How can you tell if a hedge fund opportunity is "good"?

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asdffdsa

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Saks Wrote:
-------------------------------------------------------
> asdffdsa Wrote:
> > i would disagree with the notion above that
> there
> > are no generalists. people making sound
> investment
> > decisions in a portfolio context have to be
> > generalists.
> >
>
>
> Just wanted to clarify quickly (will certainly
> give my thoughts to numi later this
> afternoon)...while I certainly agree that PM is
> probably the most broad in terms of compentencies
> required, I mean that after 10 years experience,
> its not like a long short credit PM is going to go
> trade equity stocks at a BB. Maybe he technically
> can, but at that point there are other paths more
> rewarding, better fit, etc to him. Just like after
> 5 years in IBD a guy is highly unlikely to end up
> selling CDOs in debt capital markets, unless he
> covering that to begin with...
> Not trying to force you to agree, just wanted to
> be clear.
> Also agreed with much of your post asdffdsa.

agree completely here. it's pretty rare to find someone who can successfully invest in a broad array of asset classes. i guess that's i'm drawn to the idea of working at a macro fund that places bets on not only equities and bonds, but forex, commodities, etc. it doesn't get much more general than that! as you noted saks, you can't just switch around will-nilly or you're most likely going to get killed in those markets and probably have reduced career prospects. there is a lot of interaction between different asset classes, though, and i'm most impressed by people who can "see" the interaction of between the asset classes both before and as they are happening and make winning bets on those movements.

to get back to numi's point, that's why learning to invest is so interesting to me. i don't enjoy being the lowest level employee on my team, getting the crappiest assignments and constantly feeling as though i am just not quite where i want to be in terms of understanding (or even close), but i can see the potential with this if i can tough it out and get through the first 5-10 years of learning and really make some headway into the field. that's enough to keep me going, maybe it's different for you.

what i am sure of though is that at some point you just have to choose. i don't mean that you should settle for being unhappy (no one should if they're truly unhappy), but that you have to realize that you're working with an imperfect set of information about what potential careers exist, what you would like best and what you would be good at. you don't can't know all of the possibilities and besides, it's a moving target as you continue to develop as a person and experience the world. not to get too philosophical, but at some point you just have to pick something based on the best information you have and stick with it. a lot of times, passion for a subject develops through hardwork over a sustained period of time, which is contrary to the popular notion that you should have passion for something right out of the gate or it's not your true calling.

edit: i know you're young and a move definitely won't kill you, but it's worth thinking about.



Edited 1 time(s). Last edit at Monday, June 25, 2007 at 03:38PM by asdffdsa.
 
asdffdsa Wrote:
-------------------------------------------------------

> i can see the potential with this if i can
> tough it out and get through the first 5-10 years
> of learning and really make some headway into the
> field. that's enough to keep me going, maybe it's
> different for you.
>
> what i am sure of though is that at some point you
> just have to choose. i don't mean that you should
> settle for being unhappy (no one should if they're
> truly unhappy), but that you have to realize that
> you're working with an imperfect set of
> information about what potential careers exist,
> what you would like best and what you would be
> good at. you don't can't know all of the
> possibilities and besides, it's a moving target as
> you continue to develop as a person and experience
> the world. not to get too philosophical, but at
> some point you just have to pick something based
> on the best information you have and stick with
> it. a lot of times, passion for a subject develops
> through hardwork over a sustained period of time,
> which is contrary to the popular notion that you
> should have passion for something right out of the
> gate or it's not your true calling.
>
> edit: i know you're young and a move definitely
> won't kill you, but it's worth thinking about.


Excellent insight here, and I agree with you. In fact, I think that�s exactly the issue I�m dealing with here � my insecurity about which path to go is all due to my lack of complete information. But the reality is, the best information is seldom complete and you just have to go with your best guess based on what you know of a given situation. A particular astute observation that you�ve made is that people�s interests change over time, like a �moving target� as you say. But at the same time, while it does sometimes take time and dedication in order for a passion for a subject to emerge, sometimes you dedicate yourself to something for a few years and it just doesn�t happen the way you wanted it to be � and maybe you just have to move on.

And on that note, what if I told you that my interest in the stock markets was different several years ago than it is now? Would you perceive the potential transition from equity research into PE to be less of a reach? Anyway, just wondering if you can see things from my point of view, or if you still suggest that I do more �thinking� about my career path. I feel that we are looking through different lenses which may be leading to the difference of opinion -- i.e. you really enjoy your current job, whereas this may be different for me; though ultimately it seems that both of us have the same philosophy and line of thinking. Let me know what you think and thanks again for the insights�(I enjoy these types of �philosophical� discussions so no need to apologize)
 
Besides a Macro HF or one focused on VERY conventional strategies, I can't comprehend what
"skill-set" a sell-side ER analyst brings to the (quant) HF table ? HF PMs routinely receive dozens of sell-side ER reports that they fast track to the recycle bin. Perhaps if someone could enlighten me ? Thanks
 
charlesg Wrote:
-------------------------------------------------------
> Besides a Macro HF or one focused on VERY
> conventional strategies, I can't comprehend what
> "skill-set" a sell-side ER analyst brings to the
> (quant) HF table ? HF PMs routinely receive dozens
> of sell-side ER reports that they fast track to
> the recycle bin. Perhaps if someone could
> enlighten me ? Thanks


probably not too much, but i'm not aiming for quant funds (lack of interest and relevant skills)
 
Fair enough. BTW, this is meant to be a general question, not trying to target numi or anyone else.

So, what can any IB analyst (M&A/Corp Finance/research, NOT S&T ) bring to the table ? M&A may contribute to Merger Arbitrage, but really, what will the marginal benefit be of hiring someone like that for running one strategy ? From a hiring Manager's POV, I just don't see what skill-set these folks have, other than general mkt info. And relative to an Engineer/Physics/Sciences grad who has some experience in the industry, these people are almost worthless.
 
charlesg Wrote:
-------------------------------------------------------
> Fair enough. BTW, this is meant to be a general
> question, not trying to target numi or anyone
> else.
>
> So, what can any IB analyst (M&A/Corp
> Finance/research, NOT S&T ) bring to the table ?
> M&A may contribute to Merger Arbitrage, but
> really, what will the marginal benefit be of
> hiring someone like that for running one strategy
> ? From a hiring Manager's POV, I just don't see
> what skill-set these folks have, other than
> general mkt info. And relative to an
> Engineer/Physics/Sciences grad who has some
> experience in the industry, these people are
> almost worthless.


there are many different types of hedge funds out there, and i think "worthless" is a strong (and inappropriate) word. if you look at it the other way, equally "worthless" are those people who can just crunch numbers but have no idea how to evaluate the operations, strategy, earnings quality, senior management experience, etc. of a business - and in reality, quant hedge funds represent less than a fraction of 1% of the total available businesses out there

also should it really be surprising to anyone that quant HF analysts don't read fundamental research? tell us something that we didn't know...
 
numi Wrote:
--
>
> Well, perhaps I can clarify. First of all, in my
> view, the move from ER to PE can happen if one
> wills oneself to get it done. In general, I think
> that what hinders people from switching fields may
> be due to lack of appropriate
> credentials/qualifications for some, but for
> others, it's because of their perception, perhaps
> unfounded, that they are not "able" to make the
> switch.
RIGHT ON BRO

>t I might be more
> passionate about.

I once had an interview with a guy who asked "why do you want to be in this business" and I replied the standard, "I love the markets" and his response was "Why? I've been in this business 10 years and the markets bore the hell out of me".
Point is everyone (well, more people than let on) gets a little uninspired.

>
> Overall, I guess my outlook to picking the right
> job is to find something that inspires you -- and
> sometimes, you find inspirational in doing
> something different and not necessarily congruent
> with your current career path. Would you agree or
> disagree?

I agree in spirit but in practice I like asdffdsa's point -- switching around can potentially look unfocused.

And to asdffdsa's post about picking on imperfect information, I say WORD.

The thing is, it is easy to feel early in your career that you have picked a road that you can't get off, but reality is not as drastic as in your head. I might sound conflicted because I said there are no generalists, but what I mean is that, sure, at this point you probably won't be a lawyer or doctor or pilot. OF COURSE ANYTHING IS POSSIBLE (just heading the flames off at the pass). I have met many senior professionals who have had several different roles, from the financing side, trading, relationship side, but there was a common thread. They did build an expertise, have a relationship, something that linked all the roles.

It is the personal relationships and professional ones that can ease the transitions. One thing is for sure, if you are in ER now, you certainly will be doing something different 10 years from now. Don't underestimate the nature of the business to change, and your ability to change with it.

I think some other questions you need to answer for yourself are along the lines of "if I try something different - the hedge fund route - how much structure will I need in my career to add skills to my tool box?" Will the new organization provide that? etc.

I think the struggle you are having is natural and you are probably more competitve to actually go for what you really want to do than most, and for that you should be happy.



Edited 1 time(s). Last edit at Monday, June 25, 2007 at 09:51PM by Saks.
 
Okay, I will. Most Quant HFs do use fundamental research (in-house), just not sell-side fundamental "research". If they relied solely on black-box models, they would be wiped out (and some have).

Thanks for elaborating on the sell-side skill-set.

Incidentally, if "worthless" is inappropriate, then so is encompassing all scientists as "number crunchers" who "have no idea how to evaluate the operations, strategy, earnings
quality, senior management experience". Yes, I can see how people like myself, trained in the mathematical sciences can get cold feet just thinking about the overly complex task of evaluating earnings, strategy and senior mgmt experience. Why, I'm getting cold feet just thinking about it.

I'm like........ OH MY GOD !!! GET ME A SELL-SIDE RESEARCH ANALYST HERE !! How can I analyze senior mgmt experience !! THE SHEER C O M P L E X I T Y IS DRIVING ME INSANE!!!




numi Wrote:
-------------------------------------------------------

> there are many different types of hedge funds out
> there, and i think "worthless" is a strong (and
> inappropriate) word. if you look at it the other
> way, equally "worthless" are those people who can
> just crunch numbers but have no idea how to
> evaluate the operations, strategy, earnings
> quality, senior management experience, etc. of a
> business - and in reality, quant hedge funds
> represent less than a fraction of 1% of the total
> available businesses out there
>
> also should it really be surprising to anyone that
> quant HF analysts don't read fundamental research?
> tell us something that we didn't know...
 
[double post]



Edited 1 time(s). Last edit at Monday, June 25, 2007 at 11:07PM by charlesg.
 
charlesg Wrote:
-------------------------------------------------------

> Incidentally, if "worthless" is inappropriate,
> then so is encompassing all scientists as "number
> crunchers" who "have no idea how to evaluate the
> operations, strategy, earnings
> quality, senior management experience".

how unfortunate that your training in "mathematical sciences" hasn't helped you master the fine art of detecting sarcasm (you may be new to these boards, but note well that there are other "mathematical scientists" here on this forum that are in fact well-versed in this subject matter)
 
What is it with quants and this crazy inferiority complex? There was a post about it on dealbreaker awhile back and they always come out in droves whenever anyone questions their incredible market supremacy.
 
Saks, thanks so much for your insights and your words of encouragement. I'd be happy to keep in touch and let you know how things turn out. I can be reached at porcupines AT gmaiI dot COM - drop me a line if you have an interest in corresponding via email.
 
HoldSideAnalyst Wrote:
-------------------------------------------------------
> What is it with quants and this crazy inferiority
> complex? There was a post about it on dealbreaker
> awhile back and they always come out in droves
> whenever anyone questions their incredible market
> supremacy.


No idea, but it sure makes for a good laugh
 
Actually, if you have read the posts at all, it's far far from an inferiority complex. If anything, it may be a slight superiority complex. New to the board ? Do a search son, I passed Level 3 last year and am a CFA charterholder.

Didn't Prudential recently close down their "Equity Research" division ? Laughing is the last thing I would be doing if I were you.

Enough said. I have more important things to get to than these kids.



Edited 2 time(s). Last edit at Tuesday, June 26, 2007 at 12:17AM by charlesg.
 
Black-Litterman model (CFA L3 curriculum) gives a theoretical explanation. It combines long-term predictions (company's fundamentals) with short-term tendencies (market trends, momentum etc.). HFs tend to have short-term investments, so fundamentals are more or less useless for them (only used as a reference to evaluate risks of deviations from equilibrium). So, ER analysts can play only a very limited supporting role in HFs.

But ER analysts can be pretty useful for long-term investment entities (like pension funds for example).
 
i hate the term "hedge fund" since it's so broad that it loses most of its meaning. there are over 10,000 hedge funds, only a tiny amount of which are quant funds. if you're a quant, go buckwild--there are some pretty awesome opportunities to work at some great funds if you're good enough. why the hate? just do your own thing if you're that good. the fact is though that most hedge funds, like most investors in general, rely on fundamental research. and along those lines, not every hedge fund out there is making two week or two month bets on same store sales and small cap, highly volatile biotech stocks. there are a lot of long-term, value oriented hedge funds as well. generalizations are not helpful.
 
Numi, you can email me at [email protected] if you have some specific q's. I may or may not be able to help. This thread is too wordy for my tastes...and from a brief skim it looks like charles and simpleton are up to their old, boring tricks again
 
ROR! Superiority complex?

There are quite a few old sayings about overcompensating...


Also the fact that you automatically take "hedge fund" to mean "quant hedge fund" is quite entertaining.
 
"M&A may contribute to Merger Arbitrage, but really, what will the marginal benefit be of hiring someone like that for running one strategy ? From a hiring Manager's POV, I just don't see what skill-set these folks have, other than general mkt info. And relative to an Engineer/Physics/Sciences grad who has some experience in the industry, these people are almost worthless."

I honestly dont even know what this paragraph is saying. People with experience are still worthless?
 
Just wanted to drop in as an impartial third party and say charles is making himself look quite stupid. The comment about Prudential was particularly amusing, considering lots of those analysts are getting scooped up by hedge funds.
 
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