Let’s say you’re fresh out of college, have an offer in hand for a short-only hedge fund that takes a very activist approach to their investments. In other words, they’re finding companies that are mismanaged, fraudulent, and/or unsustainable, and aggressively publicizing their thesis.
Assume salary is in line with banking, with potential for higher bonus. Very small team, good AUM, but there is the risk inherent in short-only funds. Most of these end up closing down because the overall market tends to go up (on average). Plus, there’s also the added risk of taking on leverage when shorting, making it more likely for the fund to blow up.
Given these pros and cons, would you ever start your career at a place like this?
James.Stock, shame nobody has responded. Maybe one of these topics will help:
No promises, but maybe one of our professional members will share their wisdom: Ollie-Williams CFACandidateLevel1 Pmagis1
Fingers crossed that one of those helps you.
Bump
Depends on the pm honestly. If it's a John Hempton type then take it cause it will be one of the best learning experiences of your life. That being said shorting frauds can be extremely trying and may take some years off your life expectancy given the stress. There's a 3 hour interview with Marc Cohodes on YouTube where he goes through various war stories and if that's an experience that sounds interesting then go for it.
I would. I think a lot of companies think they are smarter than they really are and make bonehead moves. I think there are a lot of companies to short out there.
I think it really depends on your personality, mindset, curiosity, and tempermante. There is a gene/mindset/personality of someone who has a skill in shorting or can handle that type of work.
It also depends on the culture of the fund, if the pm/whoever is in charge is a teacher, has skill, understanding, runs a small nimble shop, is extremely disciplined & high character/integrity. Then the experience gained will be very valuable and being short/long means less to your stint with the firm.
I personally am not to big of a fan of activisty shops. But thats me
I would add it also depends what you wanna do long term if you wanna work in this space then this experience will be great
Long-term no Short-term yes
It’s quite simple no genius short sellers are billionaires. Now if the guys a successful short seller then working with him a few years could be a great learning experience. But if you want to make bank it’s far easier on the long side.
A short seller at best can sell himself as a great hedge that occasionally makes money. But you want be cashing 20% carry checks every year.
Unless it was run by an industry legend, no. And even then, I wouldn't stay for the long-term. The time horizon on shorts doesn't mesh with my own and the market can fuck you a lot harder in the short-mid term when shorting vs. going long.
It's such a hard question to answer. From personal experience and having been burnt on an absolute fraud of a company that was using short squeezes to make more money - I am very scared of shorts. I now only short via options and decay costs me a lot of money. That said - it's against a long strategy so as a hedge I am glad I have some bearish trades. A short activist fund - the best answer is to study some of the best trades they have put on and read about them in the press to see if they are as vocal as you would expect them to be. I have no idea where I am going with this comment as I don't have an answer. Good luck
Haha I understand. This company is quite vocal once they enter the position. The founder has appeared on Bloomberg several times to explain his thesis, and they distribute research reports.
How is a short only fund still alive after the run we’ve had this decade? They must be best of breed to survive this bull market.
Yup, been around since 2011, they only enter a few positions a year. Most have been successful.
why not? i meant, if you're fresh grad, as long as you can learn stuff here it doesnt matter if the fund is gonna be broken or stuff. Like it would be totally different case for a senior person, but for a fresh grad who has nothing to lost it potentially could be a nice experience
As a banker, I feel like I would be more interested in joining this type of fund vs a typical boring mostly long fund. I like the action and strategy behind activist campaigns and strongly believe that the potential for outsized returns is significantly higher when you're doing something contrarian and idiosyncratic instead of just following the herd and betting on macro trends we don't understand on horizons where we don't have any real future visibility. So yeah, sounds awesome. No risk, no reward. And I love exposing crooks and fools.
As someone whose 'best setup' are precisely special situations on the Short side of things, I think that this might be viewed as an incredible opportunity.
Thinking about it, most market participants who engage in serious due diligence - here we exclude Day Traders - are looking for a reason to invest in a business for the long run. It is somewhat more natural, at least in my view. And identifying fraud definitely requires going the extra mile and having a deeper understanding. However, this also means that you are bound to stumble upon great Long ideas along the way, so I do not exactly grasp the logic behind ignoring them.
I barely scratch the surface here, but learning how to find great Short ideas sounds like a very valuable experience. And, yes, I would surely consider it a intriguing opportunity.
Uh, dude Take this job
Right out of college, so you have the most flexibility to try new things and learn than any other point in your career (can easily move if you don't like it)? Pay same as banking? Interesting work?
I don't see why you wouldn't take this for a few years right out of school.
I'm trying to weigh the risk of this place shutting down, which wouldn't be surprising for short-only. But yes, it is good pay and interesting work, so definitely considering.
Another thing to consider is that most people hate short-sellers :)
Really interesting question & situation, i would make the following points:
1) Firstly the key question is, is it a known or respected PM. if its muddy waters / kynikos, super unique opportunity that would stand you out from everybody else 2-3 years down the line and really differentiate you. if the track record is poor or there isnt one, it completely changes the equation.
2) I am at a HF and was in AM for a few years before. The number 1 concern for my fund in interviews was me having no prior experience shorting. This must be a common concern, as per my point above that being at a short-only would give you a very differentiated background when interviewing in 3 years time at L/S funds.
3) There was a point above saying in the short term it would be a great learning experience, but in the long term it is a more difficult way to make money - i would agree 100% with that.
So to conclude, if it is was me, i would take the job with the aim of moving to a good L/S in 3 years time - on the key caveat that it must be a well-respected or well-known PM and not a no-name shop.
+1 on MuddyWaters.
It would be a crime to pass on them.
They are getting lit up on nvda and that includes dragging me into it...though small and my friend Is a big long.
They are likely right on valuation. But it feels like Nvda going to 500-750.
I keep reminding myself intel dropped 70% on 2000 and they dominated the chip market for 20 years. Nvda could dominate chips for 20 years and still trade below 200 for decades after going to 800.
To your second point, would future firms not be concerned about a lack of experience going long?
Fair point for sure. My view would remain though that the pushback to that concern would be the experience & opportunity were too unique to pass up (again on the key caveat that the short-only firm is good / respected), and you wanted to get that training in what is generally seen as a more difficult to acquire (or simply more rare) skill set.
It's a good point though and I wouldn't underestimate how hard it is to identify long opportunities. I just believe that every opportunity should be weighed on balance vs. the other potential options available at the time, and if there is an opportunity at a high calibre short-only it is a unique chance that should be seriously considered - I wouldn't choose it over Baupost but if the choice is vs. a lower tier L/S then I think it's a great option that would really differentiate your profile. Your point is fair but I would imagine that hurdle could be easily overcome via demonstrating proactive learning in identifying long opportunities alongside the "day job" of finding opportunities on the short side.
One key thing to remember is that short selling is hard. You have bullish analysts, stock borrow costs, dividends to cover and herding to fight with in order to make money. It is also difficult to scale given disclosure requirements in many locations.
I'd read the books about short selling (Dead Companies Walking, Selling America Short, Fooling some of the people) and decide whether doing that 100% of the time is what you'd like to do.
You also have to consider what the long-term impact on your career is and what the firm's reputation is and whether that could potentially hinder your future chances of switching an equity l/s fund.
Yes, definitely. Especially a super opportunistic fund. When I was 20/21ish, I worked with a Seeking Alpha author to expose a microcap that was blatantly lying to investors and made some decent money. It was really really fun.
i work mostly on shorts at a hedge fund. it's extremely hard and most people will probably be bad at it (e.g., you should start with assuming you will be horrible at it, not the opposite). it's something I've wanted to do my whole life. you need to be extremely good at telling when others are lying to you or when something is not right. i had an unpleasant childhood, which I think helps.
you need to not be thinking about this bullshit about your future exit opportunities. working at a short fund will make your exit opps smaller - full stop. it's a weird role and you will most likely lose money. you are a fucking idiot if you are doing this because you think it's the "better role." short funds, even if they are valuable because they provide a hedge, are simply not as lucrative. even if you work from Chanos, you are going to make less money than if you work at Viking, even if you are just as clever.
you should do it because you think you'll love it. i've actually made a lot of money this year through only short positions. it's amazing to have that feeling. being right when everyone else is wrong is just an amazing feeling that I don't get from many things. with shorting, you can't have someone tell you that working at a hedge fund is all about luck, it's a scam because markets are efficient, blablabla. shorting is always skill - it is never luck. you only make money from shorting unless something is 5-10x overvalued and, if its a large fund, this requires a $10bn company to be worth $1-2bn. it requires a lot of skill to do that and it's why i wanted to do it.
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