If you could restart your career, would you still want to work at a HF?
As the title suggests, interested in hearing people’s thoughts who now work for a HF in an investment role (any strategy/structure). If you could hit the restart button on your career, would you do anything differently? Is the HF space something you’d still want to pursue as a recent college grad in 2020?
With declining fees, large capital outflows from previously popular strategies, growth in passive investing, increased competition and the incremental adoption of AI/quant strategies, does the space still have an attractive long term future?
I agree that structurally hedge funds are changing. It’s a more mature industry than in the 80s. Therefore, compliance and transparency are higher; fees and returns are lower. I believe PE is currently like HFs used to be and will to transition.
Some people are fundamentally better in one field vs another, while others are flexible. I always advise people who are flexible to go to PE due to broader growth, if they can handle the hours.
However, AM is always a solid environment, but I don't believe you have the same competitive environment, which I enjoy.
Summary, depends on the person.
As PE also matures, consolidates and experiences large outflows etc, do you think this will be a revival for the HF space to some extent as capital flows back towards public equities?
I think PE is decades away from outflows, but some in PE would know better than me. I don't know about a resurgence for HFs, but I believe it'll always be great for top performers.
many people are chasing tech and have made a lot of money, while too many HF guys are struggling to have a job.
I have no regrets about my own career--I'm extremely happy with how it's gone thus far, and love my work. But there are two significant caveats:
a) To some extent, I've been lucky. I've landed in a nice seat, given my interests and style, with a fair bit of stability. That's not guaranteed, and many of my equally talented friends have had a much rougher go of it, with a number leaving the industry entirely.
b) If I were graduating college now, I don't think I'd make the same decisions. The industry is in slow decline, and won't be nearly as attractive in 10-15 years. That matters less to me than it would to someone who is just starting out of school. I expect the business will remain lucrative through my peak earning years, but might not for someone younger than me.
Congrats on a happy and successful career thus far!
Do you have any views on what the most future-proof and lucrative HF strategies/structures may be? E.g. market neutral MM’s appear to be the craze atm, do you see this changing?
It's a good question, and I'm not sure I have a great answer, but here's how I think about it: hedge funds are businesses, and like all businesses, some are differentiated and have significant competitive advantages, while others do not.
I see the multi-managers being the scale plays of the hedge fund space. They utilize scale across a number of dimensions. For instance, they often have centralized data analysis teams, channel checking operations, sophisticated trading, and great access to low-cost capital. They also get access to all sell-side events, and have good corporate access (though IR and C-suite do find them super annoying, and don't go out of their way to be helpful). Paying less interest on your leverage and losing a few fewer basis points on your trades are not sexy, but they add up to a considerable advantage over time, and utilized across a large number of investment teams. That being said, being an analyst or PM at such a firm is not necessarily a stable gig--the firms are ruthless in churning and burning investment teams, and you don't get a lot of second chances. The firms are stable, but the jobs at the firms are not. And the upside for an analyst is probably lower than it might be at a top single manager fund, though PMs at multi-managers can do very well, if they're good.
Niche strategies of various sorts will always exist. In the end, there will have to be specialists to invest in distressed debt, for instance; it won't be computerized and it won't be fully commoditized. And there will always be experts trading various structured products in specialized funds. But these businesses can be cyclical, with an opportunity set that dries up for years at a time. And the upside is inherently smaller in a niche space, as a given strategy can only absorb so much capital. But being an expert on a complex but narrow sector of investment is a pretty good way to build a stable career.
I'm pretty bearish on the classic "single manager" fund, which has significant beta exposure but still charges 2/20 (or whatever the discounted rate is these days). The funds typically lack scale and sophistication with their trading and data infrastructure (though there are exceptions). I think capital will continue to be pulled out of such funds. But if you land a seat at a fund with good returns and scale, the upside is huge.
Overall, though, the most important way to keep your job is to actually be good at your job. There's no seat where you can remain gainfully employed, long-term, with a bad track record. And that means most analysts should, over time, lose their jobs. This really isn't an industry for safe and future-proof careers.
I'd say a lot comes down to quality of the firm. The buyside is not created equal and given the market dynamics, in my opinion, being at a branded firm is more important than ever. When I was younger and more naive, I thought the buyside was the buyside and moving up/downstream wasn't a big deal; however, I've come to learn this isn't true - brand matters. I think getting a seat at a reputable firm would likely lead to a more stable career and is thus worth the career risk. However, if you're only in to the buyside is smaller firms, expect a more volatile career and a very difficult path to move upstream in brand. If you lose a job/want to change from a smaller shop it will be much harder. This is likely different from 10-20 years ago given the structural changes in the industry. So if I had to start a career at a sub 1bn, even worse sub 500mm or 250mm, I think there is some serious career challenges long term and the skill set you're building isn't overly transferable. I'm not sure this is the best move. Starting at a 5/10/20bn+ fund is should still be a good career path.
V interesting perspective and makes a lot of sense. Does spending your first few years in the industry at a top MM position you well long term? Or did you mean a non pod style HF with large AUM.
Non-pod. Wasn't talking about a MM. My insight to MM shops is very limited.
No
Fuck no. Thus: business school
MMPM BlackHat thewaterpiper @bulge4lyf"
V interested in your thoughts!
To be honest, if I were starting over and trying to maximize personal economic value I probably wouldn't join this industry. The odds are simply not in your favor anymore - there are fewer and fewer good seats and it has gotten harder every year to make any money. I've been on the buyside for 7 years in total - in that time I've been fortunate to have one incredible year, a handful of average years, and one bad year. The bad years are starting to become more and more frequent for a larger number of people. That said, the type of people that succeed in this industry are the type of people that couldn't imagine doing anything other than this. Even if I made $100k/yr for the rest of my career, I would do this over some corporate job. This isn't really a job for me, it's a hobby/passion that I get paid to do. In this respect, I think working at a hedge fund has a lot of similarities to being a professional athlete - it's intense, you need to have incredible passion to succeed, careers can be and usually are very short, bad luck can often overwhelm talent, there are a lot of mediocre people at bad funds making no money, but the rewards for a handful can be life-changing. If you're just trying to get rich, I'd probably go into PE or something else, if you just like the markets then this job is for you -- but bear in mind, there will be a lot of setbacks, the path will not be linear, and your chance of failure is high.
Just to add to this - I cannot stress how important it is to pick your sector wisely. There are some sectors where it's just easier to express views and make money (tech, healthcare). Most of the guys I know who trade financials or energy are miserable (constant mean reversion, heavy macro/political influence)
I’ll be referring back to this from time to time for motivation. Thank you!
With respect to your point about picking your sector wisely, could you rank the 5 or so most favourable sector groups to be joining in L/S equity?
"Even if I made $100k/yr for the rest of my career, I would do this over some corporate job."
I agree with your thoughts here - but what happens if you land under a tough PM? How do you manage the situation or is ultimate solution finding another seat, which carries its own risk?
Following
Keeping track
Been in this industry for 10 years. Have done short only at a family office, 6 years in a $200 --> $1bln aum event single manager (only 3 inv professionals), where I was a real equity partner for 3.5/6 years. Recently been doing event driven at a multi strat. Of the 10 years I've lost money one year. Comp was very good at at the event single manager (averaged about LSD-MSD mm a year. Comp where I'm at now is terrible and I plan on leaving.
I'll just leave some advice for anyone interested in the industry:
1) If you aren't really passionate about investing, I'd just do something else. Industry is in decline, comp is highly seat dependent and equal parts luck of being in the right place at the right time. There are a lot of sh*tty personalities in the industry and 80-90% of your hardwork typically goes to the top of the firm. I can't tell you how many convos I have after bonus season where friends complain about how terrible comp was vs what they expected.
2) Specialize in a sector. I am an event (special situations) generalist and the industry has shifted to industry specialists. Don't try to fight that trend. I enjoy being a generalist but it makes interviewing much more difficult since most seats are for industry specialists.
3) Unlike other industries, this industry DOES NOT place a premium on experience at the analyst level, in fact it is the opposite. Expect most of your interview flow the younger and less experienced you are. You are viewed as "moldable" As you get older, headhunters become useless and finding you next gig becomes very very specific on your skillset vis a vis what the firm you are interviewing at is looking for.
4) Avoid the pods if you can. I dont consider low net investing as real investing. I come from PE so I might be biased. Unfortunately this is the part of the HF industry doing the best. But you will just be a risk line item for these firms (MLP, Citadel) etc. They dont care about your development. If your pm quits or gets blown out (through no fault of your own) then you'll be out of a job
5) In terms of networking, focus on building relationships with firm founders or PMs, not their analysts. Pitch ideas, follow up on them etc. Analysts at other firms will not really help you out: they are just looking to protect their own seats. In fact, a lot of analysts will take your ideas as their own and keep dangling out the possibility of getting a job at their firm.
If I could do it all over again I'd have grinded it out in PE. My friends in PE are partners or SMDs now making stable 6 digits. This industry has changed a lot in the 10 years I've been in it, much of it for the worse.
You are early 30s and made $10-20mm cumulatively over your career, so you must have $5-10mm saved up. why are you still where you are instead of just investing your own capital if the comps is terrible? What made you leave the event shop?
I am late thirties:
2 years banking
2 years PE
1 gap year travelling (best year of my life)
1 year family office
6 years Event fund
1 year non compete
3 years Multi Strat Event (current)
I left the event shop because I couldn't stand dealing with the founder anymore and I thought the firm was going to blow up heading into 2015 (it did blow up). I have saved money but 1) I got a divorce w/o a pre-nup which was quite expensive 2) I left a TON of deferred comp at the event fund on the table when I left 3) It was a messy legal process to leave which cost me quite a bit in legal fees to de-partner. 4) tried launching my own fund during my non compete period and that also cost me lots of money
I do invest my PA aggressively now (my prior firm had a no PA policy other than ETFs and Mutual Funds).
I'm still here because
1) I like my BB, corp access, research resources, healthcare benefits
2) I like the team I work with and there is some (low probability) optionality the team spins out of the firm at some point if the firm closes
3) wanted to "rebuild" my resume by putting some years at a brand name firm after my non compete gap year
4) Need to stay fresh - interviewing while out of work for a good next gig can be hard.
Having good money in the bank in your late 30s isnt ideal when you live in NYC, are getting remarried etc. It's not the worst situation but the hamster wheel is still relevant.
What would you do if you were a post-mba associate that loved investing? Would you try for lmm pe or a hedge fund? I realize that it is much easier at the analyst level, but I love investing and have always wanted to work for a hf.
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