How did you become a PM?

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Just curious about the mechanics behind how some of the guys/gals on the forum got to managing a book/carve-out and/or assumed a risk taking position with managing equities or credit.

-Did you step in to fill someone's shoes?
-Did your boss offer you up the role from being an analyst?
-Did you jump shop and start out managing a book as a fresh PM?

Also, would be curious to hear thoughts regarding your confidence level prior to managing your first book, how many years you spent at an analyst level before PM, any mentoring you may have had en route to becoming a PM, and how you became comfortable with running a portfolio.

Thanks!

Comments (54)

 
Jul 2, 2020 - 8:53am

Personal relationships matter a lot + there is an intangible thing in the industry called a "risk taker". People who can convince people in power that they are a "risk taker" get a lot of opportunity and benefit of the doubt. I can try to flesh this out more, but it is intentionally abstract and complex - but it is definitely the single most important characteristic.

Really what you are asking is how do you set yourself apart from a bunch of people with the same general experiences as you?

It is so critical, because it also impacts how much rope and benefit of the doubt you get early in your career where luck is a bigger variable in performance.

Here is a decently famous example of the type of thing I was thinking about:
http://www.tischendorf.com/2014/03/10/michael-platt-hedge-fund-market-w…

 
Most Helpful
Jul 2, 2020 - 11:01am

No, "risk taker" is definitely the exact term used in the industry "Cowboy" is also a term that is used, and I would argue that it is the antithesis of "risk taker" and only used in a derogatory context. I.e. someone who was supremely confident in their "risk taker" abilities and totally misjudged that they actually suck and blew up.

That is why I said that it is intentionally abstract but let me explain:

  • There are a lot of smart people who look good on paper, but it doesn't mean they know how to make money. That ability to make money is difficult to describe. It is a combination of inner drive, creativity, and entrepreneurial ability when the problem does not fit nicely in a box. It is very rare at the high end in hedge funds and is why they get paid so much. Anyone who has worked at a fund knows what I'm talking about. There are some guys who can just make money.

  • Another stupid explanation, but risk takers are experienced at well, taking risk and running money. If you spent 3 years at an investment bank, how do you know anything about managing a portfolio and risk construction? You may have a good idea but it is exponentially more difficult to monetize that in a risk controlled fashion. Ok, now add 30 ideas and try managing those together.

  • It's different when you have money behind your views. A lot of PMs think they can but really cannot make rational decisions when they are seeing P&L daily and feeling pressure. This is not a skill set that is easily trained at all. Everyone would like to think they are good at this, but again, pretty rare.

  • The top end recruiters and managers at funds are superbly good at recognizing the individuals who have this "risk taker" ability and giving them resources to succeed. In my experience, some are pretty damn good at it too.

 
Jul 7, 2020 - 11:31am

"I look for the type of guy in London who gets up at seven o’clock on Sunday morning when his kids are still in bed, and logs onto a poker site so that he can pick off the U.S. drunks coming home on Saturday night. I hired a guy like that. He usually clears 5 or 10 grand every Sunday morning before breakfast taking out the drunks playing poker because they’re ** not very good at it, but their confidence has gone up a lot. That’s the type of guy you want"

I know these US drunks. This is a great strategy.

 
Jul 2, 2020 - 12:19pm

How did I become a PM? I worked in an old school prop desk like environment where almost all investment professionals become PMs. In short we were all or mostly prop traders. Some had trading backgrounds. Some had analyst backgrounds. Some had a mix. Some had neither and were fresh grads who were taught the product and then expected to learn in order to run their book relatively quickly so that they could make money for the big man who’s name was on the front door.

What does this mean? This means we were a bunch of one man bands. I was part of a team and we had an allocation from the fund and we sat next to each other and discussed things all the time, but we all ran our own books even though we reported to my boss who oversaw everything and would report to the big guy. The house would take a cut of the pnl as would he and then we would get what’s left. Senior guys would get a cut of pnl after the house took its cut.

Also on “old school” prop trading (and no one seems to understand this), we literally did everything on our own. Idea generation, analysis, execution, bookings, hedging, prime brokerage stuff etc. I will concede that we had a very good and helpful ops team but had to do a lot of stuff on our own.

Maybe the above is too old school. But anyone I tell this to today, across fund structures, looks at me like I am lying (usually) or that I am Superman (extremely rare I assure you). It’s really not that hard to understand. You look at screens and click buttons rather than outsourcing 80 percent of the work like many do. And this is not to speak ill of that setup, in fact it would have made life far easier...

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.
 
Jul 2, 2020 - 12:32pm

Jamoldo:

Also on “old school” prop trading (and no one seems to understand this), we literally did everything on our own. Idea generation, analysis, execution, bookings, hedging, prime brokerage stuff etc. I will concede that we had a very good and helpful ops team but had to do a lot of stuff on our own.

What don't people understand about this? This sounds like the model still at a lot of places. A lot of PMs are control freaks and want to do everything themselves (you would be surprised how many guys making 8 figures are in every trade). Bookings and prime brokerage (I assume you mean stock loan / repo trading) are the only things that I think are more centralized universally. Even with execution, a lot of traders want to do it themselves because they do or do not have the ability to time the market - either way - they think they do.

 
Jul 2, 2020 - 3:05pm

You are asking the wrong guy. I don't understand what people don't understand either. I mean it befuddled me. That said it's not like I was trading super liquid products like a lot do (ie. market timing etc...)

I think increasingly there is the perception in and out of the industry that "trading" is execution and you have someone to do that. You have someone for ops. You have someone for PB. You have someone for analysis because they can find stuff or really dig into details, that frankly a prop person usually can't do (the whole 24 hours in a day, managing existing risk and the whole taking care of a million other things...) and that at the end of the day analysis and managing a book are two very different not always complementary skills/abilities/jobs. This is not to say that one is "better" than the other...

People can't seem to wrap it around their heads that one person "can do it all" when in fact that has been the model for most of the time. On the MM side I've seen it split between PM doing analysis, execution etc or actually hiring a trader/junior to do it all for them or a PM hiring an analyst of two to either look at things and/or come up with ideas. No one ever does stuff like stock borrow/repo, or actively move balances between counterparties, or negotiate stock commissions on platforms, books trades, deals with booking errors that OPs flags etc. And that's fine. But yeah we had to do it all ourselves.

I will be very frank. Executing and PB stuff can be a huge huge time suck and distracting so I get why people outsource it, but that was not the case for me. There is also this mindset

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.
 
Jul 2, 2020 - 9:25pm

I worked at the same shop for ~10 years. 6-7 years in, I was taking the among the biggest positions at the firm. My boss was still titled PM and I was titled senior analyst but the firm started paying me like a pm.

I had a fantastic opp to rebuild the business from scratch at a well established fund. I got lucky because of the timing of the market and I went in and did really well there. Haven’t looked back since.

 
  • Analyst 3+ in HF - EquityHedge
Jul 2, 2020 - 10:44pm

this is an awesome story (no sarcasm).

Do you think you have a differentiable skill set compared to other analysts / PMs? Or are there structural advantages to where you are at that would make it difficult for you to start your own shop?

How much luck vs conscious effort (technical ability, networking, putting in more hrs etc) contributed to your success?

If you had the freedom to take in more capital for new opps would you:
a/ look for investment opps in your current purview
b/ expand into other sectors but in the same strategy
c/ expand into other strategies (credit, quant, equities, activist etc)
d/ move into longer holding periods (long only, PE, VC etc)

 
Jul 3, 2020 - 6:43am
  • Do you think you have a differentiable skill set compared to other analysts / PMs?

Yes. I don’t know many people who would answer “no” whether or not it were true. A lot of it in my eyes comes from pattern recognition and discipline. Two things at which I excel and others maybe don’t as much.

  • Or are there structural advantages to where you are at that would make it difficult for you to start your own shop?

I’m not sure if this was meant to be connected to the previous q but I’ll take it independently. Many styles and strategies fit better within a bigger organization. Add to that, having your own fund also comes with a lot of incremental time-sucking obligations which reduce alpha-generating time. Only so many hours in the day.

  • How much luck vs conscious effort (technical ability, networking, putting in more hrs etc) contributed to your success?

The answer is subjective clearly so specific numbers are useless. After that first job, which I got through a headhunter, every other job I have gotten was because of network/reputation. Obviously technical ability, time investment, etc. are pre-requisites but only a fool would tell you luck isn’t significantly responsible for picking winners and losers. I know a whole lot of people with better skills of all kinds than me whose careers went a different way. And I can look back at some critical junctures in mine and realize if one chip fell a different way, it could have been over.

  • If you had the freedom to take in more capital for new opps would you:
    a/ look for investment opps in your current purview
    b/ expand into other sectors but in the same strategy
    c/ expand into other strategies (credit, quant, equities, activist etc)
    d/ move into longer holding periods (long only, PE, VC etc)

I know what I do well and the goal is to keep doing that and finding opportunities to learn. But too often, hubris leads to style drift which ends up being someone’s downfall. Plenty of people can be great at one thing but few can be great at multiple, let alone many.

 
Jul 5, 2020 - 11:41pm
  • assumed a risk taking position with managing equities or credit
    I came from the sell-side and was able to get into a risk taking role right away. This said, I traded a very specific niche product both on the sell side and buy side.

  • your confidence level prior to managing your first book
    Overly confident, to the degree that I laugh about it now. It was a rude awakening, both from process management and risk-taking perspective. In fact, I don't think I have it down even now, after multiple years running a book.

  • how many years you spent at an analyst level before PM
    I left the sell-side at director level after about 15 years in an options market-making role. In retrospect, I should have tried to move to the buyside much earlier.

  • any mentoring you may have had en route to becoming a PM
    I had a few people that helped me with the technical knowledge over the years, but unfortunately I never really had a true mentor. Mostly I regret that I had nobody to guide me through the politics and the human aspect of the business (useful both on the sell and the buy sides).

  • and how you became comfortable with running a portfolio
    Honestly, I never got comfortable. Only the paranoid survive in this business long-term and I find myself perpetually anxious about something or other.

I have a friend who lives in the country, and it's supposed to be an hour from 42nd Street. A lie! The only thing that's an hour from 42nd Street is 43rd Street!
 
  • Quant in HF - Other
Jul 6, 2020 - 4:09am

> Mostly I regret that I had nobody to guide me through the politics and the human aspect of the business (useful both on the sell and the buy sides).

This. Internal politics is an underestimated aspect of this business, despite of being results-oriented and meritocratic. One starts to realize it when instead of thinking of new ideas and risks he thinks about how to maneuver some a$$holes and underqualified rent-seekers.

 
Jul 8, 2020 - 12:34pm
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