Over the past year I've went through a couple sets of interviews with a well known long-short multi manager platform. The process typically goes very smoothly early, and then in the end I get dinged I think basically because I do not have experience on the short side. I have five years of long-only equity research experience (post MBA) at a major AM shop, so I think they tend to be impressed with my overall process and degree of industry-level expertise on my covered industries. However the conversation with PM's always ultimately seems to turn to my interest in learning the short side, and how I would apply my process to this. In the latest interview the PM literally said I would be more of "a project" relative to the other analyst on his team who came from a very similar l/s pod shop.
I guess I am a bit taken aback by this. I feel like I'm in a situation where "i don't know what I don't know" about short side investing. My impression is that obviously the time horizon and risk profile would be different from a typical long-term l/o investment, but the fundamental analysis drivers/catalysts would be pretty similar.
Do any experienced HF analysts or PM's have thoughts on this. Am I just too late at this point where the long-only branding is going to be too strong to credibly make this jump? I haven't been actively recruiting (both of these opportunities came to me through referrals) but I guess I'm wondering whether it is even worth going through a broader search process.
Why are you looking to move? I would think a good analyst role at a top Long only is more attractive than the average hedge fund role, much less a seat at a multi manager pod?
Yeah, that's a fair question. I enjoy what I do and have been fortunate to learn under a really experienced and talented team of analysts and PM's. I guess there's a few reasons to look around at this stage, but the biggest one is just the risk of stagnation if I stay here for much longer. There is a VERY long path to PM here, typically 15-20 years as analyst before you will be given a shot to lead manage a fund (if ever). In the five years I've been here, have seen exactly one person ascend into a lead PM role, and there's a group of 25-30 analysts (most of whom are senior to me) all looking to eventually get the nod. I think my career basically flat-lines here over the next five years, vs. at a long-short I could have a real shot at running money within 2-4 years if performance is good.
On the flip side, it is a pretty great quality of life and I'm sure I would miss the 50-55 hour weeks if I moved to a L/S.
janky, check out this book: https://www.amazon.com/Whats-Behind-Numbers-Financial-Chicanery/dp/0071…
it walks through numerous cases of how to short. what I learned from it (although in the money we run, we never take outright shorts, so take this with a grain of salt) is you not only have to be right, you have to be right now/soon. the negative carry you get from the inherent leverage in shorting is something you absolutely have to take into account.
in long only, you can wait patiently for your thesis to come to fruition, and while there is certainly opportunity cost in having a stock go sideways, it's not as obvious as what happens on the short side.
if I were to short, I'd find essentially the opposite of what I want to buy from an accounting standpoint, and find a near term big negative catalyst. for example:
if I were going to get serious about shorting, as goofy as I think these guys are, I'd look at muddy waters and andrew left. they are definitely pushing an agenda and their publication, but you have to admit they are thorough.
the only thing l/s pod shops are going to care about the first one. and not even 'bigly,' BC they're just trying to grind out msd/hsd returns annually.
Listen to this podcast from the Alpha boys at FT. The podcast series itself is fantastic, this episode in particular is about one of the most famous short-sellers on Wall Street. You're welcome.
http://podcast.ft.com/2017/04/14/encore-episode-jim-chanos-on-betting-a…
The process on l/s side is quite different than long only.
Depending on the firm your l/s positions are going to pair (correlate), play (spike up/down), or hedge. I would recommend taking a look at absolute return strategies, delta neutral strategies, and such.
L/s funds typically are highly concentrated (6-15 long positions), have specified shorts (see: delta neutral, gamma hedging, de-risking), and utilize cash efficiency strategies (see: synthetic long stock).
Hope this helps.
^ this is really on point.
As an LP, the most important things we want to see are that:
1) your shorts add alpha (this is the obvious one to most people) 2) that they reduce risk & correlation across the portfolio (actually more important, in our view)
Given how hard it is to pick a single short in a vacuum and get it right (we typically think of a manager with a hit rate of ~30% on the short side being pretty good), I would REALLY try to focus on #2 when interviewing.
L/S funds are not 'typically' highly concentrated - it varies a lot. The ones with 10 or less positions are exceptions rather than the rule, so if you were thinking 'average' i'd say more like 20+ rather than 10 - 15.
following
You can learn to short - its probably going to be harder convincing people you know how to do so however.
The big difference between long and shorts is just timeframe as brofessor alluded to above. In shorting you have to be more timely for two reasons: 1) Borrow represents a carrying cost for the trade that can add up and eat into your returns over time 2) Most of your shorts aren't terminal (going to 0), so its ultimately all about shorting close to a top and getting out close to a bottom (longs are a bit different b/c they could theoretically compound for a lifetime)
Number 2 in particular means some of the frameworks for picking longs are not as useful in shorting, especially in a market-neutral shop where a lot of your shorts will be 'filler'. You need to be very situational. Catalysts become more important while some fundamentals (e.g. management) become less key in many cases.
This is great - thanks guys for some high quality comments in here. Have listened to some of the Chanos stuff although buried with earnings so haven't gotten through all of it.
I think generally my issues convincing them I can learn to short are largely on the time horizon side of the equation. I put 'sell' ratings on stocks all the time and those recs have definitely outperformed, but I'm so used to developing pitches based on a much longer term horizon (e.g. 2-4 years). I think usually when the interviewer picks up on this they tend to decide that I would have to reinvent the wheel in terms of how I approach modelling, management conversations, travel priorities etc. My sense is that on the short side I'd be more focused on minimizing the downside (e.g. this stock could gain 5% over the next three months, but it's not going to be up 20) rather than expressing a big catalyst driven bet. That could be wrong though...
Anyways, I appreciate the advice. Back to this shitty earnings call...
you can look at this guy's blog: brontecapital.blogspot.com there are a lot of posts where we describes his short ideas (usually those are frauds or promotions), also check his funds monthly fund letters, there are also a lot of short trades described
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