A Career in Hedge Funds

If you've worked within hedge funds and know all about them, why are you making threads like this: http://www.thestudentroom.co.uk/showthread.php?t=2220320 ?

Not all the hedge fund sector is quantitative. Most if not all L/S, event-driven or merger-arb equity funds don't use especially quantitative techniques. Certainly not the sort you'd need a PhD for. There's no reason to think that all macro funds are quantitative either.

Right. And the traders at those funds tend to have track records (i.e. my option 2 in my first post). With a very small number of exceptions, you don't just walk into a job managing your own book at a hedge fund with no experience. You either come in from somewhere else, or you get hired into a quant fund as a PhD.

Because I have a friend who I'd like to recommend a book to, but I don't know of any books that cover all the material at the right level.



Right. And the traders at those funds tend to have track records (i.e. my option 2 in my first post). With a very small number of exceptions, you don't just walk into a job managing your own book at a hedge fund with no experience. You either come in from somewhere else, or you get hired into a quant fund as a PhD.

As far as equity funds go, "traders" are usually just there to execute/structure trades and not to give investment theses.

Even those managing their own book don't usually have PhDs, they are IBD/ER/AM guys who worked their way up. It's simply not generally a quantitative field.

Which is why I specified, in my first post in the thread, "someone who manages their own book, rather than someone who executes other peoples trades", i.e. the interesting part of being a trader.

You seem to be saying that people sometimes have PhDs (which is almost always the case in quant funds, but includes plenty of guys at non-quant funds, eg Cliff Asness of AQR, or Antti Ilmanen of Brevan Howard) or they have a track record (you mentioned IBD/ER/AM - I'd also include prop traders at banks and traders at energy firms). Which is exactly what I said in my very first post.

As I head into my sixth year in the business, I'm not persuaded that significantly more alpha is coming from this.

why?

The fat alpha got whittled away within two years. Partly because of competition within the space, partly because of reactions from the counterparties the alpha came from.

Entry into the space is more expensive than ever - and if you fail to get the fat straight away - you're back on the design stage of your 'edge' for another six months or so.

If you do manage to get a slice of the action, in about six months, the next development cycle in hardware and quant strategies may mean you're on the cold outside again.

This has been the case for a few years. Headhunters aren't loaded with demand for quant kids like they used to be - and many of those who did join in the rush a few years back and have since left to pursue a lot of tech orientated ventures.

Interesting....isn't your fund quant based?

So you think the majority of alpha is generated by traders with good ideas/ timing, as opposed to correlations and meta data exploited by quant strats?

No.



Where alpha comes from, in the general sense of understanding financial markets, is something you should dedicate some quality time to.

The 'first' big alpha from superior infrastructure was when people got news that Napoleon had been defeated and were snapping up UK bonds for about 40% of par. These days, it's a bit less 'glam' than having a better boat that could sail in rougher seas.

As I head into my sixth year in the business, I'm not persuaded that significantly more alpha is coming from this.

Is there much benefit in hedge funds pay $xx(x) million for colocation and pricing edges, whether it be HFT based or pricing data crossing the Atlantic on those super high speed cables from the US to Europe which hedge funds are paying a fortune to use.

Close to all. It's very meta.



You don't want to be so slow it hurts. So fast it pays is a tricky game.