Specialist vs Generalist
Would it be better to be a sector specialist or generalist at a multi-manager hedge fund, which one has a better future outlook?
Currently, I am an undergrad and am deciding between accepting an internship in a TMT role at a large MM (think Balyasny, Citadel, Point72) or a generalist role at a similar hedge fund. I would greatly appreciate it if someone can help me figure out if the specialist or generalist part of the industry is better for a long successful career.
Thanks.
Specialist, no question; that said, learning opportunity matters more
Why do you say that specialists have a better outlook than generalists
Alpha is in edge. Easier to have edge as a specialist for most people
In general, my view is that the specialist vs generalist debate hinges on the model of the fund and there is no real "right" answer as long as these rules are followed:
The shorter term, more diversified, higher turnover, relative value focused the model (like the kinds of funds you mentioned) - the greater benefit there is to being a specialist.
The longer term, more concentrated, lower turnover, absolute value focused the model - the greater benefit there is for analysts to be a generalist.
IMO
Like I said, generalizations.
Harder to compete as a generalist in the first model given you have to make decisions very quickly over a large universe of companies. While a specialist is at a disadvantage in the second model because they are at risk of narrowly framing the investable universe to the handful of companies they know. And if time is not a problem, it's easy enough to get up to speed on a new sector if you can afford to be patient and do a lot of work.
At the end of the day though, even in generalist models, analysts develop some "expertise" in various industries and geographies over time as you gain reps, and certain people tend to have a knack for certain types of industries so you might naturally gravitate towards a handful of sectors that make sense to you. For instance, some people are really good at understanding balance sheet financials - and that same guy might also be really good at thinking about supply/demand and competitive dynamics in traditional bricks and sticks industrial or consumer businesses. While another person might be really good at thinking about technological changes and might do well picking stocks in TMT - this person may be really smart and also be able to apply their brain power well in understanding healthcare companies or fast growing business services companies, etc...
200% true
Since being a specialist is better for the MM model and the industry has been consolidating for quite awhile now (no signs of stopping), I am guessing it probably would make sense for me to take the specialist offer. Do you think there is still a beacon of hope for the second model you mentioned or is most of the industry just going to be multi managers 10 years down the line?
My 2c is its easier to go specialist to generalist than vice versa
Well, if the choice is deciding between a specialist vs generalist specifically in the MM construct - that's a no brainer: specialist. Because I have no clue how a generalist could even work in that model.
Your question about which model is better for a long-term career though is a different question. I don't view the distinction between being sector focused vs a generalist as that important. What's much more important is landing in a seat that is good, in a model that works well, and where you are working for people who know what they are doing, how to make money and that will train you.
I've always worked at places more like the second model and they've all been SM funds and I've always been a generalist. I've never considered working at a true MM because the style is just not interesting to me (see the countless WSO threads on the topic). For me, it was never about "generalist vs specialist" but rather "do these guys know how to make money and will I like doing what I'm being asked to do". I would for sure have taken a job at one of the highly respectable non-pod shops that put their analysts in a coverage model had I had the option because the models work (Viking and Soroban are a couple examples that come to mind). At the margin though, I think being a generalist is probably more interesting FWIW.
With that said, since you're in undergrad, I would try not to be tempted to think these are your only options. Nothing wrong with spending some time in banking and/or PE first and increasing your optionality. The 2nd bucket seats certainly exist, and good ones will certainly still be around in 10 years. But those seats are 100x more scarce than MM seats and crazy hard to come by because there are so few good funds that employ that style, they have much higher AUM per head and analysts never leave those seats. But when funds like that do hire, they definitely aren't hiring undergrads and tend to skew more towards the traditional 2+2 kind of candidates (or hire from other HFs).
A generalist is actually just a good specialist in a lot of areas. The advantage of a generalist is to bring in ideas from other domains (in your case verticals) to another, to unlock some unique insights. Early in your career, you want to maximize your exposure to as many areas as possible as you start to specialize, later in your career you want people to recognize your ability to really understand a space (or group of related spaces).
Agree with this. Especially for an internship. Will help you figure out what areas you are interested in covering and help develop a high level macro view. Tough to get that when focused on one sector. Maybe different argument for FT.
Either one you can't go wrong, it is great opportunity for experience. Just learn as much as you can because your knowledge coming in is at 1% of the knowledge of the people you will be working with.
-biased generalist
I work in commodities (at one of the MMs you mentioned), and so can't provide any particular insight into the equities side of things. I feel compelled to respond here as I have had similar concerns, and have gotten some insight that I've found valuable from others who have been in fund world longer than I have.
As a junior employee, no one will expect you to be either a generalist or a specialist. Starting out, the job description is to work hard, not make egregious mistakes, and learn whatever they tell you to (and more). Trading philosophy is consistent - though with different nuance - across asset classes. It is about risk/reward. The idea of 'learning' is, yes, to learn the technical nuance of what it is you are covering. In commodities, that is understanding and constructing supply and demand balance sheets, and understanding the 'function' of the market within the context of those balance. However, in general, it is about learning 'first principles' of a market facing role and pursuit of alpha.
I remember having a similar concern after I had started at this job, where I was given coverage of a very specific asset class, and tasked with being the sole owner of that. I did not want to get pigeonholed into this particular asset class, as it isn't the sexiest or where I would want to be in 5 years. I was getting coffee with a fairly senior person within the business, and mentioned this as a 'concern' - really, more phrased as "what can I do today to avoid losing momentum towards a role with broader scope etc etc". His advice to me was exactly - learn the first principles, because from there all things are derived. The best way to learn first principles, he described to me, is to build deep domain knowledge in a particular product - especially in context of having sole ownership, and needing to know and be able to communicate every component: the models, the fundamentals, the market structure, the risk to models and fundamentals in future-space, etc. Because if you can do that, as you assume more senior and general roles, you then understand the core structure of the development, quality assessment, and idiosyncrasies of each, even if you are one day not the one building every model and knowing every balance sheet number by heart.
I do want to be clear - I'm not saying do one thing or the other, nor in my experience does anyone else have the answers for what I should do to best get where I want to be. Just wanted to share the experience I have had with grappling with some of this, and input that has been given to me.
Good luck!
edit: and in regards to the particulars of which industry is best to be in - I have no idea. All I know is that the people that survive in this business are the ones who are good. I have equities friends here who have switched their coverage demographic. And know some who have moved groups entirely (equities to commodities, fixed income etc). These people would probably best be called 'specialists', who then entirely switched areas of 'specialty'. The shared feature of the successful people I know in this space is a deep technical understanding of whatever they cover (because you couldn't be successful otherwise), but most importantly a strong fundamental understanding of first principles. If you can develop that, and develop a strong track record wherever you end up, I am sure you will be fine - and able to pivot after getting some more experience, if you want.
What are these “first principles”
I'm sure different people would give different answers
In my mind
This sounds so smart and deep and wise in theory but I have no idea what this actually means and how to translate & implement this in practice. You’re in a different IQ level than me sir, clearly I haven’t even grasped the first fundamental principles of finance/investing (probably because my pod is allowed 15%+ drawdowns and concentrated positions). Can you elaborate on this as if I’m a bit dumb. Would love to understand how effectively apply this because obviously this seems pretty relevant to making the PM jump.
I often make stuff more abstract than necessary. That’s just how I learn/synthesize information into ideas. It’s a lot easier to find the substantive similarities (which I find more compelling for whatever reason) of two things by abstracting them.
anyways, basically I’m talking abt the scientific method.
have an idea
figure out what the world would look like if your idea was right
Look at the market, see what they’re pricing
that gives you a range of the market’s possible views of the world
Figure out what the world would look like if the market was right
then go test it, be willing and able to admit if the test told you you’re wrong and then pivot quickly
that’s analytical first principles, basically
risk management is more of the stuff everyone talks about, but the thing that I think is most encapsulating of risk taking first principles is:
think of the mosaic or market prices as a set of “instructions” at different time horizons and “descriptions” at others.
they’re instructions in the sense that producers and consumers make decisions largely off of price (really, consumers off of price - relative prices tho - producers off of margin - which is just net of prices you pay and receive for that process of production.
sometimes they’re descriptions as the person can impact the market - if I hold back supply I could into the market; the price likely goes up if others can’t step in and fill my place readily. You’ll notice tho that this “description” is also an instruction as defined above, right? It’s describing a market where I’m unwilling to sell, but it’s also instructing others to enter the market or reroute their sales channels or (insert market specific motivations driven by price/margin spreads here). That’s cuz the market is a living breathing thing, first principles risk management is recognition of that, understand what price can do (risk) what price should do (estimation of function) and what price does (observed reality).
that make more sense? Happy to answer specific q’s on this tooX
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