Hedge Fund Future "Stars" - Where Are They Coming From?
What professional backgrounds are today's and tomorrow's top HF minds coming from?
So today we see strong demand for BB analysts and PhD math/ CS. But if we rewound the clock, we'd see that different backgrounds used to be more coveted. And looking forward - fundamental is dying and, surely, the cult of central banking will wane. So there will be new and different factors driving shifting demands for the next generation of investors. What are these trends today? And what will they be in the future?
In other words, where are today and tomorrow's HF greats going to come from? Where do you see the next Dalio, Icahn, Simons... coming from? What strategies in the hedge fund world do you see succeeding in the future?
What makes you think fundamentals are dying ?
I'd consider places like Two Sigma to be the future, so while fundamental stock picking will absolutely still have a place, I'd expect to see a lot more CS and Math majors than I would finance & accounting.
In addition to places I’d suggest citadel as well.
Where is the best place to start in HF out of undergrad? Citadel or Two Sigma? Which of those HF for a long term career? Why?
I still recommend value investing. Like ER but if you must do quant I recommend two sigma over citadel because they seem to take care of their people more. Citadel will pay you well, especially if you can stay around long enough to get your bonus. Side note: Their known to cut people before paying out your bonus.
2Sig performance really sucked last year.
What a joke this forum has become... when I was in UG 6 years ago all I heard of was this same BS... "you can't make it unless you do quant." Well today many new prominent stars in our industry are still fundamental guys, mainly ones killing it with tech/SaaS. Sure there are many quant stars as well. But the point is... do what you enjoy and love. If you like coding do quant; if you are not very good at coding DON'T DO QUANT just for the money (hint: if you need to come on WSO to ask if you should do quant you won't make it).
Can you be successful without knowing any coding in a fundamental fund? I am afraid my lack of interest and knowledge in programming would hurt me in the long run. Any advice?
Yes absolutely. I have a view (heard others say this as well) - if you are in a fundamental shop - spending time out of your day to learn coding is actually a waste of your time. You are better off just learning about businesses and gaining an edge that way.
All the names you mentioned are not great because they are better than other funds, they are great because they are fantastic entrepreneurs and managers that built great teams, put in place the right incentives and have a structure for their fund in place so that it scales.
Can you name a few examples of great funds and HF managers? Are quant funds (Two Sigma, Citadel, AQR..) just a hype? What strategies in the hedge fund world do you see succeeding in the future?
They are still coming from Tigers / Cubs / Grand Cubs / Seeds and from MMs. Most of them still have consulting, private equity and banking backgrounds, and some harder science / math - which are really just self-selection and screening mechanisms. If anything, for fundamentals, there are LESS accounting / industry non-traditional folks breaking in, given the competitiveness.
Fundamental isn't dying, it got crowded + the market is on extended hiatus from rationality on fed juice. I don't really understand how people can even state fundamental is dying. The capitalization of companies is based on their potential range of future earnings power. The flighty capital and the subpar performers get weeded out in an extended bull market. Shocker. MMs have taken share - this is a function of MMs getting relatively better at generating alpha in fundamental strategies, because the proliferation of data allows MMs (which are time-constrained due to coverage requirements) to increase return on time and also gain an edge on firms that can't or haven't kept up the necessary infrastructure to handle data.
Two types of hedge funds will always do well: 1.) the best researchers that ALSO have collected sticky capital and a mandate allowing a long-enough view (this is hard in a distorted bull market) 2.) the largest MMs that can leverage scale, data, diversification, risk platforms to provide stable but lower returns (we see this consolidation occuring)
The same types of investors will always do will: Smart, engaged, creative, divergent, competitive achievers that build and maintain an up-to-date skillset and manage to break into a fund that aligns with their skills and thinking style
It is harder to raise capital right now for firms in category 1. I'd expect those firms that have raised capital for concentrated, fundamental strategies in the past 3 years faced more discerning diligence from LPs and will see less turnover than the group that got indiscriminately funded in 09-14
What is your opinion and experiences about the quants? Are quant funds (Two Sigma, Citadel, AQR..) just a hype? Where Is The Highest Upside? Quant Or L/S Equity Space?
Can you be successful without knowing any coding in a fundamental fund? I am afraid my lack of interest and knowledge in programming would hurt me in the long run. Any advice?
I think the issue though is that quite a few that fit into category one have closed down and some such as Greenlight have taken quite a drubbing. Also are you saying that the best PMs are on MMs or the ones that spin off from MMs? Most PMs at MMs seem to be lifers. Though it'd be interesting to follow up on candlestick and woodline and see how they do.
I’m only saying if people successfully raising substantial capital for new fund launches, their backgrounds continue to be Tiger and MM
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