Background: MSF, ~2years MM IBD There seems to be a dearth of information about FoF on this site, so happy to answer questions people might have about transitioning from other parts of finance, what the work is like, or whatever else might be interesting to folks. Cheers!
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I guess ill get the ball rolling, do the funds you look at focus primarily on HY, muni, investment grade, or a little bit of everything?
At my fund, we're all generalists - I see everything from CTAs, to energy funds, to merger arb, to RV funds (and more). Because of my background, I tend to look at more credit / distressed funds, but it's only the largest minority, not a majority.
Also very few muni strategies will exist here because a large amount of capital is tax exempt (pensions, endowments)
This is pretty spot on. They do exist, but they're few and far between!
How is compensation? How are hours? How does recruiting work?
On comp - generally, FoF is in line with ER I believe. At my particular shop, it's roughly commensurate with what someone would make in IB (I expect about ~200k for my first year all in).
Hours - I'd say I average about 60-65 hours a week, with some variation. It's also much more predictable than IB, so I rarely have to work on the weekends and most analysts take 10-15 days off a year.
Recruiting - our firm uses a head hunter, and we typically look for kids from IB/trading desks, but we recruit from other places as well. We also only promote from within, so it's not a great spot to lateral too if you're later in your career.
thanks for doing this, just added to frontpage + will frontpage a couple times next week
How much of an impact did the MSF have on your career and preparing you for your current role?
Having an MSF only helped marginally for my career in IB, but it's helped a lot at my current role. We're much more focused on portfolio theory, statistical analysis/econometric, and other stuff that's generally ignored in banking.
That said, I would echo what has been said elsewhere on this site - an MSF is a great way to rebrand/learn finance if you missed out in UG, but it is clearly not not preferable to doing finance in UG or going to get you knowledge you can't learn on your own or on the job.
What was your major in undergrad?
What was the interview process like? Questions about the markets / portfolio theory or is it more fit based / what you did during your IB stint?
The interview process was not so much market based as it was more like what I've heard interviews at tech firms are like - lots of brain teasers / hypothetical / statistics. That said, at least a third of the time in each interview covered my experience in IB and basic finance/markets questions - these seemed mostly to be check the box type questions though.
How safe do you feel your job is? A lot of talk of passive investing and a few hedge funds shutting down makes me worry. Plus, HFs in general are supposedly** notorious for not thinking twice before firing someone.
Having come from banking; did you consider PE, VC...how/why did you decide on HF?
In general, I'd say that HFs and FoF are here to stay (in a reduced form) for the long term - I view job stability as a function of the pedigree of the fund. I'm lucky that my firm has a very stable capital base and is generally considered to be one of the best FoFs in the game.
I'd be lying if I said I didn't gun pretty hard at PE/VC, so it's not like I rejected the idea out of hand. At the risk of engaging in some ex-post bullshitting - the wider breadth of what you see in HF land and the lack of 'deal' style work flows works a lot better for me generally. In particular, at a FOF, I get exposed to every market there is (one of my funds is even a PE style co-investment), which really helps mitigate the sense of intellectual boredom I sometimes felt in IB.
Did you get the MSF before or after your IBD stint?
I did it after - for some additional color - I graduated relatively early (i.e. before my 21st bday), so the MSF was helpful cause my path made recruiting for internships/FT really awkward.
What's the full compensation ladder like from analysts to managing directors? Do people typically leave, and if so, what are exit opps? Thanks!
So, I don't have perfect visibility, but I'll relay what I know.
Most HFs and FoFs tend to be relatively flat (typically, it goes analyst --> senior analyst --> PM --> Partner/CIO), so I'd think about pay progression at the junior level as being similar to IB (in terms the rate of change). After about 5-6 years (at this point, I'd expect to be making about 2.5x what I currently make), you become a PM, after which most of your comp is tied to the fund's performance, as opposed to some qualitative assessment of your own performance, and the increases are much less linear.
Exit opps are probably the worst selling point for FoFs - they're not necessarily terrible, but the skills you learn are not as easy to evaluate in a interview and aren't all that transferable if you want to go into active investing. We've had people go work for hedge funds, endowments, start-ups, top B-Schools, etc.; however, if you're hoping to break into PE or other direct investing roles, it's going to be an uphill battle.
What exit opps are there?
What transferable skillsets are you able to buildup in your role? Heard it is quite qualitative?
Thanks for doing this.
See above - exit opps are there, but I'd be lying if it's easy to get into a HF/PE job from a FoF.
So, there are a lot of transferable skills you can develop if you want - for example, if your firm does co-investments, you're still going to have to work closely with the fund on the underwriting, and so you'll get a lot of exposure that way. There's also the portfolio management and hedging skills (we do a lot of ours in house), which can be helpful if you want to go into a liquid markets role later on.
That said, it's certainly more qualitative than an entry level role at an IB/PE/HF shop would be. While this is certainly a negative in (some) recruiter's eyes, I'd make the following points: 1) technical skills are easier to learn on your own and 2) all finance jobs become more qualitative as you move up the ladder.
Thanks bud! Sbed
If you were to tell me top 2-3 books/blogs that helped you the most on your interviews, what would those books/blogs be?
So, avoiding the stuff that's generally applicable to finance as a whole, I'd really recommend "Thinking Fast & Slow", "Superforecasting", and "Hedge Funds: Myths and Limits". The first two are important for learning how to make decisions in states of uncertainty, the latter is probably the best primer on the idiosyncrasies of the hedge fund industry.
Thanks man! Incidentally only a couple days ago I bought "Thinking Fast & Slow" audiobook from my 'Unused Audible Credit Store' on a friend's recommendation. Would check the other ones out as well. Wish your good karma gets rewarded soon.
Where did you get your MSF?
I did my MSF at WUSTL (corporate finance Track).
What bank did you end up working for? Would you recommend WUSTL's msf to someone who only has had accounting and Big 4 internships? Or would I be wasting my time?
Have you considered jumping ship to go work at an E&F or as an HF analyst at a family office/OCIO?
Yep, I've considered both those options. To be honest though, I'm still in the early days at my current shop and life is pretty comfortable - I'll probably start seriously considering other options in about 2 years (when I would be transitioning to being a senior analyst).
Can you run us through "A Day in the life of The Stranger"?
Sure - as is usually the case with 'Day in the Life' type posts, I'll caveat this by saying that my day is pretty fluid etc. etc. I'll keep it pretty high level but feel free if you want a more granular explanation on anything.
8:00-8:30 --> get into office 8:30-9:30 --> read WSJ, journal of portfolio management, Bridgewater's daily observations etc. etc. 9:30-10:30 --> excel type work (could be an internal research project / updating one of the return models for the fund's I'm staffed on) 10:30-12:00 --> meeting with new manager, debrief with PM to talk through the trade examples and decide if follow-up is warranted 12:00-1:00 --> lunch, typically read something online or flip through a pitchbook to decide if a meeting is worth while 1:00-4:00 --> draft a memo on the meeting from the morning (these typically are 1/3 recounting what was actually discussed, 1/3 commentary on the views expressed by the manager, 1/3 an explanation of why we are/are not interested in moving forward) 4:00-7:00 --> catch up on any of my projects / deliverable for the funds I'm on.
What kind of skill set makes one more likely to succeed in HF FoF versus at a HF? Are there any characteristics that you can generalize in analysts between FoF and at a straight HF?
Starting from scratch, are there any other recommendations you would make for building a skill set to break into FoF besides the reading recommendations above?
Thank you for doing this AMA, this is very interesting!
1)What kind of skill set makes one more likely to succeed in HF FoF versus at a HF: I'd say the key difference (although HFs are a big category, so this is certainly not always true) is a strong understanding of portfolio theory (this is important for senior HF folks, but not at the junior level) and top decile writing skills.
2) Are there any characteristics that you can generalize in analysts between FoF and at a straight HF? So, first off, HF analysts tend to have specialized skills, are higly quantitative/technical, and generally prize $$ over work life balance. At good FoF (i.e. where the juniors chose to work at a FoF / FoF wasn't their last resort), I say that analyst generally show tremendous intellectual curiosity and prefer to focus their analysis more at the strategic/macro level.
3) Starting from scratch, are there any other recommendations you would make for building a skill set to break into FoF besides the reading recommendations above? I'd say the best things you can do are build a solid foundation of financial/skills (you don't need to be able to build a fully functional lbo model in 1.5 hours, but you should be able to do it with 4-5), expose yourself to more esoteric areas of finance (you should be familiar with the various types of options / derivatives), and starting reading newspapers/finance magazines with a focus on HFs. Also, working in some sort of high finance role prior is advised (although not always required).
Thank you very much for your response - I don't have the opportunity to learn about FoF often. This is very interesting!
Hey man so im graduating in December from a non target northeast school, will be 23. I have major in finance but GPA will be a 3.1-3.2. Thinking of doing an MSF next fall to help rebrand, as i am having a hard time finding FT opportunities that will provide useful experience. I am trying to get an internship next spring to help with experience for the MSF. Just wanted to get your thoughts! Thanks in advance for doing this!
Hey - PM'd you back on this, but sorry for missing it initially.
No worries, thanks for thee response!
What's your end goal when you are mid 35s vs 50 for your career and lifestyle? I'm curious about why you chose finance in general as opposed to say corporate after IBD. it feels that the end jobs of a financier vs corporate/industry individual is very different. Could you explain how you thought about this? Or how you thought about other fields and weighed them against another either outside of finance or within finance.
My view on both 35/50 is this - ideally, I'd like to have invested enough of my excess cashflow that I can comfortably join a start (e.g. without having to worry that I'll be totally screwed if it goes down hill). I thought IB / Asset Management would 1) build a strong skill set 2) give me the means to pursue side ventures (particularly now that I'm out of IB and work a lot less) and 3) develop a sense of what investors/LPs are looking for.
If I hadn't done finance, I like to believe I'd have gone into tech, but the more realistic answer is that I'd have probably done something more like law (thank god I didn't!).
seems like you have an idea what you want, thanks again for this post! I was thinking if you could elaborate what wakes you up in the morning to this job, and if you think that there are other ways to walking the path you see yourself going down.
Had you always had this thought about where you wanted to end up or is that still a canvas being painted?
Hey, thanks for doing an AMA. Do you invest in emerging managers? What are you key red flags and +ve qualities you look for in managers?
We do some emerging stuff, but only where we can get REALLY comfortable with the quality of the ops and business generally (emerging managers have a higher level of 'sketchiness', in general).
Positives: Integrity (we do super in depth background checks), willingness to customize to meet our mandate, an understanding of why their product is a good fit for our portfolio (e.g. do they understand what we're doing) and (this is the biggest one) --> do they understand WHY they make money? If a manager can't articulate why the make money and why/what state of the world they'll lose money, they're probably pretty delusional.
Negatives: the reverse of all that stuff, lack of transparency, bad back/middle office, being difficult to work with.
So are you doing a fair amount of managed accounts (willingness to customize)? Heard stories of guys getting seeded by tier one seeds, increasing AUM by 10x, but only 2x of that is the fund, rest managed accounts
How does your day-to-day look like?
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