1/2/16

Hedge Fund Career

A career in the hedge fund industry is one of the most desirable careers in finance, and it's not hard to understand why. Money is undoubtedly the greatest attraction, with analysts making $150k and then some. Portfolio managers often make north of seven figures, which is why eventually running a fund is considered the optimal career trajectory for so many.

The job rests significantly on individual performance, a simultaneously appealing and frightening facet of hedge funds.

Hedge fund employees work an average of 50-70 hours a week, far less than their investment banking peers.

Everybody wants to be a rock star portfolio manager, but not everybody is equipped with the knowledge to get a hedge fund job in the first place.

Hedge Fund Job Out of College

Most hedge fund jobs are obtained once you've "paid your dues." Paying your dues typically involves two years of investment banking, equity research, or sales and trading. Among those, what you choose to pursue largely depends on what type of fund you seek to pursue.


@AJunior
  • For example, if you want to join a global macro discretionary fund, you may be better off being a strategist or economist at an investment bank / big asset manager.
  • The investment banking route prepares you for event driven and long/short as does equity research.
  • If you want to be in a systematic hedge fund / CTA fund, you'll need to do some kind of programming research.
  • It completely depends on the strategy of the fund on a best route. That being said, starting in an IB as a junior keeps a lot of doors open.

Luckily, getting a job at a hedge fund directly out of undergrad is not unheard of. It's incredibly uncommon because of the tremendously competitive nature of hedge fund recruiting, but it's possible, given you know what you're doing.

Just like in investment banking, internships are absolutely critical in getting a hedge fund job. You can start searching for internships as soon as the summer after freshman year.

  • Securing that coveted hedge fund position without full-time experience starts with an
    internship.
  • The key to getting hedge fund internships is networking. There are three methods of networking to get a hedge fund internship:
    • Connections of family and friends
    • Cold calling
    • Cold emailing

    Getting an internship through connections is the easiest method. Unfortunately, most don't have this luxury.

    Our method of choice is cold emailing. It allows you to reach out to the most people in the quickest amount of time (with a template email), and it quickly identifies who is willing to help you in your efforts. This is opposed to cold calling, which might result in you calling the same firm several times over for any indications of receptiveness.

    Another distinct benefit of cold emailing is the ability to attach files, which gives you an opportunity to show off your investing chops. Plus, you can attach your resume if you feel it strongly portrays you. If you feel that your resume might hurt your chance - random university, poor GPA, lack of experience - then you can leave it off. We recommend including it because whatever weaknesses you have will come to light eventually.

    The most critical aspect of your cold email will be the stock pitch you attach. You need to prove that you're a capable investor if you want a chance at the internship. They're considering including you on their team for three months, and you likely have little experience to demonstrate that you'd be a good choice over the other candidates. The stock pitch is what separates you - on initial contact - from the myriad of hungry students competing for a position. A quality stock pitch puts you miles ahead of your peers, and it will greatly increase the responses your email gets. The length of your stock pitch should be between five and eight pages.

  • Preparing your email template is a simple task. Include:
    • What year you're in
    • Your major
    • Your inquiry ("I would love to hear about your career and your experience at X fund. Would it be possible to arrange a short phone call to discuss your background and where you're at today?")
    • Make sure to include your stock pitch and resume (optional but recommended) and mention it somewhere in your email. You can say something along the lines of, ""I apologize if this is too forward, but I've attached my resume and a stock pitch for your consideration." (@notbad4aquant).
  • You might be thinking, no hedge fund professional is gonna read some kid's five to eight page investment recommendation. You're not necessarily wrong, but the goal isn't to get them to read your stock pitch cover to cover. If your stock pitch is clear, coherent, and well-researched, then the professional will respect your initiative and see your value as a potential intern.
  • Now you have an email template that includes your stock pitch and resume (optional). Next step is to identify professionals to contact and find their emails. Once you do this, you can start shooting your email out. Don't contact more than one person at a particular fund at a time.

If cold emailing doesn't sound like your cup of tea, then you can try securing a hedge fund internship through cold calling. Find the phone numbers of hedge funds and call them with the intention of getting an internship. You'll probably face more rejection when cold calling. When you cold call, all you're showing is initiative. Through cold emailing, you can demonstrate both initiative and an aptitude for investing (with your resume and stock pitch).

You've blasted your email to every nook and cranny of your target city and you've landed yourself a couple of interviews, so how do you prepare for them? Fortunately, hedge fund internship interviews aren't incredibly technical. By including your stock pitch, you've already demonstrated your aptitude for investing, so the interview is to determine if you're someone the team wants to work with for the next three months.

Besides some basic questions on the markets and investing, the interview will consist of behavioral and fit questions. Come prepared with a few short stories you can adapt to answer some of the more typical behavioral questions.

Here's @masterplan on how to approach behavioral questions.

Behavioral questions can only vary so much. Brainstorm your answers, focus on the key points you want to deliver, and practice on your delivery.

So to answer the question you mentioned, "Tell me about a time when you had to face a challenging situation in a team," start by thinking about what interviewers expect to hear. Obviously you want to start off by telling a teamwork environment you were in. Choose a challenging situation, something like a disagreement of opinion. Then explain how you approached the problem to resolve the situation. End you answer by telling what your takeaways were, and this should make you sound smart enough.

Think about what the perfect answer to the question might be and modify your story to fit it in.

It's been a long road paved by your persistence. Through your networking efforts, you landed a few interviews. If you took heed of our advice on the behavioral questions, then you're a top candidate, and you've demonstrated that at every possible moment. The opportunity is now ripe for the taking.

At this point, your success is on your performance as an intern. When they say, "Jump," you say, "How high?" Find some way to add value to the fund. You need to make yourself as essential to the fund as possible. Ideally, you get a return offer for an internship next summer (or a full-time position if you're a junior).

Keep in mind how many analysts the firm hires each year and whether you're competing with any other interns. If the fund is indeed hiring analysts, that's your green light. Hopefully, conversations about whether the fund can/will hire you come up organically. Otherwise, you should bring that point to light.

Assess whether the firm will hire you upon graduation. If not, it's time to look for other opportunities. It's an unfortunate scenario, but you have good experience under your belt and hopefully a solid referral. If all goes well, then you'll have landed yourself a full-time hedge fund job out of undergrad.

The Typical Hedge Fund Career Path

Many students decide they want to pursue a career in the hedge fund industry relatively early. The large majority end up pursuing something else for a couple of years as a stepping stone into a hedge fund position.

The fields that will position you most successfully for a hedge fund job are:

  • Investment banking
  • Equity research
  • Sales and trading
  • Some sort of programming/quantitative position
  • Investment banking provides the most versatility regarding different fund types. Of course, business school is always an option if you feel it necessary to re-position yourself.

So how do you get your foot in the door once you've "paid your dues?" Here's @WallStreetPlayboys on how hedge fund recruiting works in those cases.


The best way to land a hedge fund interview is through networking, but... a large portion of the recruiting process is outsourced to headhunters, who primarily target bankers and research analysts in their searches (management consultants are also successful).

The job responsibilities are not exactly the same, but the skill set and intelligence necessary to be a junior banker serve as a baseline for the kind of work that is expected of hedge fund personnel. Hedge fund managers are busy people, so they recruit from pools of bulge bracket bankers for the same reason that bankers recruit from target schools.

Hedge Fund Interview

The hedge fund interview is a nerve-inducing affair. For many, this is the position they've yearned for as early as high school. Combined with the fact that hedge fund recruiting is incredibly competitive, the average fund only hires five to six analysts a year, and it can seem like an overwhelming hurdle to jump.

First, understand that you'll likely never jump that hurdle unless you use some sort of hedge fund interview course. Most candidates will use some sort of guide to prep for the technical aspect of the interview, so those who don't will get left in the dust.

One particularly critical moment in the interview is the stock pitch. Here's how you need to prepare for the stock pitch:


@WallStreetPlayboys
1) Tailor at least one of your ideas to the fund's strategy. (e.g., If it's a L/S shop, have a pair trade ready to go. If it is a Merger Arb fund, you should have a few pending deals in your back pocket... You get the idea.)
2) The second idea, that can be anything. It could be based on a recent deal you worked or something going on in your coverage area, or something you read in Barron's/a research report last weekend. Of course, the more work you do, the better off you are... The harder you work, the luckier you get.
3) Presenting the idea, you want to walk them through the process and explain your decision making at each step:
4) Inspiration / how you came up with the idea
5) Model the company (Details are better but errors can ruin your chances - a balance.)
6) Conduct background research about the company
7) Refining the original thesis based on research and model
8) Coming up with a valuation for the company
9) Making an investment recommendation based on that valuation (buy / sell)
10) Listing any possible downsides / risks, along with any mitigating factors

If you utilize the WSO Hedge Fund Interview Course and take heed of the stock pitch advice above, you'll be in good shape.

One last piece of advice: Start a personal trading account as early as possible. Here's why it'll set you apart, from @K3.


However, having a personal account has LITERALLY gotten me through many first rounds. I believe I have what most candidates do not have: A LOT of skin in the game. And I'm not talking about Google longs, more along ETF asset rotation strategies, closed end fund logics, etc. Bottom line: open a trading account as an undergraduate with 1k and start trying to do some investing with your ideas. If you lose money, it's 1k you can write off in taxes OR consider it an education expense. Open a personal trading account ASAP.

Making Yourself a Great Investor

Investing is the foundation of finance, and it's the foundation of the hedge fund industry. Great investors will never be short of career versatility both within and outside hedge funds. If you have even the slightest desire to one day run your own fund, then you better have an even greater capacity to invest money wisely. These tips will hopefully give you an idea of what makes a great investor, which is critical if you hope to secure capital from limited partners (LPs).

The first tenet of great investing, to quote pop culture phenom Lavar Ball, is to, "Stay in yo lane." Find what strategy you excel at and stick to it. Inflated egos might lead some portfolio managers to believe they can balance the best of various strategies, but this is the quickest way to anger LPs.


@BlueWing

You aren't going to find someone who is a phenomenal stock picker, master of buyouts, and distressed debt expert. If you do, report him to the SEC for fraud. The best investors stick to one investment strategy and are very good at it.

Another piece of advice: learn from your mistakes. If anything, focus on them as they are the greatest sources of learning potential. Just as failures define a human being, failures define an investor.


@BlueWing

Often times we'll meet with two managers of similar strategies where recent performance is phenomenal for one and mediocre for the other. Going into the meeting, it is easy to assume that Manager A is the better investor based on performance, but this isn't always the case.

Let's assume Manager A continually talks about all the firm's big winners and how they just keep picking stocks that go up.

Next, Manager B talks about his firm's overall process of how they pick stocks, highlights an example of an investment that did well, follows with the worst pick in years that derailed performance the past few years, and then talks about what they learned from this mistake.

Who do you think I'm more likely to invest with? If you picked Manager B, you are 100% right. Just like no one is good at everything, no one is perfect.

One last tip for those of you who have yet to wet your feet: get started already! If you anticipate investing as a career, start now for a couple of reasons. First, you'll be able to decide whether you really see yourself investing your entire life. Second, it'll do wonders to put you ahead of the game. Here are some books to get you started:

  1. Intelligent Investor by Ben Graham (recommended by @thebrofessor)
  2. Margin of Safety by Seth Klarman (recommended by @thebrofessor)
  3. The Most Important Thing by Howard Marks (recommended by @thebrofessor)
  4. Competition Demystified by Bruce Greenwald and Judd Kahn (recommended by @Extelleron)

Success Story - Getting a Hedge Fund Job Out of Undergrad

Mod Note (Andy) - We're reposting the top discussions from 2015. This one ranks #17 and was originally posted on 2/15/2015.

The topic of getting hired at a hedge fund directly out of undergraduate compels many students. The response to the question, "Is it possible to get hired at a hedge fund directly out of undergraduate?" typically goes along the lines of, "It's a shot in the dark, but yes, [insert cliche explanation]". I hope, through this post, I can offer undergraduate students more specific insight into the process of how it can be done through sharing my own personal experience, as well as provide a beacon of hope to those desiring a hedge fund job directly out of undergraduate.

To start-off, let me tell you a little about my background. I am a 22 year old who recently completed my undergraduate degree and dedicates the majority of my time and effort to researching and finding compelling investment ideas because I simply love doing so. Not too long ago, during my sophomore year, I was a frat boy who focused his time and attention on partying. The summer going into my junior year I read The Intelligent Investor merely out of boredom. A light turned on in my head afterwards. In the semesters to follow, I went down an aggressive path of self-education, reading countless value investing and finance books and applying that knowledge in the theses I published on Seeking Alpha and my personal website.

During this time, I sacrificed my social life and school came second. I knew I wanted to work at a hedge fund out of undergraduate, but I was aware I do not fit the mold of what hedge funds look for. I went to a non-target school in the Southeast, had an okay GPA, never completed an internship, and didn't have a single connection in the industry. But screw it. YOLO, right?!

Despite all of the adversity, I managed to obtain a position as a part-time analyst for a value-oriented long-short equity hedge fund based in New York run by two Columbia grads, a job I started while still completing my last semester as an undergrad not too long ago. I also garnered a lot of attention from other hedge funds during my application process. Here are the individual steps of the process I followed that enabled me to get my foot into the door and ultimately get a job.

The first step is gathering a list of funds that you personally feel you can fit into. To do this, ask yourself, "What is my personal investment strategy? Value? Growth? Macro?" I've focused the majority of my learning efforts in teaching myself the fundamentals of value investing, so I gathered a list of 25 small value funds to cold call. Establishing the list was fairly easy as all I did was compile a list of funds/fund managers referenced in the many books I read or those who pitched at investor conferences. At this point, I didn't know or care, whether these funds hired or not.

The second step is creating leverage for yourself. Why do hedge funds almost exclusively hire individuals with years of IB experience? Because funds know they understand and can apply the fundamentals, eliminating the cost of training and minimizing risk on their part. For me, I've never even done an internship at an IB, but that didn't really matter because I was able to showcase the same knowledge and skill set sought after in seasoned IB professionals. How did I do that? I had a compelling cover letter, resume, as well as two research notes on both the long-side and short-side that demonstrated my ability to finding alpha-generating ideas.

Let's begin with the cover letter. My friend Tom Beevers, a former PM at Newton Investment Management and current CEO of Stockviews.com, told me a fund manager will be most interested in three things:

1. Does this candidate have the drive and passion necessary to help me? Will he spend his days endlessly searching out great ideas that I can put into my fund?
2. Has he shown a keen interest in investment and does he have a willingness to learn? Would he fit with my personal investment philosophy?
3. Is he smart?

I had a generic cover letter template that answered all those questions. I then personalized my cover letter template for the type of fund manager and his/her philosophy. This tells them you've made the effort to understand their philosophy and flatters them at the same time, and allows you to pitch your skills as being complementary to their fund/process. Also, avoid convoluted or cliched business terms as small fund managers tend to value straightforwardness.

Lastly, emphasize your passion and your interest. For me, I wrote articles for Seeking Alpha, incorporated an investment research firm my junior year of college, and was a member of my school's investment club.

Here is a link to my SA Profile: http://seekingalpha.com/author/david-tristan-liu
Here is a link to my firm's website: http://www.metalogiccapital.com/

For my resume, I used WSO's resume service. It's a good service and I recommend it to all.

Next, perhaps the most important component of your cold call package are the research notes. Well-written reports will enable differentiation. Prepare two research notes, one idea on the long side and another on the short side. An actionable idea is preferred, but an old idea that worked out well is fine. If possible, find industry professionals to proofread. I was lucky to have a great friend and mentor in Tom Beevers.

Here is a link to Tom's blog on what fund managers look for in research notes:
http://blog.stockviews.com/2014/07/10/5-qualities-...

Here are the links to the two notes I sent as part of my application:
Long Idea: http://metalogiccapital.com/uploads/VCRevisedLongI...
Short Idea: http://metalogiccapital.com/uploads/YODShortIdeaFi...

After sending off my application to my list of funds, the interviews began rolling in the next couple of days. (Yes, days! Smaller funds tend to respond quickly.) Out of the 25 funds I applied to, I interviewed with 4 (not bad).

The first question most commonly asked pertains to your background. Then comes the question they ALL ask: "What are you currently looking at in markets?" I just pitched them a special situation idea I just so happened to be working on. Finally, they end the conversation with: "Let's keep in touch", implying to continue finding ideas and sending them those ideas. Two of the funds requested I do specific tasks to gauge my abilities. One asked me to do an aptitude test, which I bombed...never heard from them since, lol. The other, the one I currently work for, asked me to do a five page write-up of a company they assigned.

I think I did fairly well considering I got a job! As a side note, during this period, I found a greater appreciation for value investors after some fund managers who weren't hiring took time from their busy days to reach out to me and complement my theses and/or offer advice, something I hold dear to my heart. I had an excellent 30-minute phone conversation with one manager about value investing. Others responded to my emails with suggestions on how to improve my theses and simple words of encouragement. One even sent me a well-written two-page email offering advice and resources including an article written by Whitney Tilson of Kase Capital on how to break into the industry.

Here is the link: http://www.fool.com/news/foth/2003/foth030122.htm

While the process is fairly straightforward, don't expect a job if your knowledge of investing only encompasses what you learned in school. For me, the means to the end were the result of long nights spent learning investing, economic, finance, and business fundamentals that they don't teach you in school and applying the knowledge in my analysis. During your journey, adversity is a given, seeing how the hedge fund industry is arguably the most competitive industry full of Ivy-League educated individuals. One fund told me not to get my hopes up as I was the first undergrad they've reached out to and hiring me was a long shot due to my lack of experience on paper. The PM that hired me told me he worked part-time for 9-months at the fund after completing his MBA at Columbia before getting hired full time.

So, I will continue working hard and learning until I can get hired full time. Ultimately, through this post, I hope to give students interested in working at a hedge funds both inspiration and valuable insight into the hedge fund job application process from the point of view of an individual who doesn't quite fit the mold, but somehow still got his foot into the door. Please come to me with any questions.

UPDATE (Feb. 22, 2015):

As of Feb. 1, 2015, I was no longer working at the NYC-based HF mentioned in the post as the portfolio manager couldn't offer me a full-time position. Nevertheless, I left on good terms with him, and my experience working there was a tremendous resume and cover letter booster. I sent a second wave of applications (using the same process) to 40 or so funds and received compelling offers from three in less than two weeks.

Thus, as of mid-February, I'm currently in the process of evaluating my new offers and will most likely become a research analyst at a $300M+ hedge fund based in California. I'll keep you guys updated.

P.S. Thanks for all your kind words throughout this thread!

Interested in Hedge Funds - Breaking In

Want access to 20+ more sample pitches with actual templates? The WallStreetOasis Hedge Fund Interview Prep Course has more than enough sample pitches as well as 814 questions across 165 hedge funds. Crowdsourced from over 450,000 members and trusted by over 1,000 aspiring hedge fund professionals just like you, the WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside.

HF Interview Course Here

Comments (88)

Best Response
1/18/15

Great story. Can you share a list of books/articles that you found useful when learning investing by yourself?

Hedge Fund Interview Course
1/21/15

CFACandidateLevel1:

Great story. Can you share a list of books/articles that you found useful when learning investing by yourself?


Thanks for the comment. My favorite books in no particular order:

The Intelligent Investor
Common Stocks and Uncommon Profits
The Art of Value Investing
You Can Be A Stock Market Genius
Dhandi Investor
One Up On Wall Street
The Manual of Ideas
Valuation
The Education of a Value Investor
The Quality of Earnings
Fooling Some of the People, All of the Time
The Essays of Warren Buffett
Hedge Fund Market Wizard

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/23/15

Thank you so much. Another compelling story of hard work paying off. Good luck with your work.

2/8/15

Have a banana for being awesome, sir!

Also, inspiring story right there.

1/18/15

Good stuff man!

1/18/15

Awesome story. Great hustle. Good for you

1/18/15

This is some solid stuff.

Lots of HFs are willing to talk to you if you are young, hungry and cheap (ie. free/nearly free). Some guys love the mentorship thing and/or the fact that you might be a free/cheap option, in exchange you work hard and learn a lot. In some ways it can be easier to get into than in a bank since you aren't always competing with resume drops at colleges. Lots of funds are thinly staffed/small. The key is to get a meeting (emails and phone calls "asking for 5 minutes of their time")...

I used to do Asia-Pacific PE (kind of like FoF). Now I do something else but happy to try and answer questions on that stuff.

1/19/15

What resources did you use to learn investing , economic and finance fundamentals?

In the future , do you think that eventually more hedge funds will gain more willingness to hire undergrads on a FT basis ?

Any advice for a college student looking for HF internships?

Congrats,
Keep Grinding !

1/21/15

Shambles:

What resources did you use to learn investing , economic and finance fundamentals?

In the future , do you think that eventually more hedge funds will gain more willingness to hire undergrads on a FT basis ?

Any advice for a college student looking for HF internships?

Congrats,

Keep Grinding !

As far as resources for learning the fundamentals go, for me personally, first and foremost are books. Read and reread. For some of the best books I own, I've read them at least 5 or 6 times and still learn something new each time. I also learned a lot from old presentations given at the Value Investing Congress. They may be outdated, but can help you a great deal in your education process as you can pick the brains of the greatest. Lastly, the insights found from Top Ideas on Seeking Alpha and Manual of Ideas. Many of which are written by PMs. Manual of Ideas also has a brilliant youtube page.

On the topic of hedge funds willing to hire undergrads on a FT basis, maybe. Again, hedge funds don't typically hire undergrads due to a perceived lack of experience and HFs themselves not having the resources to train. But, this depends on the HF. In my first interview with the fund who I work for, I asked whether or not my status as an undergraduate will hurt me. His response was music to my ears, something along the lines of: "It won't hurt you, it won't help you. In the end, we care about what you can do." In other words, if an undergrad can demonstrate the ability to generate profitable ideas, I don't believe anything else will be an issue.

My advice for college students looking for an internship, dedicate the majority of your time on writing TWO compelling investment ideas, one on the long side and one on the short side. This is the easiest and best way to differentiate yourself from others.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/20/15

Very solid, thanks for sharing.

1/20/15
1/20/15

Great story. Way to apply yourself and go for what you want.

As someone with several years of experience in the industry, I would suggest you start evaluating the firm you are currently with - in my best guess, less than 10% of funds actually consistently deliver performance, net of fees, that exceeds a passive index fund. They run on marketing fumes and literally destroy value for clients (that instead goes in the managers' pockets). Unless you don't care about whether or not you / your firm add value, I suggest you start figuring out which bucket your firm falls in. The longer you stay, the more likely you will be trapped in mediocrity.

1/21/15

username777:

Great story. Way to apply yourself and go for what you want.

As someone with several years of experience in the industry, I would suggest you start evaluating the firm you are currently with - in my best guess, less than 10% of funds actually consistently deliver performance, net of fees, that exceeds a passive index fund. They run on marketing fumes and literally destroy value for clients (that instead goes in the managers' pockets). Unless you don't care about whether or not you / your firm add value, I suggest you start figuring out which bucket your firm falls in. The longer you stay, the more likely you will be trapped in mediocrity.

Thanks for the advice. My boss's fund has been in operations since 2002 I believe and has a long-term track record of 15+% annualized.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/21/15

not to throw shade your way but something seems fishy. If the fund has been throwing up 15%+ annualized returns for 12 years I'd expect they would be able to raise a good amount of money. At least enough to bring you on as an analyst full-time if that was their intention. In my experience hiring someone isn't about the money in the budget as much as the time/burden it takes to manage them. If they're going to commit to a relationship I don't see why they wouldn't do it all the way. I'd expect long-term, even if you do end up full-time with them, the economics of your compensation will never give you a fair shake.

1/22/15

tiger2012:

not to throw shade your way but something seems fishy. If the fund has been throwing up 15%+ annualized returns for 12 years I'd expect they would be able to raise a good amount of money. At least enough to bring you on as an analyst full-time if that was their intention. In my experience hiring someone isn't about the money in the budget as much as the time/burden it takes to manage them. If they're going to commit to a relationship I don't see why they wouldn't do it all the way. I'd expect long-term, even if you do end up full-time with them, the economics of your compensation will never give you a fair shake.

I understand what your saying. I actually had a call today with the PM who explicitly told me they are in no position to hire full time analysts at the moment. Makes sense as its a shop run by a group of people in the single digits constantly doing something. My previous boss, who started out as an analyst, worked part-time for 9 months before getting hired full time.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/22/15

How large is the fund?

Sorry if you mentioned it already and I missed it

1/22/15

Lexington55:

How large is the fund?

Sorry if you mentioned it already and I missed it

Midsized, $75M

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/22/15

This is not a knock on you whatsoever so don't take it personally...

75mm is not midsized. 75mm is tiny.

Imo..
Small - 10-250mm
Mid is - 250mm to 1bb
large - 1bb - 5bb

with 10bb plus being considered mega

I think for long/short strategy, the numbers should be even higher since l/s is often more scalable than other strats.

1/23/15

DaveMCR:

Lexington55:

How large is the fund?

Sorry if you mentioned it already and I missed it

Midsized, $75M

$75M is not midsized, $75M is essentially a family office. Even if they are getting 2% that's $1.5M per year in fees and 20% of the profits on a 2x fund would be $15M pre-tax with an avg. investing period of 4 years that's not much...

1/22/15

DaveMCR:

username777:

Great story. Way to apply yourself and go for what you want.

As someone with several years of experience in the industry, I would suggest you start evaluating the firm you are currently with - in my best guess, less than 10% of funds actually consistently deliver performance, net of fees, that exceeds a passive index fund. They run on marketing fumes and literally destroy value for clients (that instead goes in the managers' pockets). Unless you don't care about whether or not you / your firm add value, I suggest you start figuring out which bucket your firm falls in. The longer you stay, the more likely you will be trapped in mediocrity.

Thanks for the advice. My boss's fund has been in operations since 2002 I believe and has a long-term track record of 15+% annualized.


What is the Sharpe ratio? $64K question. (Actually add several zeroes to that)

> 2: What marketing?

> 3: Reserved largely for billionaire geeks.

I think a $75mm fund with 15% returns is a good start, but if you're posting solid returns that hold up during tough periods for the market, I feel like the fund should be bigger after 13 years. It's possible you may not have gotten the whole story if all three numbers ($75mm, 13 years, and 15%) are correct. And while you've landed a dream job for a lot of folks (I would have killed to land at a hedge fund out of undergrad), it's important to keep your eyes open for opportunities at firms that are generating more compelling returns. (Remember to look at the Sharpe ratio, volatility, and drawdowns in addition to the total return figure. Sometimes AUM and the flow of funds can tell the story at the larger shops)

In any case congrats and best of luck to you and your firm.

8/13/15

Great job man!!!

1/22/15

I guess what I'm trying to say is that if the fund hasn't grown much in 13 years, I sort of echo others views that perhaps 1) the principals are content w/ where they are.. 2) you may not be getting the whole story

1/22/15

Yeah. I don't want to take away from OP's excellent post or his accomplishment in breaking in out of undergrad, but $75M may be a little smaller than mid sized. It is a perfectly fine place to start though.

From a guy with a little more gray hair, I would add three questions that you want to try and answer before taking a job offer at a fund, especially if you have multiple offers:

-What is your AUM?
-What is your Sharpe?
-What does the flow of funds look like?

For a quant fund, I would also try and figure out:

-How much data do we really have to work with?
-How is the trade execution? Tech infrastructure?
-What is the culture like?

1/22/15

Great entry and congratulations @op

For students or others who are contemplating in getting into high finance you have to realize that it takes drive and dedication. Ask yourself, what are you willing to do to get the job or to show that you are motivated in doing such jobs and not simply by saying I am interested. Action means a lot than words.

While I am a CFA charterholder, I have not actually done anything close to what the op has done. Yes, I am interested in value investing and I strongly believe that it will deliver consistent results over the long term, but when it comes down to sitting down and actually conducting a thorough analysis, I am simply not motivated. There are competing priorities and right now, stock analysis is not high on the list.

So I think it's also helpful to ask yourself, what are your priorities? How are these going to help you get what you want?

1/22/15

I would also point out that this is not an easy industry to work in.

Jim Simons, head of Renaissance Technology, is a paranoid nutjob when it comes to competition. He's arguably one of the smartest and perhaps hardest working people in this industry (certainly smarter than me), and even he can't sleep very well at night.

I don't want to scare people away, and there's money for everyone, but your competition is a paranoid, hardworking insomniac billionaire supergenius with an IQ ~180 and a collection of servers and data that is O(NSA+CIA). Hedge funds are a place for people with a lot of ambition, but you have to temper that ambition with an even bigger dose of humility and moderate expectations.

1/22/15

While that's true, at the less senior levels, the pressures are very different. Besides, for most of the *serious* people who self select for this kind of industry (not me), I think that they'd be up and stressed no matter what. Some people are just stressed out by nature - if they aren't at the top, they're stressing about how to get there or why they're not there and if they're at the top, they're stressing about how to stay there.

Life's is a tale told by an idiot, full of sound and fury, signifying nothing.

1/23/15

IlliniProgrammer:

I would also point out that this is not an easy industry to work in.

Jim Simons, head of Renaissance Technology, is a paranoid nutjob when it comes to competition. He's arguably one of the smartest and perhaps hardest working people in this industry (certainly smarter than me), and even he can't sleep very well at night.

I don't want to scare people away, and there's money for everyone, but your competition is a paranoid, hardworking insomniac billionaire supergenius with an IQ ~180 and a collection of servers and data that is O(NSA+CIA). Hedge funds are a place for people with a lot of ambition, but you have to temper that ambition with an even bigger dose of humility and moderate expectations.

Agreed that it's competitive, but have you ever considered that not every hedge fund is a macro or quant fund? Many long/short funds are beating Rentech's returns and don't have a single person with over 130 IQ.

1/23/15

SanityCheck:

Agreed that it's competitive, but have you ever considered that not every hedge fund is a macro or quant fund? Many long/short funds are beating Rentech's returns and don't have a single person with over 130 IQ.

Sure. There are a lot of traditional funds out there. But I think that there's a lot of stuff that used to be an art- managing risk, finding cheap securities, that has become more of a science over the past 20 years. The days of scanning through ValueLine reports looking for stocks with low P/Es ought to be over.

BTW we beat Rentech's returns too, but I think it's more luck than skill. If you look at 20 year returns, they get tougher to consistently beat on Sharpe by just about anyone.

In any case, every hedge fund can benefit greatly from a risk model and from portfolio optimization. If you're not managing your risk with a factor model (or perhaps something more advanced) and either running it through an optimizer or at least trying to optimize by hand to reduce risk while preserving your edge, you're taking risk you don't need to take and leaving Sharpe on the table. And in order to do this stuff well, you really want a guy with a strong math background. Maybe you can pull it off without a graduate degree or even a STEM major but you need someone with some background in linear algebra and convex optimization (or at least calculus and stats if you're optimizing by hand)

So in some sense every fund- even the traditional ones- can really benefit from having a quant to help manage the portfolio. Or at the very least if you have the budget for 20 employees, and your fund has more than a dozen or so stocks in its portfolio, one of your employees should know how to invert a matrix, know what cVar means, and should have some input on how the portfolio is allocated or hedged.

1/23/15

IlliniProgrammer:

SanityCheck:

Agreed that it's competitive, but have you ever considered that not every hedge fund is a macro or quant fund? Many long/short funds are beating Rentech's returns and don't have a single person with over 130 IQ.

Sure. There are a lot of traditional funds out there. But I think that there's a lot of stuff that used to be an art- managing risk, finding cheap securities, that has become more of a science over the past 20 years. The days of scanning through ValueLine reports looking for stocks with low P/Es ought to be over.

BTW we beat Rentech's returns too, but I think it's more luck than skill. If you look at 20 year returns, they get tougher to consistently beat on Sharpe by just about anyone.

In any case, every hedge fund can benefit greatly from a risk model and from portfolio optimization. If you're not managing your risk with a factor model (or perhaps something more advanced) and either running it through an optimizer or at least trying to optimize by hand to reduce risk while preserving your edge, you're taking risk you don't need to take and leaving Sharpe on the table. And in order to do this stuff well, you really want a guy with a strong math background. Maybe you can pull it off without a graduate degree or even a STEM major but you need someone with some background in linear algebra and convex optimization (or at least calculus and stats if you're optimizing by hand)

So in some sense every fund- even the traditional ones- can really benefit from having a quant to help manage the portfolio. Or at the very least if you have the budget for 20 employees, and your fund has more than a dozen or so stocks in its portfolio, one of your employees should know how to invert a matrix, know what cVar means, and should have some input on how the portfolio is allocated or hedged.

Lol absolutely no one I know in this field is doing that. Half my time is talking to CEOs... I have no idea what Valueline is. We don't focus on "cheap" stocks. Tiger cubs have traditionally made a killing of tech & growth which is also half of our portfolio.

If anything's more "luck" it's macro funds (take a look at the most recent industry data for returns or Sumzero's survey, released last week).

You're commenting on something completely foreign to me. My team is 3 people and we absolutely would rather take a secretary at this point than a "quant". I don't think you know what we do (i.e. take a look at Pershing's holdings, the top 3 longs are 50% of the portfolio, are you thinking of mutual funds?)

My PM from a well known Tiger cub has absolutely 0 idea what cVar is. He has a 17%+ track record over 5 years net of fees. I think your idea of what a "traditional" (what does this even mean?) fund is 20 years outdated.

1/23/15

SanityCheck:

IlliniProgrammer:
SanityCheck:

Agreed that it's competitive, but have you ever considered that not every hedge fund is a macro or quant fund? Many long/short funds are beating Rentech's returns and don't have a single person with over 130 IQ.

Sure. There are a lot of traditional funds out there. But I think that there's a lot of stuff that used to be an art- managing risk, finding cheap securities, that has become more of a science over the past 20 years. The days of scanning through ValueLine reports looking for stocks with low P/Es ought to be over.

BTW we beat Rentech's returns too, but I think it's more luck than skill. If you look at 20 year returns, they get tougher to consistently beat on Sharpe by just about anyone.

In any case, every hedge fund can benefit greatly from a risk model and from portfolio optimization. If you're not managing your risk with a factor model (or perhaps something more advanced) and either running it through an optimizer or at least trying to optimize by hand to reduce risk while preserving your edge, you're taking risk you don't need to take and leaving Sharpe on the table. And in order to do this stuff well, you really want a guy with a strong math background. Maybe you can pull it off without a graduate degree or even a STEM major but you need someone with some background in linear algebra and convex optimization (or at least calculus and stats if you're optimizing by hand)

So in some sense every fund- even the traditional ones- can really benefit from having a quant to help manage the portfolio. Or at the very least if you have the budget for 20 employees, and your fund has more than a dozen or so stocks in its portfolio, one of your employees should know how to invert a matrix, know what cVar means, and should have some input on how the portfolio is allocated or hedged.

Lol absolutely no one I know in this field is doing that. Half my time is talking to CEOs... I have no idea what Valueline is. We don't focus on "cheap" stocks. Tiger cubs have traditionally made a killing of tech & growth which is also half of our portfolio.

If anything's more "luck" it's macro funds (take a look at the most recent industry data for returns or Sumzero's survey, released last week).

You're commenting on something completely foreign to me. My team is 3 people and we absolutely would rather take a secretary at this point than a "quant". I don't think you know what we do (i.e. take a look at Pershing's holdings, the top 3 longs are 50% of the portfolio, are you thinking of mutual funds?)

My PM from a well known Tiger cub has absolutely 0 idea what cVar is. He has a 17%+ track record over 5 years net of fees. I think your idea of what a "traditional" (what does this even mean?) fund is 20 years outdated.


That is pretty good- it's about as good as the S&P 500 since 2009, which is better than most hedge funds. But I think our team has done better. :) And by investing in 1000 different positions and balancing our risk, we've done it with less risk and little market covariance. Pension fund managers see that and give us more capital- the returns do the marketing for us. I still think we've been lucky tho.

If you have a good risk model and a good prime broker you can take out more leverage and generate more returns... or you can run the portfolio more conservatively for your investors- it's up to you. But if you're not actively managing your risk, you are leaving a lot of money on the table.

It's true that there are a lot of things about the mid sized traditional fundamental funds that I don't know. But I do know that the principals of risk management can be applied anywhere there's uncertainty and basically boil down to statistics. Using options to hedge your positions allows you to be more surgical about taking the risks you want to take and means more money for you and your investors (or at least less risk for them). Balancing out factor exposures means that returns hold up better during a crash (IE 2007)

There's a lot that our team has to learn from funds that trade by hand- but there's also a lot for traditional long short funds to learn from us. And the idea of having a risk model- and trying to manage risk- is something that's basically cost-free for me to share with everyone (unlike a strategy or signal). Managing risk is the one win-win for everyone in the market. The last thing we want is a competitor blowing up and creating another 1998 or 2007.

Google Fama-French. It's a fairly rudimentary risk model, and it's easy to understand, but these guys got a Nobel Prize for it.

Good luck to you.

11/13/17

I think running high statistical analysis on risks nowadays is adding a significant element of risks to your model.

I've seen more odd statistical moves in the last 18 months than ever before. If you are optimizing risks management on past data I have a feeling at some point the model breaks from over optimization.

Array
1/24/15

SanityCheck:
My PM from a well known Tiger cub has absolutely 0 idea what cVar is. He has a 17%+ track record over 5 years net of fees.
My Vanguard S&P 500 fund returned 15.5% over the past 5 years and I had to pay minimal taxes, so presumably I have better after tax returns, net of fees.

If your fund did this with half the risk of the stock market that would be a fairly impressive, but given the fact that risk management seems like a foreign concept to your team, my guess is that is not the case.

Hedge Fund Interview Course
1/22/15

reverse engineering $75M current AUM compounding at 15% p.a. for 13 years....

$75M / [(1 + 15%)^13] = estimated $12.2M starting AUM, assuming zero flows into the product. certainly seems strange.

1/22/15

username777:

reverse engineering $75M current AUM compounding at 15% p.a. for 13 years....

$75M / [(1 + 15%)^13] = estimated $12.2M starting AUM, assuming zero flows into the product. certainly seems strange.

The way fund flows work in reality is that investors tend to buy high and sell low- much to the chagrin of fund managers. If you pull half your money out at the bottom and add it back at the top, where top is 2x bottom, you have 37.5% less money than you'd have if you just left it in.

So in an information equilibrium, fund flows tend to reduce AUM growth. (Investors pull out at the wrong time)

1/22/15

Debating the size/performance history of the fund detracts from the OP's point, which is the process he used to break into a HF out of undergrad. The fund's prestige almost doesn't matter at this point. Just be happy for him that he doesn't have to spend the next couple of years working as a monkey cranking out spreadsheets for clients who don't care.

Congrats, and good hustle.

1/22/15

Very true. But also I dont think any of us are trying to knock OP down either. Joining any HF for the sake of the name HF isn't a smart idea either. Especially if the fund is small and isn't on a growth trajectory you need to be seeing w/ the performance numbers he mentioned.

1/22/15

7xEBITDA:

Debating the size/performance history of the fund detracts from the OP's point, which is the process he used to break into a HF out of undergrad. The fund's prestige almost doesn't matter at this point. Just be happy for him that he doesn't have to spend the next couple of years working as a monkey cranking out spreadsheets for clients who don't care.

Congrats, and good hustle.


Yes. Actually OP is the kind of person who has a good personality for this industry. Lots of hustle and modest expectations.

OP did not need to work at a DE Shaw or SAC to be happy.

OP is perfectly happy just to jam a few toes in the door.

IBD people gunning for a very large fund also need to know that they're on a bit of a different path than OP and that both paths are perfectly valid. We have to respect OP's choices and advice but we also can't invalidate the decision that other people have made to pursue two years in IBD. I would argue that experience gives their careers a little more stability.

Finally the last point is that while prestige and size are poor measures to make decisions on, not all hedge funds offer the same opportunities for career growth and becoming a better investor/researcher/risk manager/quant. It's important to understand how to generate returns in order to grow your career. Not all X% returns are created equal; not all Y Sharpes with X% returns are created equal. And there is an enormous amount to learn about risk management, investing, managing people and investors, and the like. In general there is probably more to learn on the pure investment side at the funds that post "better" returns (keeping in mind that there are lots of ways to measure that) and attract lots of capital.

So that's why while OP is off to a good start, some of us are just chiming in that there is a lot of room to also grow and learn in this business, and that OP just needs to keep his eyes open.

1/22/15

Hey guys, to clear some things up, the fund managed $400M million at its peak, but capital was returned to investors during the recession. As far as I'm concerned, the fund's AUM consists exclusively of the PMs own capital so I think he's content with where he is now. He's a fairly well known guy in the value investing world.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/22/15

Great post! Thanks for sharing and good luck.

Si Vis Pacem Para Bellum

1/23/15

Thanks for sharing, I've added you on LinkedIn. Definitely will ask for your advice and bug you a bit in the future. Thanks for sharing and all the best.

1/23/15

Thanks for sharing, I've added you on LinkedIn. Definitely will ask for your advice and bug you a bit in the future. Thanks for sharing and all the best.

1/23/15

Have you ever traded your ideas with your money?

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

1/23/15

I definitely enjoyed the write up and Illini's comments.

1/23/15

I don't know if it's only me but I always liked the quant approach or Soros like trading instead of talking with CEO's and Buffet like investing, it just so boring, investing should be dynamical and competitive. Quant trading makes you develop a broad universe of skills and it's exciting to create a strategy, backtest it, optimize it, throw it in the market and watch it battle to the death with other algos, screening through 10k-s and forecasting the next quarter GDP output is no fun. IMHO

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

1/24/15

In the HF side myself and agree more with IP. Sanity Check may have higher annualized returns but what is the vol associated with that number? Given what I know about my counterpart group at IP's fund and their rigorous process for managing exposures I think they are better protected against large drawdowns than say a Pershing. Granted, they do very different things, but IP is saying look at the Sharpe.

Now it's possible Sanity Check's PM does have a high Sharpe to go with those impressive return numbers, but how does one know that he isn't just one of those lucky coin flippers who hasn't blown up yet? If you had to bet on an ex ante PROCESS instead of an ex post track record, I would put my money with a fund like IP's.

1/24/15

This has been a very difficult past five years for hedge funds to be fair. The S&P 500 has floated up at a very fast pace and a lot of stuff that used to work hasn't done as well.

When the SPY starts going sideways again, SanityCheck's fund will start to shine.

Let's not be too hard on folks here. We work in a tough business. Everyone wants to do stuff a bit differently.

My only point is that smart investors appreciate a good risk model. And PMs who believe in their source of alpha will want to hedge away their risk- or at least know what risks they're taking. There's also stuff that's commercially available and pretty easy to set up.

1/24/15

Wait a second, I visited this post and you took a polite, but massive dump all over the OP. I point out how well my Vanguard fund has done and I'm the jerk? I don't know if the 17% return was market neutral or levered 3 to 1. If you're paying 2 and 20, I don't want to hear about a tough environment. Performance in the context of the risk taken to get that performance is all that matters.

1/24/15

I didn't say that about you (actually I added your name because I was referring to a Lehman risk product but figured that would be best discussed offline). I just think the world is a nicer place when people are nice to each other. As you are well aware we work in a brutal industry and there is no need for us to make it more brutal than it has to be.

To respond to your point, what you want is an uncorrelated return that is well behaved. If you have that, you get a better performing portfolio overall than the S&P 500. If you add two uncorrelated returns that are positive, you get a better Sharpe than either return on it's own**. (Making certain assumptions about kurtosis and skewness)

It should be orthogonal to the S&P 500. It should not go down when the S&P 500 goes down.

Quant funds try to be orthogonal to the S&P 500. And actually if you look at quant fund returns, my understanding is that we killed it in September and October 08, and lost our shirts during the *rally* in March and April 09.

So if the S&P 500 is giving you 17% and we're giving you 15%, that's still fine. We're still doing our jobs and have a place in your portfolio. Depending on our variance you may even want to lever up on us to make that 15% return 20%. Now, if our returns have massive covariance with the S&P while charging 2+ 20 and returning less, that's when it's time to dump us.

My point is that from a portfolio allocation perspective return doesn't matter because you can achieve any return with the right leverage. To make portfolio allocation decisions you need to look at Sharpe, market covariance, and the heavy tail analysis of returns. The risk that you want to allocate to our strategy determines your return.

In reality returns aren't quite as well behaved as a normal distribution, so the average return does matter. If you're putting up 100% in potential risk, you don't want a 3% return. But if returns are reasonably high and well behaved, it's better to think in terms of Sharpe and covariance.

1/24/15

IlliniProgrammer:

I didn't say that about you (actually I added your name because I was referring to a Lehman risk product but figured that would be best discussed offline). I just think the world is a nicer place when people are nice to each other. As you are well aware we work in a brutal industry and there is no need for us to make it more brutal than it has to be.

To respond to your point, what you want is an uncorrelated return that is well behaved. If you have that, you get a better performing portfolio overall than the S&P 500. If you add two uncorrelated returns that are positive, you get a better Sharpe than either return on it's own**. (Making certain assumptions about kurtosis and skewness)

It should be orthogonal to the S&P 500. It should not go down when the S&P 500 goes down.

Quant funds try to be orthogonal to the S&P 500. And actually if you look at quant fund returns, my understanding is that we killed it in September and October 08, and lost our shirts during the *rally* in March and April 09.

So if the S&P 500 is giving you 17% and we're giving you 15%, that's still fine. We're still doing our jobs and have a place in your portfolio. Depending on our variance you may even want to lever up on us to make that 15% return 20%. Now, if our returns have massive covariance with the S&P while charging 2+ 20 and returning less, that's when it's time to dump us.

My point is that from a portfolio allocation perspective return doesn't matter because you can achieve any return with the right leverage. To make portfolio allocation decisions you need to look at Sharpe, market covariance, and the heavy tail analysis of returns. The risk that you want to allocate to our strategy determines your return.

In reality returns aren't quite as well behaved as a normal distribution, so the average return does matter. If you're putting up $100K in potential risk, you don't want a 3% return.

I know that, but here are the problems:

1. No risk management is clearly a bad thing, but 100% faith in quant models is probably just as bad and potentially disastrous (see LTCM, where the smartest guys in the room forgot about basics of trading....the sharks circle when there's blood in the water)

2. Nobody here isn't being nice. Saying that the other guy's fund will do well when markets go sideways is not nice, it's just phony. You don't know how ithat fund will perform, you don't even know what fund he's referring to. I've stated some facts and inferred a few things, nobody is calling one another names.

In the marketplace of ideas, some are good and some are bad. Calling out bad ideas is not equivalent to being mean. We're not 4 year olds here (well, maybe a couple are close).

1/24/15

Dickfuld, I thought you were in the industry? Or are you fixed income only?

Your questions / comments are a bit surprising to me since the model is well known even among junior analysts.

Single PM, 0 leverage, 55-70% net long, and none are market neutral. And you want to compare this vs. your vanguard over a bull cycle? Hmm.....

Your comments pertain more to a SPO partners which is concentrated long-only. Oh and they (SPO) did beat your vanguard returns by quite a large margin over these past few bull market years.

I'd venture most Tiger cubs would too if they were long-only.

Macro funds are great. So are concentrated long/shorts. There are plenty of models that work for different investors. The point of posting is to provide unbiased information to the silent majority of browsers of WSO who try to get authentic information. Not satisfy your ego on which "strategy" is better.

I believe Illinois' views are entirely correct for his experiences, but my original point is just that a quant has no real value in a Tiger cub model.

Hope that helps.

1/24/15

70% net long is exactly what I would have expected. But, maybe I'm the only one who thinks that beating the S&P by a 1.5% in a fund that is not daily liquid is not that is worship worthy.

So, what was the vol of your fund over this time period? Once again, 70% net long still doesn't necessarily tell you how much risk you're taking when we don't know the composition of your portfolio. Not that I really care, but you were the one bragging about fantastic returns with (relatively) low IQ PMs.

1/24/15

Dickfuld, I thought you were in the industry? Or are you fixed income only?

Your questions / comments are a bit surprising to me since the model is well known even among junior analysts.

Single PM, 0 leverage, 55-70% net long, and none are market neutral. And you want to compare this vs. your vanguard over a bull cycle? Hmm.....

Your comments pertain more to a SPO partners which is concentrated long-only. Oh and they (SPO) did beat your vanguard returns by quite a large margin over these past few bull market years.

I'd venture most Tiger cubs would too if they were long-only.

Macro funds are great. So are concentrated long/shorts. There are plenty of models that work for different investors. The point of posting is to provide unbiased information to the silent majority of browsers of WSO who try to get authentic information. Not satisfy your ego on which "strategy" is better.

I believe Illinois' views are entirely correct for his experiences, but my original point is just that a quant has no real value in a Tiger cub model.

Hope that helps.

1/24/15

I agree with a lot of what IP has said here content wise but the faux humility is hilarious

Also I think it makes perfect sense that a group of folks that would consider a secretary more useful than a quantitative guy would have lower IQs

Finally I'm not sure on what planet a 75 mn fund would be considered mid-sized but it's certainly not this one. Let's call a spade a spade

1/24/15

Going Concern:

I agree with a lot of what IP has said here content wise but the faux humility is hilarious

Also I think it makes perfect sense that a group of folks that would consider a secretary more useful than a quantitative guy would have lower IQs

Finally I'm not sure on what planet a 75 mn fund would be considered mid-sized but it's certainly not this one. Let's call a spade a spade

All three points are spot on. Faux humility is the perfect term to describe what happened.
1/25/15

Probably the best post i've seen on WSO to date. So relevant to my current situation honestly, haha.

Would you mind answering a question through PM?

1/26/15

Lion Cub, absolutely

To clear some things up, the reason why I referred to the fund as "mid-sized" is because $75M in AUM according to the SEC is considered a mid-sized advisory firm.

According to Item 2.A in Form ADV:
-A large advisory firm has AUM of $100M or more
-A mid-sized advisory firm has AUM of $25M or more but less than $100M

Relatively speaking, I understand $75M in AUM is not a lot. I guess I shouldn't be so technical next time.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/26/15

It's probably because the SEC hasn't updated anything since like the 90s (bit of an exaggeration but you get the point...)... many definitions regarding what constitutes as HNW or income are hilariously outdated.

Either ways, I apologize for nitpicking on the size of the AUM. I didn't mean to detract anything from your accomplishment.

1/26/15

What's a Lion Cub exactly? I heard elephant cubs usually have the highest returns.

1/26/15

There's always a bit of arrogance to these 'I MADE IT' posts - but it's a bit funny given it's not a full-time role. Going Concern nailed this thread.

1/31/15

SanityCheck:

What's a Lion Cub exactly? I heard elephant cubs usually have the highest returns.

tiger cubs > lion cubs > elephant cubs

1/30/15

What resource would you say helped you best develop your modeling skills?

Do you feel you are best suited for value investing? Or did you choose it because it was easier to learn, more popular than other strategies, etc?

"Not me. Im in my prime"

2/5/15

Southern Gent,

What resource would you say helped you best develop your modeling skills?
-Reading and rereading the book "Valuation" by McKinsey & Company. Also, build your own model and learn through trial and error.

Do you feel you are best suited for value investing? Or did you choose it because it was easier to learn, more popular than other strategies, etc?
-Yes, I believe I'm best suited for value investing because it fits my lifestyle and personality. My parents understood the value of purchasing goods at bargain prices and instilled that mentality into me.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

1/30/15

Wow you did the legwork, you deserve a job in HF. Can I connect you to one of my firneS?

2/3/15

1. $75mm might be considered mid-sized in Ethiopia.
2. Who are your firm's clients? What HF would pay for research from a 22yr old who's best credential is being a SeekingAlpha contributor? As far as I can tell, the only value of this is just so you can put "Director of Research" on the resume. You're basically a kid with an eBay store who calls himself an entrepreneur and puts "CEO and Founder" on his LinkedIn profile.
3. Who is Tom Beevers and why should we care that you two are friends? Any other names you want to drop that don't matter?

Anyway, congrats or whatever.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

2/5/15

Flake, to address your questions/comments

1.$75mm might be considered mid-sized in Ethiopia.
-Okay, good to know

2. Who are your firm's clients?
-The HF? No idea. Above my pay grade dude. I'm just there to do research. My equity research firm? One hedge fund for whom I do research for and individual investors who pay me to teach them about value investing. I'm just a one man shop managing both the business side of running a LLC, as well as the underlying research I produce. I do have a tech intern that makes my life marginally easier tho.

2. What HF would pay for research from a 22yr old who's best credential is being a SeekingAlpha contributor? As far as I can tell, the only value of this is just so you can put "Director of Research" on the resume. You're basically a kid with an eBay store who calls himself an entrepreneur and puts "CEO and Founder" on his LinkedIn profile.
-A kid that can demonstrate the ability to add value through his research. I guarantee you no HF would have responded to just my resume and cover letter alone. The two investment ideas I submitted were the primary drivers of the responses I received. Also, at the HF I work at, to gauge my ability, the PMs assigned me a research report to do and I only got the job after impressing them with it. As far as me being a kid with an eBay store who calls himself an entrepreneur goes... hahaha, can't argue with that, but employers sure love entrepreneurial spirit!

3. Who is Tom Beevers and why should we care that you two are friends? Any other names you want to drop that don't matter?
-Tom is a former portfolio manager at Newton Investment Management, one of the largest asset managers in England. I mention Tom because he is my mentor and I owe him a lot of credit for the success I've had. The purpose of mentioning my relationship with Tom is merely to highlight the importance and value of finding a professional mentor willing to provide useful assistance and advice. As long as that individual can be a great mentor as Tom has for me, who cares about who he is?... some other names I want to drop that don't matter... I just wanna thank god...

Overall, I understand your criticism and that's the beauty of it. Yes, what HF would pay for research from a 22 year old who only posts ideas on Seeking Alpha? Virtually none, but through persistence and a good mentor, I was able to find one. The purpose of my post is to help inspire kids in the same position I was in. I understand an internship experience at an IB outweighs putting "Director of Research" on my resume and employers know that as well. But, I still put it on my resume to get them to ask about it so I can respond with answer that illustrates my passion for research, investing, as well as my entrepreneurial spirit.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

2/8/15

This thread is informative and the guy is only trying to help out. I don't get the hate.

2/11/15

anonguytoibd:

This thread is informative and the guy is only trying to help out. I don't get the hate.

It looks a lot like an advertisement for his website/firm

2/13/15

Gray Fox:

anonguytoibd:

This thread is informative and the guy is only trying to help out. I don't get the hate.

It looks a lot like an advertisement for his website/firm


Not at all. First off, I'm currently not actively marketing my site/firm and may shut it down soon. Secondly, my website targets investors and fund managers employing a specific strategy, and I use Seeking Alpha as my primary means of advertisement. I apologize if I came across as trying to advertise my website/firm in any way, shape, or form, but providing those links was merely to provide resources. This thread is simply trying to help people.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

2/6/15

Solid article, thanks for sharing

2/7/15

thanks for sharing

2/10/15

Good stuff

Xiuli Shan

2/10/15

Good stuff

Xiuli Shan

2/12/15

Thanks for your. Can you share a list of forums/blog as seeking alpha that you found useful when learning investing by yourself?

2/18/15

Great post. Thank you for all the helpful information. Going to get grinding.

2/21/15

You're a gutsy kid and I love your positive attitude. I wish I had even half your hustle & savvy when I was your age. All the best in the future, and please don't get jaded over time. The HF industry has some of the most egotistical little pricks on the planet and being around them will sap your spirit...

A sentence of advice: Keep your expenses low, save like a muthafr, and hang out your own shingle before you hit 30.

4/6/15

Hey Dave, congratulations! I enjoyed reading your post and I find myself in a similar boat. I'm currently working on a few pitches right now, would you mind taking a look at it once I'm done?

Cheers

4/11/15

Thanks for sharing your story.

As I was/am in a similar situation as you, I have a few questions:

- Did you ever invest your own money? If so, did you ever reference your track-record/return performance?
- If not, how did you come about in order to gain credibility on your investment ideas?
- Lastly, what is your GPA and was this ever a concern/topic in your interviews?

7/26/15
HvaCapMar:

Thanks for sharing your story.

As I was/am in a similar situation as you, I have a few questions:

- Did you ever invest your own money? If so, did you ever reference your track-record/return performance?
- If not, how did you come about in order to gain credibility on your investment ideas?
- Lastly, what is your GPA and was this ever a concern/topic in your interviews?

Also Pm'd, but for everyone else-

  1. Did I ever invest my own money - Yes, I currently invest 75% of my income into equities. During college, I made my mom open a $3,000 brokerage account for me to buy stocks with. Did I ever reference my track record - Yes/no, I made a detailed excel on the stocks I recommended on Seeking Alpha. I didn't reference my specific account given the fact that a few of my positions didn't really have a thesis (BRK-B for example, I just like Buffett)
  2. GPA- Bad for hedge fund standards. Did it come up in an interview...no, not once and in total I did about 12-13 interviews. The subject of the interviews were mostly about my investment ideas.

Value investor working in the hedge fund industry.
Portfolio Manager, Analyst at a $380+ million Texas-based value investing HF.
Former Research Consultant, Analyst at a NYC-Based deep value and special situations HF.

7/24/15

Great job!!

1/3/16

It's been a while since anyone posted in this thread but here goes. The link to your long/short research ideas is not working. Can you please repost?

1/8/16

I think I have Dave's short thesis on one of my hard-drives, but I don't have his long thesis. I don't think he's as active as he was before since he got his analyst position. I can took a look if he doesn't respond.

2/10/16

I was also wanting to see these. Were you able to find the long idea on your hard drive?

1/8/16

Thank you for sharing. We should meet for cofee someday to talk about random value investing ideas.

5/17/16

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6/18/16

Hoping for hedge life.

2/22/17
11/28/17

"When you stop striving for perfection, you might as well be dead."

12/11/17
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