Q&A: Finally made PM @ LS fund
Hey everyone
After 7 years of grinding in private and public markets, I finally made a portfolio manager at a small hedge fund.
It's far more difficult than I had ever assumed, and anyone who thinks they could just take over a book and sleep fine at night is in for a wakeup call.
That said, feels great to know Ill never have to be a damn analyst again. Leading the team is a balancing act between motivating people to their best, inspiring the right kind of (thorough) curiosity, and letting peoples' talents shine.
I'm learning to "cowboy" less and coordinate more. This is after 5 years leading a globally distributed team.
Idk, Ask away!
Thanks for the Q&A!
-Do you believe you possess any special soft/technical skill that allowed you to get to be a pm, or would you say it was mainly 'sticking it out'?
-As a PM, what do you look for in hiring ? I'm wrapping up my last semester and networking for FT buy-side roles. I would love to know if there is anything I need to hammer out that would increase my chances of landing a role.
Thanks for doing this. By "LS" I assume long-short equity. I appreciate answers to any of the following.
What is total fund AUM and capital allocation specifically to your book? How many other PMs are there? Do they also pursue LS equity, but in other sectors? What is your sector coverage, and how many analysts do you have?
How concerned are you about job security?
How would you describe your relative involvement in the nitty-gritty of idea generation & modeling versus acting more as gatekeeper of the portfolio--determining what ideas are allowed to enter & exit?
What is the compensation structure for you? How do you determine compensation for your analysts?
will be starting very soon in small LS equity fund. Am coming from Consulting background so will have a lot of knowledge to catch up, but am in my early 20s, so that won't be an issue. Any tips?
To me it seems that best tips would be to : not be afraid of the hours, work hard, and not to make mistakes. Anything else?
learn markets: market structure, jargony stuff, what the traders are concerned with etc. consulting background means you probably can identify good business, unique opportunities, get the special sauce of certain business models, so the more you can fill in the other side (like how TF to manage short risk, how idiosyncratic vol can really shake up your book, the day to day of actually managing positions) the more everything will click together.
be smart - and by that i mean always connect whatever you are doing to the big picture - how am i adding value, how does this improve the fund, how does this make my bosses lives easier, how does this systematize our activities?
that's great advice thanks! all the best:)
"I'll never have to be a damn analyst again"?
Dont know what makes you think that.. unless you perform, nothing guarantees you are a PM for life.
That said, good luck.
Exactly. That made me chuckle a bit. I have seen my fair share of ex-PMs going back to being an analyst.
i mean, thats up to me tho. if i go bust, fund blows up, whatever, im not going back down the totem pole. ill figure something else out, launch a PE fund, whatever.
So let me get this straight. If it doesn’t work out as a HF PM, you think a reasonable other option is to launch a PE fund?
Would you reccomend starting at a HF if possible? Or is is better to start in IB and move over? can you move from HF to pe or IB?
edit misread the question
start where you want to be, if you can. why waste time? BUT, if your choice is between some bumbling pm guy with a startup fund or and a 2 year stint a mid to top tier bank, especially m&a, there is a great argument for doing the bank stint and then jumping over. much easier to break in with a brand name of course. that said, the sooner you can 'get on your path' the better
Do you lose optionality in terms of exit opps by sarting at a reputable HF though? Like, would F500 or PE still be options?
Do you see anyone from the muni sector / public finance ever cross over to the buy side? Which role would be the easiest transition?
if you cant get into a muni fund, you might have some luck on a macro team or credit team. equities is a long shot, but crazier stuff happens every day
Did you rise up the ranks at the place you work? Or did you leave your old job for the PM opportunity? If the latter, did you move down in AUM.
What is the investing time frame of your fund? What is the investing time frame you prefer and why?
Does the CFA give any sort of edge when recruiting for an analyst position? I have read mixed opinions about the CFA's usefulness. What do you and your peers ( both other PMs and analysts) think of the CFA?
I just read a post claiming that the credit space is better. According to the post, in the credit space it is easier to make money, and it is more protected from automation. What are your thoughts on the credit space?
I was at a large investment firm for a few years before making the jump to a fund with about 1/100th the aum, but also 1/100th employees, overhead and nonsense.
We invest for a year or three, at my last gig I was investing on 20-90 day cycles, so a big change
The CFA is great for analysts. I'd like analysts to have general knowledge of most areas of finance and CFA does that well. The quant methods section in level 2 is not even the minimum required to do the job however. You'll need a better understanding of statistics than that..
so is this fund fundamental or quant?
What has been more difficult about being a PM than you had expected?
dealing with down days.. it sounds stupid, but, due to negative skew, a long-short book usually has worse down days than updays. so youre chugging along fine, grinding out 60-80 bps a day, giving 20 to 40 inbetween and then bam, a 200-300 bps down day happens before open and you spend all day trying to minimize it and see where you can cut or add, but its futile. you're trying to save yourself 10-40bps on a day that isn't going to end well no matter what. its tough.
What is the root cause of that negative skew? In my experience it's generally the reverse. Anything about your style or portfolion construction?
What do you think the long/short equity industry will look like in 5 years?
an even worse bimodal distribution than today: there will be a handful of players with systems, track records, change in management transitions already in place, etc. who will gobble up almost all the assets. consolidation and institutionalization of GPs will handle the rest. all that will remain outside of these 20 firms will be niche guys and startupy funds.
Thanks, do you have any thoughts on the startupy/small funds? Presumably they can generate higher/more interesting returns given size?
Could you elaborate more as to why you think consolidation is where the industry is headed? Do you think it's more because of the pandemic that blew up a lot of funds? Or is it more long-term/secular with quant funds destroying traditional L/S? Or do you think this is just the cycle swinging along and the place has gotten far too crowded with too many managers who were just lucky riding the super long bull market?
On such a note, do you think a lot of passive investing is now centered on momentum/short-term technical (think HFT or robinhood traders) rather than long-term catalyst-driven horizon? Do you think the L/S fundamentals approach is still valid moving forward, if only for the top few risk-seasoned veterans (Third Point, Pershing, Lone Pine) or is it increasingly necessary to take a more event-driven/activist approach and muddle around with special situations/distressed/illiquid assets where entry/transaction points are restricted to a smaller pool of players?
How old are you and how much do you make ?
Early to mid 30s
Base is enough to live comfortably. My profit share only really matters when we get acquired by our seeder
Any advice for those looking to start their own fund one day?
Advice for a 40 year old futures trader starting over with just 50k, who made some political and trading mistakes when younger and has a bad reputation with most former colleagues?
be humble, be kind, offer younger folks perspective as best you can. give to the universe, it will find a way to make things right. younger folks on here might think this stuff is corny and lame but if you've been around the block, and it sounds like it, you know this is the blocking and tackling that makes cooperative engagement, trust, possible..
Thanks or the Q&A! What advice would you give to your 20 year old self?
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