I'm a deal-junkie), but always had some curiosity..

What's the size of your fund? How responsible are you for sourcing ideas? How do you come up with potential targets? Would you consider your fund to be highly levered? How receptive is the PM to things you say? Do you think sharpe ratio is a useful metric? And if you didn't work at a HF, then what could you see yourself potentially doing instead?

Might have gotten a bit carried away...sorry.

These are all very good questions, I'm going to pass on some of them to preserve anonymity.

-Sharpe ratio is probably more useful when the risk free rate is greater than zero. There are the obvious pitfalls that any finance text covers. I bet Tepper's sharpe ratio isn't that great because of the vol, but the vast majority of that is skewed in one direction. Tangentially related, Seth Klarman has said before that he does not know how to calculate Beta. I don't know if I believe that, but its instructive.

-Shorting in any form is leverage, even if gross exposure is below 100%. Pretty much all single manager L/S funds are going to run at lower gross and higher net leverage than multi-managers.

-The more thoughtful and intelligent my comments are, the more likely my boss is to listen to them. The opportunity cost of a successful hedge fund managers time is mind-boggling - don't waste it. Initial impressions go a long way. I proofread, critiqued, and attacked at every angle any email or piece of analysis I sent to my boss my first couple years. I thought if there was a way I could say things more efficiently, how they would respond, and what my follow up would be to any possible question.

-If I wasn't an investor, I would be an outdoors guide. If I was older and married, I would teach and coach. I know that isn't a useful answer, but I have zero desire to do F500 corporate finance, commercial banking, etc. I've been at a small fund for 5 years and it would be tough to go someplace bureaucratic like a big PE firm (and I doubt they would even want me). I guess I should caveat that with there are some very good long-only managers where I would be happy working (Sequoia) and that being at a place like Capital Group gives a ton of mgmt access and research firepower.

Aug 13, 2015
  • Do analysts typically all strive to be on the PM track or are there some that are content to just become better analysts?
  • Does your career still "progress" if you opt to stay as an analyst?
  • How fleshed out do you typically expect investment write-ups to be from prospective junior hires? More along the lines of showing strong rationales or high-quality ideas that you would contemplate investing in yourself.

@Gray Fox Not sure if my question got lost in the shuffle. Thanks a bunch in advance.

Aug 12, 2015

thanks for doing this ama, won't front page per your request

WSO's COO (Chief Operating Orangutan) | My Linkedin

Aug 12, 2015

I just started on the buyside from UG, when is too soon (or is there no such thing) to go for the CFA? Also, thoughts on CAIA instead/before going for the CFA?

Aug 12, 2015
The Real Gordon Gekko:

I just started on the buyside from UG, when is too soon (or is there no such thing) to go for the CFA? Also, thoughts on CAIA instead/before going for the CFA?

If you are going to to do it, I would do it ASAP. The opportunity cost of your time is only going to go up, and if you are considering business school it makes the most sense to knock out CFA ahead of time.

For direct investing CAIA is useless. I looked into the program briefly, almost none of the material is relevant. More of a designation for FoF or investment consulting. I don't think I've ever met an analyst or PM in my space that has done CAIA.

Aug 12, 2015

Can you talk about your process when you have a name you want to drill down on (first steps, etc.)? How do you build your models? I'd be interested in how you build a general edge.

Can you talk about any difficulties you've had on the job that aren't talked about as much? Maybe time management, difficulty getting up to speed on certain things, etc.

Aug 13, 2015

Thanks for doing this AMA.

1) What are your recommended/favourite readings and books especially for those who have yet to start out on the buyside?

Read through some of your older posts and you do subscribe to:
- Value investor Insight: http://www.valueinvestorinsight.com/ - Graham and Doddsville Newsletters: https://www8.gsb.columbia.edu/valueinvesting/resou...
- Value Investors Club: http://www.valueinvestorsclub.com/
How useful are these?

2) Does your fund employ any technical analysis on your ideas to decide on an entry and exit point? If so, what are your favorite indicators?

3) Were there any personal regrets starting out on the buyside instead of doing a 2 year banking stint? For peeps who are pretty sure that they wanna do AM/HF (Equities) as their end goal, what are your recommendation to ensure that their modelling/financial analysis skills are as polished as those who came from banking?

4) What is your best short idea so far and what was the main reason you guys decided to short it?

Best Response
Aug 13, 2015
aspharagus:

Thanks for doing this AMA.

1) What are your recommended/favourite readings and books especially for those who have yet to start out on the buyside?

Read through some of your older posts and you do subscribe to:
- Value investor Insight: http://www.valueinvestorinsight.com/ - Graham and Doddsville Newsletters: https://www8.gsb.columbia.edu/valueinvesting/resou...
- Value Investors Club: http://www.valueinvestorsclub.com/

How useful are these?

2) Does your fund employ any technical analysis on your ideas to decide on an entry and exit point? If so, what are your favorite indicators?

3) Were there any personal regrets starting out on the buyside instead of doing a 2 year banking stint? For peeps who are pretty sure that they wanna do AM/HF (Equities) as their end goal, what are your recommendation to ensure that their modelling/financial analysis skills are as polished as those who came from banking?

4) What is your best short idea so far and what was the main reason you guys decided to short it?

-Quality of Earnings, Intelligent Investor, Buffett letters, The Most Important Thing, You Can be a Stock Market Genius, Fooling some of the people all of the time, Accounting for Value, Financial Shenanigans, Inside the House of Money. Blue Ridge has a good reading list that can be found via Google.

-Zero technical analysis. I realize Paul Tudor Jones and Stanley Druckenmiller have utilized it and are billionaires, but it is not for me. To be honest, 9/10 times an interview at a fundamental equity fund where the candidate includes technical analysis as a part of a pitch will get him dinged or at least chided.

-I haven't read Value Investor Insight in a while, but there are definitely great interviews in there. Graham and Doddsville is the same. They aren't going to help with building models or be instructive on how to pick through footnotes, but it is a good way to see how successful investors frame their thinking. VIC is great - I would advise going through some of the write-ups that were intensely debated. A lot can be learned from the back and forth.

-I think the only minor regrets were when I was 2-3 years out of school and my friends who did banking had seemingly endless options and I had kind of pigeon-holed myself as a fundamental equity investor. Now that I am past that stage I don't really have any regrets, but still advise people in college to do banking. It preserves the most optionality, very few people at 21 know what they will want to do in 5-10 years, and is still the best pipeline to buy-side jobs. If I really wanted to switch careers (I don't) I could do b-school.

-In terms of modeling skills, they will probably be less important the more experienced you become. TTS/BIWS/etc have good self-training programs and a lot of it can be picked up on the fly. One of my favorite anecdotes of all time is that Glenn Greenberg does his valuation work on a yellow notepad. I've met managers that a lot of people would kill to work for and they couldn't build a model in Excel to save their lives. In terms of financial analysis, I would suggest the following:

-reading books about in depth accounting reviews (Financial Shenanigans, Quality of Earnings, Accounting for Value)
-Going through some of the best pitches on VIC or Ira Sohn pitches. Look at the available 10ks/earnings transcripts/etc that were available at the time and see how the thesis was derived. Would you reach the same conclusion? What did they catch that somebody else missed?
-Keep a list of different types of competitive advantages and companies that actually have them in the real world. Compare the relative strength of those advantages, how it ties to earnings growth, and the multiples these businesses trade around.
-Keep a list of managers that are great capital allocators.

-Can't discuss any firm specific positions.

    • 4
Aug 14, 2015
Gray Fox:

-Quality of Earnings, Intelligent Investor, Buffett letters, The Most Important Thing, You Can be a Stock Market Genius, Fooling some of the people all of the time, Accounting for Value, Financial Shenanigans, Inside the House of Money. Blue Ridge has a good reading list that can be found via Google.

<

p>-Zero technical analysis. >

I blame you for the GBP100 i just spent on books.

I'll add one too, Creative Cash Flow Reporting

Aug 13, 2015

I don't have any questions, but I've definitely gotten a lot from your posts/comments over the years. Thank you for your contributions.

    • 2
Aug 14, 2015

What advice do you have on moving from a reputable shop (MF) in a quant role to a fundamental role? My quant team still uses fundamental company information, but we are by all means a quant group. Also currently pursuing CFA.

Aug 14, 2015

No questions, but +1 for the consistent quality of your posts over the years.

Aug 14, 2015

How stable would you rate your job as, given that you're decently senior now?

Is it impossible to get into HFs, say, as a post MBA IB associate (just like everything else, lol)?

How big is your fund? How big are the biggest funds (in terms of investment professionals, excluding BO/admin)

Are analysts only crunching models or are they also paid for ideas?

Is there a 2 and out program for juniors like in PE and banking (especially for big HFs like clearbridge), or is it easier to stay for long periods of time/get on partner track? What was your career advancement like.

Any plans afterwards, or do you plan to stay? What are your exit opps?

Aug 16, 2015
wanttobreakin111:

How stable would you rate your job as, given that you're decently senior now?

Is it impossible to get into HFs, say, as a post MBA IB associate (just like everything else, lol)?

How big is your fund? How big are the biggest funds (in terms of investment professionals, excluding BO/admin)

Are analysts only crunching models or are they also paid for ideas?

Is there a 2 and out program for juniors like in PE and banking (especially for big HFs like clearbridge), or is it easier to stay for long periods of time/get on partner track? What was your career advancement like.

Any plans afterwards, or do you plan to stay? What are your exit opps?

-I'm very much at a mid level, not senior. I do feel like my job is stable, largely because that is the environment the owners try to foster. There are a lot of funds with a cutthroat environment, I'm not at one of them. The multi-manager model lends itself more to the "contribute value and get paid or you're out of here" environment.

-Depends on the fund and the analyst. There is kind of a natural transition from doing work that is assigned via a PM to idea generation. Generating ideas is kind of a 24/7 job. People that want to take the next step are always thinking about what makes a good business and how much to pay for it. I read the journal, the economist, VIC, SZ and all of the other common sources, but every time I go to a restaurant, store, etc I'm thinking about who owns the place and is it a good business? My point is that even if you are a model monkey, its on you to think of ideas and its a 24/7 job.

-Depends on the fund, a lot of the more formal programs at large funds do a two year then MBA thing, but thats not that common. Picking a HF involves a lot more career risk than a PE fund, its harder to switch and the implied time commitment is much longer.

-No plans to leave, I'm grateful for my seat. Exit opps for a job like this are much more narrow than PE. I know how to think about businesses, have a strong understanding of financial concepts, etc but at the end of the day Security Analysis isn't the most tranferrable skill set.

A general comment on entering the space: I think active management as a whole will be structurally challenged for the next 10-15 years. Price discovery is an important part of functioning capital markets, but there are way too many people trying to pick stocks. For every Seth Klarman there are ten guys closet indexing and getting paid way too much money. The move to ETFs is real. The 1% fee structure is under a lot of pressure, to ask for 2/20 is getting even tougher. If you are legitimately passionate about investing it can be a rewarding career, but there will be incrementally fewer seats available each year. The idea of the HF space being "the most prestigous" and offering the best chance to get rich has led people into the business for the wrong reasons.

    • 2
Aug 14, 2015

Hi, what do you think of starting out at a hedge fund like GLG? Do you think it is a good platform (rivalling BB IBD) and how is GLG viewed by the industry?

Aug 17, 2015
Dece:

Hi, what do you think of starting out at a hedge fund like GLG? Do you think it is a good platform (rivalling BB IBD) and how is GLG viewed by the industry?

Sorry, not really familiar with GLG and can't comment/offer any advice.

Aug 17, 2015

Thanks for doing this. Appreciate your comments through the years as they have been very value-add for the most part. For the most part they have also been in-line with how I think too (not sure if this is a good thing).

My only question is how do you meet more people in the industry and stay connected? For better or worse, I do eventually want to have a network of people in the industry that I can email/call up and discuss ideas. Most general "finance" networking events I've been to tend to have very few people at what I guess are called FO roles at a HF or MF. Most of my contacts in the industry that I can just talk to are by chance (friend of friend I meet at bbq, etc.). My firm is also in the startup stage and we aren't concentrated enough in any sector to really warrant traveling to NYC for an industry event.

I don't have a traditional background such as IB and worked at a small firm prior to my current role (and thus no real finance network from first post-college stint). The people I have worked with / interned with are generally at AM/HF but there were very few of them to begin with. Not that I'm complaining, but just providing some background on why this problem exists for me in the first place and why I'm trying to work with the hand I've been dealt.

Thanks!

Aug 17, 2015
floppity:

Thanks for doing this. Appreciate your comments through the years as they have been very value-add for the most part. For the most part they have also been in-line with how I think too (not sure if this is a good thing).

My only question is how do you meet more people in the industry and stay connected? For better or worse, I do eventually want to have a network of people in the industry that I can email/call up and discuss ideas. Most general "finance" networking events I've been to tend to have very few people at what I guess are called FO roles at a HF or MF. Most of my contacts in the industry that I can just talk to are by chance (friend of friend I meet at bbq, etc.). My firm is also in the startup stage and we aren't concentrated enough in any sector to really warrant traveling to NYC for an industry event.

I don't have a traditional background such as IB and worked at a small firm prior to my current role (and thus no real finance network from first post-college stint). The people I have worked with / interned with are generally at AM/HF but there were very few of them to begin with. Not that I'm complaining, but just providing some background on why this problem exists for me in the first place and why I'm trying to work with the hand I've been dealt.

Thanks!

I don't by any means have a giant network but I would suggest the following ideas

-Local CFA events. Most people will have terribly boring personalities and depressing jobs, some people will actually be intelligent and good sounding boards.
-Check out the website Corner of Berkshire and Fairfax. People there seem to organize regular meet ups in NYC, Boston, and Toronto. I have not been to any of them yet but would love to go at some point. I think the MO is that 2-3 guys pitch idea, everybody else asks questions, and then people drink beer.
-Check your alumni network. I went to a small liberal arts college, but I was shocked to find how many people have similar jobs in my area.
-I don't know how far NYC is from you, but the Columbia CSIMA conference in February has speakers nearly as good as Ira Sohn at less than a tenth of the cost. There are several idea dinners with industry professionals the same night.

Aug 17, 2015

I would also like to add to what Gray Fox has said about VIC. I personally am not on VIC or SumZero but I have at least skimmed every single writeup on VIC (except Biotech/Pharma related) from the last 4 years. I generally also look at the comments section for some names I find interesting. Over the years you can get a sense of who some of the really good writers are and sometimes you notice that others gloss over some details that they really shouldn't. Overall I'd say VIC has been my best resource for learning how to be a better analyst. If you don't have access a 45 day delay isn't that bad anyways.

I'm signed onto some Sumzero newsletter which provides a few writeups a week for their contests / etc. I find it to be a nice addition to VIC but I've read that the quality of a general writeup doesn't compare to VIC.

    • 1
Aug 18, 2015

Thanks for doing this. I was wondering whether you have ever had to negotiate or push for more comp at your fund than the partners were offering and if so, how you approached those discussions.

In theory, an analyst has some leverage if the shop is lean (either naturally or due to departures) and running a lot of capital with decent returns. But practically, it seems like most PMs will pay just enough to keep the analyst there and it's challenging to negotiate more because the only real leverage the analyst has is to walk (and I almost think that once you threaten that.. you've reached the point of no return.)

Even if the analyst has graduated from a relatively fixed starting comp to verbally-agreed on % of PnL (i.e., more performance-based), the percentage may still be quite low. Interested in your thoughts on this.

Aug 18, 2015
Carter89:

Thanks for doing this. I was wondering whether you have ever had to negotiate or push for more comp at your fund than the partners were offering and if so, how you approached those discussions.

In theory, an analyst has some leverage if the shop is lean (either naturally or due to departures) and running a lot of capital with decent returns. But practically, it seems like most PMs will pay just enough to keep the analyst there and it's challenging to negotiate more because the only real leverage the analyst has is to walk (and I almost think that once you threaten that.. you've reached the point of no return.)

Even if the analyst has graduated from a relatively fixed starting comp to verbally-agreed on % of PnL (i.e., more performance-based), the percentage may still be quite low. Interested in your thoughts on this.

I've never negotiated on comp. To be honest I think the cumulative time I've spent on comp-related discussions with the my boss is about 5 minutes. Whether the news is good or bad, when the number is communicated the way to go is to say thank you and not show any emotion. Obvious disappointment makes you seem ungrateful, getting giddy makes you seem young and signals that they might be overpaying you. Take some time to process the information and make a rational plan if you feel like there needs to be a discussion.

I will say this though: tread carefully. I've heard a lot more stories about these conversations going south than ones where things work out well. Nine times out of ten the analyst has less leverage than they think they possess.

I would do some homework to see where you should realistically be (consult the Glocap report, try to find a discrete headhunter, ping your network), and if there is a material gap go out and get an offer in January/February. With an offer in your back pocket you can push a lot harder (while still being respectful) and see what happens.

Aug 18, 2015

What are your thoughts on activist investing?

Aug 24, 2015
fortheppl:

What are your thoughts on activist investing?

-The media makes activism seem like a much bigger deal than it actually is in real life. Activists are $150bn of $3 trillion in hedge fund AUM. They get 50%+ of the media exposure and are 5% of the assets. In terms of actively managed money, the percentage is even smaller.
-It can be a useful tool, but we are probably hitting a tipping point where the money flowing into activist strategies is greater than the actual need for activism.
-Companies are much more efficiently run than they were 20-25 years ago. Boards are more independent, every capital allocation decision is scrutinized, and all of Corporate America has been restructuring since 2008. Read Barbarians at the Gate and contrast that with people at Heinz needing special permission to print in color.

Finally, in the words of a legend "____ Sucks"

Aug 24, 2015
Gray Fox:

Finally, in the words of a legend "____ Sucks"

This is perfect.

And just a general statement, how crazy has today's market been so far? Hopefully no one around here was caught panic selling on the open. I guess maybe in a few days/weeks they might be the smart ones.

Aug 20, 2015

My job out of undergrad and current job is at a reputable sell-side macro firm. I do have some buy-side as well as sell-side equity research internships at some top tier funds while in undergrad. How would my profile stack up against other candidates with investment banking gigs at GS/JPM/MS in L/S interviews?

Aug 22, 2015

2 questions. 1. Do most HF pay for the CFA? I know it isn't too much but it would be a neat little incentive. 2nd question would be what is the biggest assumption or mistake that new Hedge fund hires make?

Aug 22, 2015

Thanks for doing this. Wonder if you could comment on any fundamental L/S shops or individual PMs that you respect? Are they the big names that we would all be aware of, or are there some mid-sized under the radar funds that do things really well in terms of the soundness of their research process, patience with ideas, opportunity for analysts to drive P&l etc...

Aug 24, 2015
jankynoname:

Thanks for doing this. Wonder if you could comment on any fundamental L/S shops or individual PMs that you respect? Are they the big names that we would all be aware of, or are there some mid-sized under the radar funds that do things really well in terms of the soundness of their research process, patience with ideas, opportunity for analysts to drive P&l etc...

I'll throw a few names out there that are excellent and not the famous responses like Baupost, Third Point, Viking, etc

Brave Warrior
Tesuji
Hound Partners

    • 1
Aug 24, 2015
Gray Fox:

jankynoname: Thanks for doing this. Wonder if you could comment on any fundamental L/S shops or individual PMs that you respect? Are they the big names that we would all be aware of, or are there some mid-sized under the radar funds that do things really well in terms of the soundness of their research process, patience with ideas, opportunity for analysts to drive P&l etc...

I'll throw a few names out there that are excellent and not the famous responses like Baupost, Third Point, Viking, etc

Brave Warrior
Tesuji
Hound Partners

very solid list

Aug 27, 2015
Gray Fox:

jankynoname: Thanks for doing this. Wonder if you could comment on any fundamental L/S shops or individual PMs that you respect? Are they the big names that we would all be aware of, or are there some mid-sized under the radar funds that do things really well in terms of the soundness of their research process, patience with ideas, opportunity for analysts to drive P&l etc...

I'll throw a few names out there that are excellent and not the famous responses like Baupost, Third Point, Viking, etc

Brave Warrior
Tesuji
Hound Partners

Id second Hound Partners. Auerbach is one of the smartest people I've ever met.

Gray Fox: for HF recruiting can a non traditional candidate with a great pitch beat out someone whose done IB/PE? And if so what level would the pitch have to be for it to really set someone apart?

Sep 5, 2015

Hey if you're still doing this; how would sending writeups of a different strategy to a fund be taken? Say a long to a distressed shop, or credit? Would that show at least initiative and intelligence if the writeup is good? Equities are a lot easier to research than credit or distressed...

Sep 8, 2015

The fund I work at generally doesn't respond to unsolicited pitches, as we're fairly institutional in our hiring process, so I won't opine on whether it's ok to send stuff for a different strategy. That said there are plenty of stressed/distressed credit situations that are SEC-filers right now, particularly in energy and commodities but also in plenty of other sectors as well.

Mar 4, 2016

How valuable do you think a PhD in finance would be for getting a job in hedge fund?

Array

Mar 16, 2016
Comment
Mar 10, 2016
Dec 13, 2017