I spent ~5 yrs on the sell side getting my own coverage in a financial services niche. Moved over to the buyside over 5 years ago to help build out an equity platform in a primarily credit shop (with a nuts and bolts operating business). The idea being to leverage our operational and business expertise to invest in businesses that are tangential to what we do. Because equities aren't the primary product we invest in, my experience is likely a bit different than a lot of other hedge fund professionals. We are opportunistic with investments with no defined portfolio size. We have a more fundamental value oriented philosophy and relatively longer hold times. We've also done some PE like investments, and a few investments up the capital stack. I'll check in from time to time.
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What do you believe your edge is within the market?
we are tied in with a number of in house operating companies, and have pretty deep expertise in a couple of products. so really we have an advantage of understanding the nuts and bolts / fundamentals of the companies we invest in. we aren't the best at timing, market positioning, or caring about our factors, we are good at taking long term fundamental views and so our investments reflect that.
Bringing in the dough or underpaid? Honest perspective.
tbh i bet a lot of people on these forums have a better idea of what comp on the street is broadly. I've only been at a number of shops in my career.
from what i do know, i think i am probably about in line, i'd obv like to make more. i think a lot of people on the buy side make sort of mid 6s for a long time. when you jump to pm you make low 7s. the outliers are people who are paid a % of their P&L, so that can be the milleniums, the citadels etc. there you can get rich quick, but you can also lose your seat quick. the closer to corporate like job security you have, the closer to corporate like comp structure you'll have.
mid 6's sign me up, sounds like the promised land after banking
Is middle market mezzanine lending out of school a good track to reach a role like yours?
like at a BDC? go for it my man. i think that kind of underwriting and origination experience can open a lot of doors career wise.
edit: everyone says we're late cycle tho, so make sure you're going to a good shop
A lot say that. There are a few of us who believe we are in a never ending cycle. Not that odd China and Australia have gone 30 years with out the proverbial recession.
What is the hedge fund business now? It looks more and more people piled in index fund or other mediocre mutual fund. What is the most important factors for a successful fund in your eye?
Thanks in advance.
In general there is definitely a rotation to low fee funds / etfs away from active management, it's been a trend for at least a decade and will likely continue (and should continue imho). the good thing about that is in theory, the more money that goes passive, the more alpha can get picked up in active management.
The simple way to be successful as a hedge fund is to make your clients money. I'm kidding obviously, but there is also some truth to it. There are lots of ways to make money, from the renaissances of the world, to esoteric asset classes, to deep value expertise. I think there will always be room for the best in class of each type of strategy - but every year some of the chaff will be culled, and broadly we'll see some fee pressure.
In a macro sense i think the biggest areas that are seeing rotation are non-mark to market funds. So places like Blackstone, Apollo, Ares etc. A lot of institutional money hates seeing mark to market volatility on their books, so you can actually get an illiquidity premium on some products, which is counter to pretty much every economic theory i've ever seen. This trend was accelerated by 4Q18 volatility and i expect it to continue going forward.
Areas of investment that i think justify fees, and require real expertise should also continue to be supported: that could be deep credit work, off the run asset classes, etc.
Funds that should disappear are high fee mutual funds with broad index exposure. There is no reason someone should pay fees to run a fund with 2.5% APPL exposure instead of the 2.9% exposure you get in SPY.
True short funds are also dead/dying. No one likes bleeding money, so the past 10 years of bull market has really put a damper on that sector. If we get a bear market that could change, but idk.
did you find it difficult to move from equity to a predominantly credit shop? i know you mentioned having built out the equity platform, but still given that i'm left to assume your team's bread and butter is still credit?
how difficult did you find that move and what can you speak to about making a similar move at various parts in your career? is it easier at the more junior level to move?
I invest in equities with opportunistic capital within a credit shop. So I never made the transition to credit (other than a few plays up and down the capital stack).
Reading through the comments it seems like people are assuming that by “credit shop” I am talking about corporate credit - which I don’t think is a big leap from equities. However there are tons of types of credit: asset finance, sale leaseback, ABS, consumer unsecured receivables, mortgage, C&I, airplane leasing etc.
To maintain anonymity, I am not going to get into the specifics of what the firm I am at does.
Back to your question - there have definitely been hurdles and a steep learning curve in moving from equities to a credit shop. Think about someone like Howard Marks talking about credit ~”the first rule is don’t lose money”; now go out and try and find an equity investment that doesn’t lose money in your bear scenario - it doesn’t exist. There was a big chasm we had to bridge to appropriately think about the risk return opportunities within equities and create an investment process that makes sense. There was definitely a lot of banging my head against the wall especially early on.
Same question as above generally, thinking of getting out of MM ER and into credit/distressed debt, maybe RX consulting post-MBA. Curious as to your path/thoughts on moving from equity to credit in terms of similarities/ease of transition/opps.
Hey thanks for the AMA! Any advice you have on trying to move from a quant group to a fundamental shop elsewhere? When I say quant, not the pure math/CTA strats, more long term fundamental factor investing.
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