The emotional rollercoaster of trading for HF
When I was at uni, I used this forum a lot as a guide. So in a sense this post is a thank you to the community.
I finally decided to leave the HF industry, I'll do a job in data and pursuing a PhD in the near future. For context I've been working for a while in a multistrat, trading derivatives and light exotics. Some of this may or may not apply, this is just my experience.
The good
Honestly the moment you leave the sell-side to join a HF feels like you've unlocked a new side of life. You picture yourself as the new Ackman and wonder if you'll buy 1 Lambo and 1 Ferrari, or 1 Rolls Royce and a boat. And even when life is bad, you can always remind yourself that you move millions on your average wednesday. The prestige within finance, law and politics is great, and you meet a lot of interesting people.
The hours. Believe it or not, we do have very decent hours. You get weekends, and most nights I'm off. You get time with friends, family and girlfriend.
The job is actually intellectually challenging. You'll never be bored. You'll never feel stale. It is always exciting.
The meh
Pay is quite meh. It's highly variable and unlike investment banking, you could get fired any quarter for random bs. You are not in control of your career, and this industry is genuinely more luck than skill. You'll get random promotions, teams will get randomly fired, funds will collapse and a lot of times it won't be your fault. This makes your average compensation to be very unstable. Most traders know this so they live off their base salary, which tends to be lower than IB. Sure you may get an amazing bonus next year, but you could also get fired.
Culture is fun until you lose money. Then it's a matter of survival. At EVERY FUND I KNOW, people will backstab you, lie, cheat and generally don't help each other to try to get a better position. It's also why average tenure at a lot of funds is two years. You will hear screaming, insults, and keyboards being slammed. Anyone who tells you otherwise has never worked in trading. Everyone is just under a lot of preaching all the time, so it's generally not a nice environment, even if your colleagues are great. This specially applies for multi-strats.
Values. We all know finance is dark, but at a HF you genuinely don't contribute anything to society. You are not funding cool companies or reviving dying business. You are exploiting market inefficiencies to make rich people richer. Sometimes a bit meh.
The bad
Having this much stress takes a toll on your body. Expect weight changes, horrible sleep, cold sweats, tiredness, headaches. The hours are great but you never disconnect from work. You always know your pnl and this number now dictates your emotions. People cry in bathrooms a lot. Even if they don't tell you. You become a lot meaner and more selfish. You are always in fight or flight.
Lack of mobility. It's very hard to move funds. And it's very easy to pigeonhole yourself into a strategy you aren't happy. Finding a fund in a strategy you like, with the salary you like and a culture you like is more unrealistic than you winning the lottery. Work at banks is mostly the same so it's easy to move, this is NOT the case in the buy side.
Firing rounds are very very common. Average tenure is 2 years. And you are always one bad position away from getting fired. You don't sleep thinking about this. So you never feel comfortable spending money.
I have a very technical background so I can still go back to data analytics and I wanna give academia a shot. But skills from a HF are really not easy to translate into other industries. That's all folks, it's not a bad industry, just don't romanticise it either.
And finally, it's just a job bro. And your job shouldn't be your life. It took me ages to realise this.
Wow, thanks for this
Commenting for visibility
I feel this. I went into HF out of PE with the same mentality. Now I'm in my early-30s and trying to figure out if this is all worth it. The idea of a massive payout is so enticing, and I like the prestige of this all - but most funds, as you've said, are an insanely cut-throat / stressful atmosphere. Thinking of trying to pivot out - back to privates, allocator seats, tech, etc. before it's too late.
Would love to hear your experiences. It's one of those things that nobody ever says, except when getting fired. Refreshing to hear people being honest.
I'm having the same considerations. Hit me up - let's have a chat about it. Always helpful to exchange perspectives.
Can echo this sentiment...it sounds easy on paper to say you like the volatility if it gives you exposure to right tail but I'm having some existential doubts right now myself. Had a monster stretch coming out of COVID but the last few years have been a relative struggle. The further you move from these exceptional years, the more the desire for a stable paycheck comes creeping back...
Yup, covid was a great time for HFs, and pre-covid you could throw a dart at names and make money. So many teams grew too big during the last 10 years and now we are seeing the consequences...
"You always know your pnl and this number now dictates your emotions" - this is as real as it gets... If that number is good, you feel good. If it's not, you don't. Make sure you have other things to lean on in your life to make you happy besides a number that changes all the time.
Thanks for your insight. So what's the next step for you? What do you envision doing after your PhD?
Wondering this too. Also curious as to the (broad) field of research for the duration of the doctorate.
Imma take a year or two off working in data analytics, wish me luck with applications! The PhD is really a passion project. I love finance and I want to learn a lot more about it.
What are you gonna get a PhD in? Finance perhaps? It'd be an extremely interesting transition if you were to become a researcher in finance
Just makes me wonder all the more about one of my old PMs (fundamental equity at pod). Been killing it for 20 years. No frickin idea how, his process didn't seem that differentiated from everyone else. If you ask ppl today (even others that worked directly for him) none of us can put our finger on why he is so good. But he must be doing something different and right.
I mean, maybe he just understands the businesses he invests in better than others. Probably has good contacts who keep tabs on customers/suppliers/etc as well as some specialists who understand the technical aspects. In fundamental analysis, good interpretation of the 10-Q/10-K will only go so far.
That or he has a friend feeding him the 10-Qs a day or two early 😉
Back in my prop trading days, I worked with a rates trader that made huge PnLs year after year... I sat directly by his side every day and couldn't explain how he did it. Made money trading for and against the house's macro view, excellent risk control but I couldn't narrow down the fundamentals of why he was so consistent. He ended up leaving and opened a $5bn hedge fund with a few of our colleagues. Super easygoing guy also, kudos for him
If you don't mind sharing - approx. what was your income like at Hedge Funds? And how did this change year-to-year?
Also, what are the exit opportunities from Hedge Funds?
This job is a lot more fun when you don’t have a family or kids to support
I had a college professor that used to work at a hedge fund and he said this: you know the feeling you have the night before a really big exam, those knots in your stomach? Thats how he felt every morning before going to work.
Crazy to think about
Love that ! That’s what makes fun !
Honestly with no career control this kinda kills the whole job. No point working hard if you can get fired next quarter for no reason
Yeah no one tells you how awful a lot of the people you work with are…
the job is generally interesting but you’re usually working with the most selfish and impatient people on the planet
This the biggest one in my opinion. Add people who have gotten to a high position by being right place/right time and think they’re omniscient.
I feel like I can deal with all the other bad elements if people could just not be asses.
I did a very similar job at an asset manager previously and everyone was pretty chill and was a great culture.
But unfortunately theres no way around how the incentives and punishments being so extreme will warp people and self-select for asses.
Yeah completely agreed. A lot of PMs in this industry need to be humbled, would make them a lot easier to work with.
I might have to throw up a thread of my experience in a macro pod sometime…
Reading all this and yet it still sounds better than the endless grind and bureaucracy of PE and investment committees...
:(
"Values. We all know finance is dark, but at a HF you genuinely don't contribute anything to society. You are not funding cool companies or reviving dying business. You are exploiting market inefficiencies to make rich people richer. Sometimes a bit meh."
Very interesting post. I found the quoted portion above particularly interesting. I've heard someone else mention that this field doesn't enable you to contribute anything to society. I'm curious -- what job in finance (on the same scale as hedge funds) allows you to fund cool companies and revive dying businesses?
I think OP is referring to VCs when he says funding cool companies, and PE+IB when he says save dying companies.
Bro rly said IB is a more meaningful career what am I not getting lol
Pardon my take but a genuine question here -
In markets like Canada / the Nordics / Australia the pension fund market is huge as these are requisites for all working citizens.
If capital from these pension funds (and I guess endowments in the USA too) are being allocated to HF, then couldn't you argue that you are indeed adding value to everyday life by increasing the wealth of citizens who plan to one day retire (or in the case of the aforementioned endowments, education)?
I was briefly a pm at a multistrat. The original post should be required reading for anyone interested in trading and working at a hedge fund. Some of the posts below it are spot on as well.
One thing I saw on the desk when trading and which has only been reinforced in my current role as an allocator (where I get to see everyone’s track record) is how much mediocrity there is, and that in the end, so much of this game is luck (right place right time right politics etc).
Some pms are just able to do well regardless and kudos for them but most “stars” are only good in a certain market regime or set up. For every “star” there are many just as smart or talented who didn’t get that seat, didn’t play the politics well, etc etc. but this is life in general.
In the end, as another poster said, it’s just a job.
Definitely should be required. This post honestly persuaded me not to pursue hedge funds. Don’t think I have enough passion for the volatility of the markets as much as I do for investing in companies of the future that have an impact on the world. Still in college but definitely going to explore other avenues in finance. Thanks OP
How do you like being an allocator? Do you think you'll do it for long? Certainly can see why you have more control over career/longevity. But if it's mostly luck that makes PMs successful or no, how do you as an allocator pick them?
I think my job is boring and frankly, often quite stupid. This may be what I do for the rest of my life unless I hit a jackpot or find something else engaging. I realize I get bored easily. Like I learn something, can do it ok and quickly and understand it and then get bored and want to learn/see/experience something else. Like I would hate to spend my life as a chemicals banker or analyst for example. Some allocators get to be generalists which somewhat mitigates this and I do get to travel a fair bit which is awesome. That said quickly you realize most things are kind of the same and some form of beta.
That said the people are nice, hours good (WLB), I get to travel, and everyone is nice to me because I have the money to pay them fees and carry.(I’m well aware that I’m not smart, funny or good looking). I make by all accounts, good money (though far less than many in direct PE or hfs).
I’m at an age where money/lower vol matters more (the whole wanting a family and security/retirement thing). I’ve had a few jobs across finance that paid below market and some not great luck and some not great politicking that I realize the need to leverage my experience and knowledge to make money and get ahead professionally and now is that time.
How do we pick funds? Not so different from direct investing. We talk to brokers/sell side (IR/placement agents), gossip (talking to peer investors/funds/LPs), look at comps (similar funds), interview managers (company meetings), look at data rooms, ask dumb questions (like when fund managers ask companies questions), do referencing (channel checks), look at past track record and lick a finger and stick it in the air (financial analysis and underwriting/scenarios), background checks, writing overly long memos to present to committee (IC papers/decks making sure committee likes the fund).
Sure there is much less excel involved but increasingly it’s very clear to me(as a former pm and current allocator who is very social) that tons of funds don’t do anything special or unique with excel or have different takes or predictions based on the trades I’m pitched and the results that I see at the trade and fund level. And that’s ok.
This all may sound cynical and it is but so many of us across this industry across verticals all went to the same schools, read the same books, got trained the same way and so think the same. Most of us are trying not to lose our jobs while making good money and not taking much risk (ie entrepreneurship etc) and that’s totally rational. Whereas my job is just short a deep otm put, others have less space but hopefully some upside call option element to their earnings. That’s how I think about things and it explains 95% of decisions made/portfolios at both the LP and fund level.
I could go on and on but I’ll stop here. I hope this begins to answer your very thoughtful questions.
Very good post, especially the difficulty of changing jobs. In quant this is extremely difficult to do because of siloed codebases, 2+ year non competes and the strategies being so niche and specialized. Most people just stay in one firm for many years until they are fired, and then leave the industry since nobody will hire an age 35+ analyst. It works out only if you happen to start off in a strong team in a strong firm, but those teams hardly ever hire at all and want fresh grads 99% of the time when they do hire.
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