Hi Guys, Does anybody know how exactly a research analyst works for a portfolio manager in hedge funds? Does it mean an RA provides heavy research work to a portfolio manager, and the final investment decision is really up to the porfolio manager? But then if the decision turns out to be bad, does it mean the RA get punished in year-end bonus or , the worse case, get kicked out from the team?
yes. yes. yes. possibly castration.
Those actually are just my guesses. It seems like somebody has to take the blame if the investment decision goes wrong and the easist way to do is to blame the RA.
The PM ultimately calls the shots. The PM’s job is ultimately to 1) select good investments for the portfolio, and 2) manage risk so that no one investment has the ability to sink the portfolio. Sometimes there is a risk management task for systemic risks too. If the PM is doing their job, one bad call by the research analyst shouldn’t cause a big problem, and if it does, then the loss is just as much the PM’s fault for taking the RA at face value as the RA did by making the recommendation. If one RA is consistently making bad calls, and it has gone on long enough that it doesn’t seem to be just a bout of bad luck, then that’s a warning sign that one might be on the chopping block. This is particularly the case if you can compare the analyst’s results with recommendations from other sources, like the PM or a competing analyst. If there is only one analyst working for a PM, and the PM is not doing their own analysis, and investments aren’t performing, then the two need to get together and figure out what’s not working. Is the analyst making bad calls? Is the macro environment unsuitable to the investment style? Are competing funds in the same style also underperforming. Ultimately, the causes may boil down to 1) a bad analyst (which may still be correctible without axeing), 2) a bad fit between the process and the environment, 3) bad luck, or 4) bad communication between the RA and the PM (the PM misreads your levels of conviction or risk analysis).
Thanks a lot for your response. It really helps a lot. What are the differences between working as an RA in investment banking’s research team or working as an RA for a portfolio manager in hedge funds?
NICE POST BCHAD!
anniesiqizhang Wrote: ------------------------------------------------------- > Thanks a lot for your response. It really helps a > lot. What are the differences between working as > an RA in investment banking’s research team or > working as an RA for a portfolio manager in hedge > funds? Sell side vs buy side…totally different tasks
anniesiqizhang Wrote: ------------------------------------------------------- > Hi Guys, > > Does anybody know how exactly a research analyst > works for a portfolio manager in hedge funds? > Does it mean an RA provides heavy research work to > a portfolio manager, and the final investment > decision is really up to the porfolio manager? But > then if the decision turns out to be bad, does it > mean the RA get punished in year-end bonus or , > the worse case, get kicked out from the team? Annie, if you’re of the mindset that you should never make mistakes, front-office finance is not for you. This is not an industry, like say engineering, where mistakes are catastrophic. In finance, it’s important to be right more often than wrong. It’s simply impossible to be right all the time.
Chances are, you’ll do alot of the grunt work (financial entry, modelling, administrative, helping with presentations, tables, industry data gathering, etc). Then slowly, once you gain the confidence of the PM, and are able to ‘show your stuff’ will you likely be in a more responsible position, with enhanced autonomy (PM will take your word at more face value etc.)
justin88 Wrote: ------------------------------------------------------- > anniesiqizhang Wrote: > -------------------------------------------------- > ----- > > Hi Guys, > > > > Does anybody know how exactly a research > analyst > > works for a portfolio manager in hedge funds? > > Does it mean an RA provides heavy research work > to > > a portfolio manager, and the final investment > > decision is really up to the porfolio manager? > But > > then if the decision turns out to be bad, does > it > > mean the RA get punished in year-end bonus or , > > the worse case, get kicked out from the team? > > Annie, if you’re of the mindset that you should > never make mistakes, front-office finance is not > for you. > > This is not an industry, like say engineering, > where mistakes are catastrophic. In finance, it’s > important to be right more often than wrong. It’s > simply impossible to be right all the time. I would even add that in some positions you could be wrong the majority of the time and still be valuable to the company. Traders for instance could be wrong 85% of the time, but as long as the 15% winners are 20 times larger than the losses, you are fine.