Article just hit last night...Baly cutting 13 stock teams (~40 investment professionals) plus a bunch of back office to be cut by end of year. Oct was really bad for hedge funds, Nov has been an official bloodbath. MLP, Citadel, Baly all getting hit hard. Garden leaves vary by firm, but there will be a lot of guys looking next year.
Trending Content
| Best Public Markets Gig? ER, MM HF, SM HF, or LO AM? | 13 | 2d | ||
| +42 | How to start a family office (HF rainmaker) | 17 | 22h | |
| +34 | Law to Quant Pivot? | 10 | 1d | |
| +20 | People who work at hedge funds, what made you interested initially? | 13 | 10h | |
| +20 | How to destress at Pod HF? | 8 | 4h | |
| +19 | Hedge Fund WLB | 6 | 22h | |
| +19 | HF Final Round Interview | 4 | 4d | |
| +17 | Most appealing public credit seats out of RX? | 1 | 4d | |
| +16 | good fundamentals, bad chart | 8 | 1d | |
| +16 | Which Funds focus on timing the broad market rather than L/S individual equities? | 10 | 12h |
Career Resources
It's been ugly out there. Really think L/S is dying
They should start hiring people who knows how to read a chart.
Any truth to citadel and mlp or you are guessing?
I would agree with the guess but haven’t heard anything.
I could almost say this year is worse for hedge funds than 2008-2009. A bloodbath in a neutral market.
I know for a fact both down in Nov worse than Oct, and Oct was not a fun month.
Pretty sure both MLP and Citadel are doing well overall. But yeah probably tons of teams didn't have their portfolios positioned for this kind of volatility and got blown out. I don't think overall performance of the multistrat firms is that bad.
https://www.bloomberg.com/news/articles/2018-10-08/millennium-s-flagshi…
Yeah MLP up 8% thru Sept and still up 4-5% thru Nov but a lot of teams being blown out the last few weeks with more to come. Citadel prob in best shape of all, but also has the best risk model.
How in the world are they still up? man, they must be such good stock pickers
Currently recruiting for the big multi strats and was in a process that recently ended (had my references checked). Heard back a month later it was a pass...do you think this could be due to the current performance/volatility?
I would assume so
yes, performance and volatility as well as the fact that teams keep getting blown out so there's a bigger pool of candidates. Smart firms will just wait til Q1 next year to do the hiring when supply >> demand.
Yes, the fact that PMs operate this way (even the ones who are nicer on the surface) should tip anyone off that analysts are very interchangeable and commoditized in this industry.
I get performance updates from hedge funds in my inbox frequently and lately I’m seeing tons of funds down 20-30% over the last three months. In some cases the same funds were up in the 2008. Not sure what to make of it
The simple way to think of it is that passive/uninformed buyers (ETF, quant, algo) have become a huge chunk of volume...so what worked 10 years ago doesn't work anymore. The guys who don't adapt get destroyed.
Also 2008 was fundamental. This is primarily quant algo driven and some factor investing.
lol so maybe "adapt" and learn how the algorithms trade then? Easy peasy. Goddamn aren't you all from HYP?
That is obvious. The russel is down 20%. Many stocks more. Unless a fund is day trading or just got flat they are going to be killed. Obviously on net the entire market can’t deleverage at the same time or make hft money against each other.
Many need to hold risks over the medium term to earn.
I don't get it. Isn't this the time where HFs are supposed to be absolutely killing it? We know that they've had shit returns during the bull market, but the consensus on this forum has been that HFs "are not supposed to outperform the market." They're HEDGE funds, so we're told, a low beta asset class. Isn't this the time where they navigate volatility and put up superior returns? Isn't this their time to shine?
What's the excuse now? Algos? Trump? I'm curious. Really, I am. How many times the geniuses on this forum attacked me for calling out poor hedge fund performance. I would like to know what's up.
In times of volatility, the multistrategy firms are going to have some teams who are not positioned well for the kind of vol the market is going under. Others are positioned really well. If you look at overall multistrategy performance, it's been about flat or slightly negative for the month of October. Not sure about Balyasny specifically but Citadel, Millennium, ExodusPoint, etc. were all about flat for October, outperformance of long only. But yeah in times of high vol you're going to have some portfolio managers who were not positioned well and get blown out. Some of course were positioned very well and those teams are sitting pretty. The result is overall flat performance in this kind of environment. The violent drawdowns/overcorrections in the market create ripe stock picking and shorting opportunities, which will likely be realized in the coming months.
Citadel Wellington is up over 8% this year. Millennium is up over 5%. The multistrat firms are doing their jobs on an overall basis. This kind of environment is exactly why the multistrat structure works in the first place. It rewards competence and punishes incompetence.
So yeah, there's no excuse for the PMs at Baly who performed poorly but the multistrat firms overall are extremely effectively hedged.
Why do you think BAM in particular hasn't been able to keep up with Citadel and Millennium? They all hire pretty much the same people who trained at the same places. It can't be that the other 2 are just better at picking stock pickers. So is it something to do with their centralized capital allocation, risk control process, support infrastructure, etc.?
I work at one of the firms you mentioned above and my personal opinion is that the industry is still too saturated. The avg level of talent has dropped over the last few years... Too much trend and momentum chasing, not enough critical thinking.
This sort of thing needed to happen.
deleted
Esuric was DeepLearning 's answer sufficient for you?
My suspicion is "no."
They are shit analysts. HYP grads with Bloomberg Terminals don't seem to make great traders for some reason. No other way to describe it lol. I love these long paragraphs below me that don't addesss the question.
Andrew Lahde said it best:
https://arstechnica.com/civis/viewtopic.php?t=102181
Traders don’t have to be geniuses. Theirs a lot of guys who are good who are just smart enough. To see things before it’s too obvious but not overthinking things and seeing things too far before the crowd.
this literally. this industry is a prestige driven scam
Just threw a fist in the air for you
I'm with you on this. It wasn't so long ago that hedge funds marketed themselves as delivering alpha. When outperformance over a market return became infeasible, funds started emphasizing the 'hedge' in their names, stressing the low beta nature of their returns. Now that they seem to underperform in virtually all market conditions, I would say the jig is up.
The problem (as always) is that a handful of funds really do outperform, and everyone seems to think they're able to pick those funds. I had drinks last week with a couple CIOs of major endowments, and they have all moved their private markets portfolios out of HFs and into PE and direct deals. The risk/return in HFs just don't seem worth it anymore.
IMO PE is a fraud and it’s just not recognized as widely. PE firms do not report returns as often which has delayed them from really showing enough data to highlight mediocre returns.
If you take away factor investing from PE their numbers are average to bad. They benefit from the small cap premium and increased leverage while also being illiquid so the volatility in their returns isn’t apparent. Another weakness is with IRR and capital calls. Endowments having to tie up capital in low return investments waiting for a capital call is a big drag on performance.
Performance for PE blows when you realize they can call capital whenever they want and are basically a leveraged version of the Russell. That strategy should return 13-15% a year just based on factors. And I don’t think pe is performing close to that.
Most strategies are implicitly short volatility (Distressed, Long/Short, etc.), so many funds are inherently less well-hedged against rising vol/rates than they probably should be. It's the unfortunate consequence of chasing equity-like returns with low vol in the ZIRP environment. Many managers have become very complacent, and will probably continue to underperform unless they truly begin to rework their trading process to become more hedged, or institutional investors will leave for either low/negative beta fund (discretionary macro) or fixed income.
My thoughts exactly. Was going to post something like this the other day so thanks for that!
High fees plus their risks systems should limit their upside.
If you are millennium and you never lose money why shouldn’t you charge fees that are equivalent to the risks free rate plus a bit of alpha which equates to 7-8% a year.
The business plan is fundamentally take a bunch of highly volatile traders slap a risks system on them and pay out 20% to winning pods and eat the losses on the losers. If their risks systems truly work (to the point of only losing 3-5% in 2008) then you should take out enough in fees to give the pensions and swf a moderate return.
Also a lot have failed at them game. There’s probably a dozen funds who tried to be the same thing - some of the macro funds, cohens guy etc.
It's great if you trade short-medium term. If you have to do it with quarterly, doesn't surprise me if you are struggling.
Is less about quarters vs how much you need to be down to be blown out. Most platforms cut capital at down 5%. When you have weird volatility, drawdowns happen as everyone is in the same crowded positions.
We have the max 5% drawdown as well, so I'm not sure if it's really about that. We killed it in October and I know a handful of retail guys who aren't going to trade much for the next few months.
Maybe it's because they are bad at what they do? All the "professionals" with BB Terminals seem to make shit analysts idk why.
So all of the so called 'market neutral L/S' strategies are down, but aren't they supposed to be market neutral? They are exposed long to the market then?
Never spoke to HFs PM but my understanding of such a strategy would be, I am assuming Apple will outperform the other blue-chip tech stocks, therefore I am going Long AAPL worth of X amount, and shorting the blue-chip ETF for the same X amount.
Most l/s play in small caps and try to take advantage of the small cap premium along with better edge in equities with less coverage. They are often short larger companies but not always.
In this environment they should be down money.
The multi strats are a different thing. They are sort of giant day trading platforms.
Yes I know was just using an example. So overall they are net long
That would be garbage in 2018. Most players go single stock shorts with etf for factors or excess beta
ELS depends on your names performing as expected which can’t happen in every scenario
Problem for managers is if they want to degross, LPs dislike
From my understanding typically only quantitative market neutral funds are truly market neutral. A lot of fundamental L/S equity funds end up being net long as it juices returns in bull markets. So when there's a big market downturn and you get caught with your pants down net long, you get railed and blow up your max drawdown allowed by your firm.
Has anyone ever tried to have a fundamental L/S Equity shop with a purely market neutral approach? Yes no upside would be captured during the bull run, the same thing could be said for bear markets and downside. Would you think non-quant strat would be able to offer the same returns if not better returns than quantitative strategives?
Bloomberg has new articles up.
Listing citadel as up 8.5%, millennium 4.2%, point just says flat on year, baly down 5.3%.
No idea if these are before or after fees. Total performance holding all 4 would be 1.9%. Essentially a lost year. And perhaps more position puking next few days.
sounds about right... Is that Kensington/Wellington or Citadel Global Equities?
Do you have a link?
Found it: https://www.bloomberg.com/news/articles/2018-12-05/citadel-point72-hamm…
I received an offer from Balyasny about 18 months ago. The offer was good, but I decided not to work there. It was on a big data/ML team there. Staggering to me how little those people knew about technology, Machine learning, alternative data, etc. They all had great looking resumes though, completely UNQUALIFIED. I went to an actual quant fund that's crushing it, no prestige in the name outside of people who actually know.
The truth of the matter is that there are quant funds that are crushing it, ones who stay out of the news, arent big names among the HYP crowd. Want to know why? Their employees are math PHDs with actual skill sets, not these frauds coming out of ivy league schools relying on the beta of the us stock market.
The finance world is going through a reckoning because the barriers to entry on investing have come down, so people who can actually sniff out alpha are destroying the old boys club. The game on this sham is over.
I know an insider at PIMCO who remarked that in the Bill Gross years, most of their returns came from a few guys making huge intuitive/gut based bets on the market. All of the research etc was used to sell clients to get the investment money in the door. This industry is in for a rude awakening.
You sound like some feminist cuck trying to blow the whistle on absolutely nothing; pls go rant vaguely somewhere else
I met the people in these groups at Balyasny, nothing impressive. Get mad about it
I don’t believe that was true for pimco at all. Bill gross would go in the news and highlight his bold opinions and calls. But a lot of money and alpha was made just by choosing between smaller factors and not huge macro bets.
Now they did do the macro bets but a lot was picking cheap parts on the curve or tilting towards credit or selling vol etc.
Pimco used to be a sess pool, buying securities no one could price, slapping some arbitrary price on them, and then selling them to investors who didn't know anything. You'll never hear anyone speak a word of it though. Gross did make a ton of macro bets, but they were way more intuitive than anything else. The rest was a huge show, meant to get money in from investors. Argue with me all you want, it's true.
The key to paired portfolio losses isn't market drawdowns. it's the liquidity events after drawdowns.
These pod models are like sharks. They only breathe when moving one direction. When money flows reverse, they lose money.
However, this phenomenon usually ends quickly. Risk managers force everyone to cut their books down.
Millennium is a complete shit place to work, but their record is unparalleled. I'd say Point72 is a distant second, followed by Citadel. Everyone else that has tried to pull off the multi-manager thing sucks.
None of these macro/structural guesses explain it either - so much of it comes down to execution on things no outsider can really understand.
L/S is pretty much dead though - 99% of the funds out there are just complete garbage.
Why do you say Millennium is a shit place to work?
Couple quick thoughts, though I've been out on a noncompete for a year.
1.) There is a continuum between alpha and "beta" (risk factors).
2.) Most firms run on a vendor risk model. Why? It provides a shared language for risk that doesn't have some risk of being proprietary or biased. Some investor asks what's your exposure to Book to Price-- ok, you can give an independent vendor number. The investor isn't worried about whether the measure is biased, and you're not worried about giving away your IP. Now, they might add some risk factors on top of that, but that's a good place to start. Now, the truly elite-- the RennTechs of the world, might not do that for all I know. But most of the quant shops that don't need Math Olympiad medalists and can still do well start from a vendor model. 3.) Back to (1). If RennTech, 2Sig, or DE Shaw finds out that BlackRock is calling something an alpha, they are probably going to call it a risk factor. Nothing against BlackRock-- a lot of smart guys, but BlackRock means there's probably too much capital chasing an idea for it to be an alpha for some firms.
4.) From what I am hearing, a lot of the traditional funds are interested in getting into completion books. It's sort of a hybrid between quant strategies and traditional long/short equities in that it helps figure out the most efficient hedge to your position.
Now obviously it's a political nightmare to figure out the attribution, especially for the Type-B quant who has to try and figure out something fair for a bunch of Type-A PMs, let alone something that he can explain to them. "Umm, your hedge position for Chevron works out to these 200 different firms, and the position is also going to change every day in very strange ways that really depend on what other positions there are in the book". It's also a technical nightmare for a traditional equity fund which isn't used to supporting anything much more complicated than Capital IQ. But if there's a way to cut through the politics and the technology, I think it can help a lot of firms out there. If you're confident in your firm's stock picking skill, it's a cheaper and better way of hedging risk.
Since I've been getting looks from a number of traditional equity firms on the basis of "We want a completion book", I've been doing some thinking about the political nightmare a quant faces on this. Somehow you need to make the system understandable to a PM with a UChicago MBA. Which means they're smart-- probably brilliant, but you can't explain things in terms of anything beyond Newtonian Physics to them. Everything needs to get boiled down to about 5-10 numbers that can fit on an Excel screen. And you need a lot of political buy-in. You need a bunch of PMs who are getting screwed on weird risk factors all of the time and are pissed off about it. They're great stock pickers, but they're bad hedgers.
And then you're going to need a quant with a spine and a strong sense of fairness. He's gonna have to help sort out all of the conflicts of interest and be as transparent as possible. And it's going to be tough to pull it off at a firm where the PMs are sharks and screaming Type-A personalities. That's just not how systematic quants work. But if there's a cultural fit, it might work.
I might as well get my plug in. My guess is that somewhere on WSO, there is an Equity Long/Short PM or even COO reading this. And somehow the firm's been generating alpha but getting screwed on factor risk. Either the attribution system is killing him/her or the firm's weird factor exposures are hurting the attribution. Hopefully the firm has at least $5 Billion AUM and a geeky culture where a couple of soft-spoken Type-B quants running the attribution portfolio won't get eaten by sharks.
If that's you or your firm, we should talk. I've got a couple things progressing nicely with two other firms, but I don't want to put all of my eggs in one basket. And it might be worth it to hear about how a quant or two might be able to help you. If you're really conservative, just to run portfolio sabremetrics (moneyball style) and help with risk, but if you're comfortable going further, to help set up a hedge book.
There aren't a lot of quant portfolio engineers out there-- my guess is ~500 total; 800 if you include quant PMs. There might be twice as many solid alpha devs (My sense is that DeepLearning is one of them, and he mentioned he had been interviewing on this thread). But even if I get yanked somewhere else, or I'm not a good fit for your firm, I'd be happy to talk, and it makes sense to talk. For you, there will be more guys on the market next year if nothing else. For me, I haven't landed a firm offer yet, but more importantly, if I get a trend started for completion books at equity long/short funds, that creates a lot of long-term opportunities for everyone, including me.
Bit off from what you're looking for but Exxon may be. Though what I've heard is that they are starting from scratch.
From that angle, it sounds like you would have an easier time going for a risk management role at a quant fund, or on the Central Risk Desk at a bank. Might have better luck than approaching individual PMs because the need for this skill set for them is not as clear.
Would be surprised if you're not talking already, but Point72 and Schonfeld are both hunting ppl like you aggressively (Citadel to a lesser extent).
Great write up
Why is it called a "completion book"? Where can I read more about this?
It sounds like: the PM picks his 20 or so positions, sizes them, then hands book to quant. Quant figures factor exposures and finds the most efficient hedging portfolio, hence "completing" the book. Yeah?
I cant give away any specific knowledge, but you're not gonna hedge it by hand. Any PM, certainly any risk manager, who took basic linear algebra can do that with a couple hedge stocks and RREFing the exposure matrix. Now, how we do it exactly? You will have to earn the answer through research.
The actual process is a little more involved. And the attribution is a nightmare, because eventually the hedge portfolio is pretty big and complicated and it all gets thrown into one pot for a bunch of PMs. The hedge portfolio is going to have its counter-attribution, but then it's going to have its specific returns as well. Who earns the profits or eats the losses on the nonsystematic returns? The PMs didnt choose these stocks. It's almost exactly like the toxic stuff you can't hedge on an exotics contract.
Theres like 20-30 other questions you have to answer setting these books up. And any one person can only remember about 10 of them at any given time.
I spoke with a couple different fundamental PMs looking to bring a quant on board for factor attribution as well as alpha research. I've closed my discussions with these PMs for basically this reason. They didn't seem to really understand or appreciate what I would bring to the table. Seemed like what they were looking for was a way to check the "we have a quant" box and and have a data person to check to see if a particular trade "looks good" based off of "the data".
??? If the quant had insight about whether the trade looked good, he'd turn it into an alpha and get a percentage of the attribution. Like, I can do that for you, and it'll earn you a few basis points, but can I also license my alphas to a third party lol?
Still think there are some COOs and CEOs out there who want to bring the moneyball/sabremetrics approach to their firm if nothing else-- and it does make sense. But on a bad day, COOs can be like the firm's internal McKinsey. They can do a lot of stuff that seems to make sense for the business but pisses everyone off. I've seen it before at two different jobs.
So I need to find a firm where there is legitimate pain for most of the fundamental people-- where they realize they really do need a quant.
double post
Hearing Surveyor just cut some more teams today.
Going to be interesting how Ken changes his business now. He’s the best manager in the business. Completely flipped his business after 2008 from a better financially structured LTCM type fund with a lot of credit spreads to a fairly sophisticated trading firm.
My guess he ends this year up 2%. Last year 13%. There was a London macro fund that kicked out the low vol pension money and converted to a $2 billion family fund and started putting up 50% a year returns.
He’s already got 8 billion so he doesn’t need the aum. And making 2% on your money isn’t that good.
A lot of blowouts still to come. Dec off to terrible start across platforms.
Tax loss selling too. But have they really not liquidated yet or decided to just deal with a teams loss and hope?
Every asset I look at is already pricing in a recession next year. Which from a monetary policy perspective is a possible. Rate hikes and qe tightening basically monetary policy acts with a lag. Industrials tech and banks at 8 pe are already pricing in something bad. And we just created 200k jobs. I have some doubts more is to come though it definitely feels like it. I believe a pain thesis but also believe reality andnmarket are stretched right now.
Jabre Capital shutdown.
Are there any star traders left?
Einhorn wouldn’t be surprised if he becomes a family office.
Trian Partners - balls deep in GE heard they had some redemptions.
Bbl supposedly smoked. Was suppose to be the next Andy hall. Who died last year.
Literally feels like every star trader from a decade ago is dead.
High Hendry dead. Last year. Would have been crushed this year as his call was macro is dead and he saw no reason not to be levered long stocks.
Will be interesting to see who else ends up dead in the next month.
My google searches in Bridgewater appears they haven’t made more than fixed income compounded recently. Was up 1% end of October so that will be interesting.
Who will CNBC be able to put on the air as a market god? Tepper seems alive.
Only arena that isn’t killing their stars seems to be fixed income. Gundlach alive.
Vero optio saepe doloremque quia excepturi ab recusandae. Sit est animi vitae quod aliquam rerum autem. Et asperiores quod voluptas labore voluptatem quo iusto.
Suscipit excepturi architecto eligendi voluptatum ut consequatur nostrum pariatur. Tenetur incidunt commodi cum. Dolorum eligendi dicta velit.
Voluptatem consequuntur quo repudiandae molestiae illum autem. Ea nam sit sed pariatur et nam accusantium.
Omnis quam corporis possimus consequatur facere quis repudiandae. Atque labore quia dolore consequuntur ut consequatur non adipisci. Quis itaque maiores cumque et maxime. Labore sint qui minus iusto nam repellendus nihil.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
A dolores quo commodi voluptatem quia. Blanditiis fugit aliquid cum perferendis excepturi. Explicabo rerum excepturi quia laborum. Expedita est aspernatur commodi aut sint laboriosam excepturi tempora.
Blanditiis et possimus molestias consequatur. Laboriosam in et aut ipsam. Placeat repellendus autem sint alias nam accusantium dolores. Aliquam eum ipsa a et facilis natus nemo quis.
Rem veritatis quis cumque nostrum qui. Quia nisi facere cupiditate aut nostrum amet officiis. Fugit neque impedit delectus quidem nihil.
Impedit placeat vitae natus mollitia fugiat necessitatibus aut adipisci. Repellat aut illo ipsam autem minus dolor. Nulla aut ea a.
Sed mollitia repudiandae numquam totam ut. Ea ea quibusdam nihil aliquam natus adipisci laborum quidem.