Q&A: PM at HF (Former sellside macro trader)

Background - 

Attended a top non-ivy undergrad with a degree in mathematics and economics. Prior to leaving for a multi-strat hedge fund (think Bluecrest, Millennium, Balasny, etc.), I was a macro derivatives trader on the sellside. The vast majority of my daily work was focused on idea generation, backtesting and quantifying risk/reward on prop positions with the rest 20% market marking related.

Given my current role on the buyside, my product scope includes futures, bonds, CDX index swaps, CDX index swaptions, IRS, Swaptions, ED$ options and more exotic derivatives as well. The objective is pretty much generating as much uncorrelated alpha as humanely (or machinely) possible while maximizing Sharpe, etc.

Nontraditional Route -

Instead of a traditional campus recruiting process, I started my networking process late at the start of my senior year by cold calling every alumni and any contact I could find on the internet. I regularly flew to Manhattan on my own dime after lining up multiple coffee sessions and persistently followed up. Eventually, this translated to one superday where an  analyst position was created for me on a derivatives desk. 

Feel free to ask me whatever you'd like, or PM me if you're more comfortable doing that instead.

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Comments (61)

  • Summer Associate in IB - CB
May 7, 2021 - 7:59am

Do you see yourself working long term in HF? What tips/advice would you like to share for those who are aiming to have a good career progression?

May 7, 2021 - 9:20am

Long term, I definitely see myself staying at the HF. It is probably the most meritocratic career path that I personally have seen in finance- you have a hard % payout of your PnL so limited politics versus what you get on the sell side. 
 

Usually, the caliber of people also tend to be significantly higher given the barrier to entry so you work with some extremely intelligent individuals whom you can learn from. 
 

The best advice I have for folks is probably have an obsessive passion for whatever you are doing - you have to be motivated internally rather than by the comp, prestige, etc. This is probably why I never considered IB a career path given the amount of manual work involved. 
 

Most Helpful
May 7, 2021 - 9:41am

Most people perceive stress to be a negative thing but a stressful environment usually leads to innovation as well as to a higher level of performance overall. And you will eventually realize (or accept) that regardless of where you are in life, stress is inevitable and there are just different levels of stress. I have seen plenty of guys making $1mm a year be more stressed out by money than a min. wage work supporting a kid. So ultimately, best thing to do is embrace stress as a partner along your journey and enjoy the ride. 
 

On the topic of rejection, I encourage everyone read The Subtle Art of Not Giving a F*ck. 
 

Comp is extremely variable in the HF world and is often a reflection of how much capital the PM is allocated. A PM running $100mm book earning 7% should be earning between 700k to 1.5m depending on the payout percentage on the contract. Keep in mind that the vast majority the comp is all variable depending on the returns, given that bases usually max out around 250k. So across the board, you will have PMs who could just be taking home base salary (bad year/bad luck) to guys taking home $50m or so. 
 

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May 7, 2021 - 10:02am

To be honest, nearly everyone in the derivatives space often come from math, comp sci, operations research or some sort of STEM background these days. It is a very different and niche skillset required versus IB where you are editing pitches and excel models. I'd argue that the skillset is only transferable to data science/tech whereas the things you learn in IB can be more broadly used across other industries. 
 

In terms of reading, I recall my analyst years where I spent 3-4 hrs after work everyday reading white papers, sellside research, and learning the math behind option theories. The breadth of resources on the internet is unlimited so I still constantly continue to learn on a daily basis. 

  • PM in HF - Other
May 7, 2021 - 12:13pm

Are you running your own pod, or a book in a pod? How big is the team overall? What resources in terms of juniors/technology/data etc is firm allowing you to use. What is your seat cost look like these days, is your seat cost only told annually, do you have control over the seat cost?

Any tools like tableau/pandas you use to create your own daily models? 

May 7, 2021 - 1:13pm

What advice would you give to someone in my situation:

former sellside rates trader, (did some rates desk strat work before becoming a trader) new VP hire at a bank - developed a prop strategy and traded it in a back book...made 8mm on a 2mm stop in ~3 months before the back book was shut down by mgmt...was told to focus on building the customer franchise in the illiquid product for which i was hired to be the market maker (i'll admit, i was not focused on that as it did not seem to be a profitable venture).   Wasn't great at doing that and so was let go in layoffs the following year.  Didn't lose money...but didn't hit "franchise goals" either.  Have been out of the working world for a number of years.   Savings running low and so did research and found that back book prop strategy still viable, and so trading that in futures PA, and doing well (relatively speaking...this is a small account given that its a PA). 

Would like to get a seat at a fund and trade this strategy as a PM / sub-PM...but since its been so long since worked at previous bank, nobody will even interview.

tl;dr version of strategy...pattern recognition where trades are typically risk 4 ticks on 10yr notes to make 8-12 ticks.  Not exactly that...but...pretty close...some outright direction, some curve, some mis-weighted combo, depends on whats going on.   Typical trade duration measured in hours.  Average 3-6 trades per week with a high win vs loss ratio...avg ~70% winners.

Advice?

just google it...you're welcome
  • 2
May 7, 2021 - 1:46pm

The person I know in treasuries who became a PM told me that he did so by being good at building the client franchise when on the sell side. The hedge fund he joined was his client. He knows a sell side trader who trades 30 yr USTs/strips at one of the banks who actually became head of rates by being so good at building the client franchise. He's really good at taking prop risk in the context of making the best prices for his clients while also being great at creating trade ideas, just giving his thoughts on the markets to them. 

I'm talking beyond my experience and there are many different paths (like OPs which sounds like he was less client oriented when on the sell side) but what I've gathered is that at least in rates the best trading path at a bank is to basically be the reason why trades are coming in which is being good at taking prop risk in order to make the best prices and being a good salesperson/strategist (a trader can do a lot of the same things a salesperson can do, they just need them for coverage). And that is what will ultimately lead to a PM seat because the fund has dealt with you and knows how good you are. 

Array

  • 4
May 7, 2021 - 1:54pm

unfortunately, if you read my post, you would have read that i'm no longer working for a bank (or anybody) and no seats have been offered to me....so...yeah, "its easy to get a job when you have a job"...but what about when you DON'T have a job?

just google it...you're welcome
  • 1
May 7, 2021 - 1:23pm

curious to how you think about risk. are you more of a MPT/VaR type guy, do you think in terms of "bets," are you more of a liquidity provider, or something else?

how do you avoid cognitive biases with backtesting?

what are the benefits/shortfalls of correlation and std dev in your opinion?

what's in your personal portfolio? do you put most of your capital in your strategy? 50%? 0%? I don't care about dollars, just curious

May 7, 2021 - 3:08pm

There are usually VaR limits to the risk on a portfolio basis and there are historical shocks you run as well to understand your potential tails as well. This then allow you more or less create a profile of your distribution of returns and hopefully, if you have taken the right risk, the distribution is skewed towards a positive return. 

Cognitive bias can be overridden by using L1 and L2 regularization in regressions, out of sample testing, etc. 

I personally believe historical correlations are purely 'historical' because I have traded through events that have seen correlation shift massively. Same can be said for stdev of assets or portfolios, it's often serve as a guidance rather a commandment.

In terms of PA, been maxed out long equities given the easy macro environment for some time. Will look to diversify using RE as a vehicle given expected taper later this year. 

May 7, 2021 - 4:35pm
  1. Given the current ZIRP/QE situation, what do you see as the future of rates trading? personally I think rates are almost done as an asset class.
  2. Say you trade bunds and now want to trade BRL onshore rates as part of a global macro mandate, how would you approach a bond market where you know little to nothing about?
  3. How do you see the LIBOR transition? Is it an opportunity or just a nuisance? 
  4. Pertaining to your current role, how important was your sellside experience in seeing flow? ex: rates vol and formosa hedging? Figure ex-sellsiders would have a massive advantage there
  5. How did you move from sellside to buyside? Did you use a recruiter or you just talked to biz dev?
  6. Between different pods and many multistrats, why and how did you chose your current pod?
  7. Are you the head of your pod? How does a lead PM manage ideas (especially conflicting ones) coming from his/her team?
  8. If another pod contributes a similar trade idea, do you have to trash it due to firm-wide exposure and move onto the next trade? I see 20+ rates rv pods all correlated at the multi-managers and wonder how working there must be
  9. In general, how stressed are you? How do you deal with it?
Array
  • 5
May 12, 2021 - 9:37pm

1. I'm sincerely hope people continue to think that way

2. I would approach it from a top down approach -  think from understanding central bank policy to political infrastructures, etc.

3. The opportunity in LIBOR transition has already occurred in the SOFR/OIS basis. Depending on who you ask, I would imagine most would consider it as a nuisance; others would argue otherwise given that it probably created a ton of consulting and regulatory jobs 

4. Keep in mind the monkey printing exo flows may learn to hedge accreters/berms but will unlikely develop the skillset to forecast formosa pipeline. Some of the best traders have never worked on the sellside.

5. There is no structured recruiting like PE. Past performance, while never an indication of future performances, are often seen as the token to succeed in landing at a hf

6. Converging skillset, asset class focus and synergy to maximize pnl

7. Best methodology is simply having different allocations so conflicting ideas aren't that big of a problem

8. Different firms have different policies

9. See my post above about stress -  just part of life at this point. I probably work out 5-6 times a week and try to use outdoor activities as a way to reset the brain so to speak. 

May 8, 2021 - 12:56pm

I was wondering if you had any advice on some entry level roles for someone coming from a very unorthodox background. I spent two years in a minor sales role at a tech firm before starting school. I got offered a full scholarship at a decent school but I'll be graduating in Korea. I'm studying econ and applied stats and will be graduating in December with a 3.9. My workload has been very market/data analysis/math heavy so far. My internship was cancelled due to covid and I haven't had many chances to network. I would say my two biggest strengths are working in high pressure situations and self learning.

Your job on sellside macro in derivatives is basically a dream job for me but I can't seem to even get in for an interview anywhere yet. Any advice on other roles that could get me there/into trading in general or any advice in particular for someone in my situation? Thanks for your time.

May 9, 2021 - 2:55pm

Thanks for doing htis, couple questions.

Have you had a losing year or losing period or any large trading losses? If so how did this work, was your risk cut, were you given a timeframe to earn it back? Would love to get more insight into the stop out and de-risking process at a macro fund. What do you think your options are if you do 'blow out'.

And seperately any good books specifically relevant to global macro that you'd reccomend?

May 9, 2021 - 8:23pm

Most fund cut half of you capital at X% drawdown then below another threshold, you are packing up your stuff and leaving. 

It doesn't matter how talented you think you are, drawdowns are inevitable in the business and your approach to managing those drawdowns often define your return profile as well as your ability to recover.

In the large unfortunate event of a full stop, the avenue would be maximizing the amount of lessons one can take away from that event and looking for a new seat. 

May 10, 2021 - 10:26am

Can you share a bit as to when you first started on the sell side? When did you start gaining more responsibility and how?

I started recently and haven't done much or seen a whole lot... Feels like the team has just been waiting for me to come into the office now in June to get me up to speed. If you can detail a bit about your first 4-5 months, that'd be great. Thank you.

May 10, 2021 - 2:08pm

1st 6 months you learn how things work...learn thru osmosis..research every term you don't understand...read all research produced by your firm and other firms research you can get your hands on, read it all and understand it all...research any terms or conclusions you don't understand.  Learn how people make decisions....often takes all their background knowledge learned over years of working.  During those 1st 6 months your only value add is dumb work that must be done.  Print and distribute, get coffee...book trades, send confirms, check that everything matches.  After your 1st 6 months you should be able to backup people and not be an idiot.  After a year you should start getting some small responsibility.  Are you professional?  Do you understand the difference of when you are / aren't supposed to act like a normal guy cool dude, and when you have to be like a lawyer 100% serious.  On the trading floor, when it comes down to executing a trade, there is zero room for error...but after years of doing it over and over senior people get relaxed because it is 2nd nature to them....but its not 2nd nature to you so don't be misguided...you are being interviewed every day....and for the1st few years....if the team thinks your brain isn't as big and great as they initially thought...you can still get fired.  I've seen a lot of junior people mistake the relaxed nature of senior people who are experts at their craft for being "relaxed" and make mistakes of grammar when talking about a trade....its not the same thing...traders might seem relaxed, but at the same time ZERO mistakes are allowed.

Relaxed perfection.

just google it...you're welcome
  • 5
May 12, 2021 - 9:11pm

Rounding up to nearly a decade in the business and I cannot emphasize proactively learning on your own. In all reality, you have zero value add beyond some menial tasks or coffee runs. 
 

Needless to say, if you f*ck up the small tasks, no one will ever trust you with more responsibilities so get it right. More importantly, build relationships - never underestimate how valuable mentorship is in this industry.
 

  • Intern in S&T - Other
May 13, 2021 - 12:50pm

Math/stats student here, interested in starting on a derivatives desk. Which macro desks/products do you think are the best place to start a career? I'm really interested in FX Options but am unsure of its longevity.

May 18, 2021 - 9:46pm

Take it by the "hey bro" you are probably already in a sales seat? If so, try to maximize the amount of product/market knowledge. 
 

In respect to an execution role at an AM, I wouldn't count on transitioning to a PM. Very few % actually do … why execution traders still exist today is a bit perplexing. A PM at an AM is usually considered a fairly sleepy job and will have limited upside. Most directors in sales make more than PMs at RM shops … 

May 18, 2021 - 11:09pm

Yes Sir, I'm already in a sales role, but the job is not what I expected before. I got to help my boss (which is a female boss) to cover her clients and book revenue under her name. i.e. I don't have client ownership in the first several years. Plus I found my boss is kind of micro manage and bully, and found out female sales boss is dominant on the street, at least in Asia. The job becomes got to entertain the boss rather the clients. She knows nothing about the product and never taught me anything, while I got to make she happy. i.e. I feel very little progress in this field, and I think I don't need her teach me how to talk with clients.

Plus long year in flow credits area will make people ADHD ( attention deficit hyperactivity disorder), i.e. I start to find out hard to focus to have deep research or sth, hard to concentrate on sth, as the job nature requires multi-task everyday and need to execute the flow and fast reply any inquiry from clients.

I don't think I can accumulate sth meaningful skills even 5 years or 10 years, except got some clients on the book. While when bank performance not good, they can find any execuse to let go people

May 18, 2021 - 11:20pm

Especially in Asia, senior sales management not willing or fear to delegation or empower junior sales to cover clients independently as they fear to lost control. i.e. they fear to lose clients relationship and fear to lose control the junior sales (they fear the junior sales stole their clients and jump to other shop), so most junior sales got spent several observation years, at least before VP. 

The game gradually becomes irrelevant about the sales performance, but about whether your boss like you, if you didn't entertain them enough (there's no way to build client book)

While for trader role, think I don't need to beg anyone as the bank is relative small and the trader inside is somewhat prestigious

May 19, 2021 - 11:11am

the way to progress in sales is simple

1) get to know the junior people on the client side (the trade checker, any operations people you come into contact with)

2) entertain those junior people...go out with them socially to bars and clubs...and show them a really good time..be an awesome wingman...help the guys pickup hot girls...flirt with the girls (but don't cross the line....keep the sexual tension thru the roof)...actually become friends with them...tell them that in exchange for showing them an awesome time now...when they become senior...that you want to be their sales coverage..and you want them to demand YOU be their sales coverage.

3) eventually, some of those junior people will become senior people...and some of them will become your clients.  

This is how you build a book of business that YOU OWN in the institutional business...in sales its all about building relationships.  In trading, relationships have less value...its all about your trading P&L.

Now, you might not be good at this type of making friends....if thats the case, then sales is not for you.

just google it...you're welcome
  • 2
May 19, 2021 - 9:50pm

thanks man, but the prerequisite is the boss allows me to do that. If the boss micro manage and requires me to sit at desk I got no way to hang out with clients. If I hang out with junior trader at client side and my boss got to know that she's not happy. In their world, I cannot do anything with clients unless they approve. So I think such things limits the junior sales go up. It becomes all depends on your boss.

May 20, 2021 - 10:56am

i think you'll find this is not an absolute...for example....lets say you are sending a trade confirm to the client...and you call the client (a junior person) just to talk about the trade confirm, to make sure there is no mis-communications.   While on the phone, you can ask the junior person what they are doing later that night....just being friendly and social...nothing work related...if you know anything about their interests (a sports team, musician or whatever) you could casually mention something related to that and ask if they saw xyz happen (for example, if they are a Taylor Swift fan, you can ask if they listened to the new song she just dropped)...these social converstions can eventually lead into you asking if they want to grab drinks later...nothing work related...just socially grabbing some beers and maybe some food.   No senior person should care about you doing that...you are just building social relationships....nothing work related.  However, after some months to year sof doing this with as many junior people as you can....some of those junior people will get promoted...and then you will OWN that relationship.  If your senior person fires you for this (i see zero reason why they would)...you can just goto another bank and say "i have a great relationship with these clients....you should hire me to cover them"

just google it...you're welcome
  • 2
  • Prospect in S&T - Other
May 21, 2021 - 11:06am

Thanks for creating this. I'm an incoming SA at a BB for S&T: 

1. Any advice on how to stand out during networking with desks? What are some common mistakes summer analysts might make? 

2. Do HFs prefer recruiting "specialists" or more "generalists" nowadays? Not sure whether I should target generalist rotations (i.e. vanilla equities/FICC) or something more specialist (i.e. exotics, illiquid, etc.)

  • Analyst 1 in S&T - Other
May 29, 2021 - 12:30am

Thank you for taking time out to respond to all these questions. I was wondering if you could help me get a clearer perspective on "breaking back in" to sellside trading again.

I started on a sellside short term rates trading seat, but was fired after less than a year for non-performance related reasons. Struggled for a couple of months trying to land a new job, and ultimately found something in a corp treasury role doing hedging. The job is great in terms of the autonomy I have over the book, but I definitely I feel like I need more guidance from a mentor on the sellside. Without any direct mentorship, I've just been fiending for any resources I can pick up online, but I feel like I can only learn so much on my own.

I've been casually putting out my resume just to see if something hits, but it seems like I'm getting a lot less responses compared to right after I got fired. I was wondering if you have any insight into what catches the attention of the sellside hiring manager, or any advice you can give for getting back in (if that's even realistic)? It just feels like having a "Treasury" title as the top line makes them immediately dump my resume, and ignore my trading fulltime/internship experiences.

  • Intern in S&T - Other
Jun 26, 2021 - 3:40pm

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