What is the good and the bad of working for a large fund of funds? I’m open to all opinions, and first hand experience
Good: relatively low hours. Good work/life balance. Exposure to a lot of good and bad PMs, analysts and strategies, and learning how to differentiate. Obviously a lot depends on the role/culture. If you are allowed to spend time bringing in and researching your own ideas it can be very interesting. Bad: if you want to run money first hand, it can be frustrating to watch others do it. Constantly being referred to as a “consultant”.
eureka nails it. you’re pretty much second class to the actual PM’s. Also, the “research” often consists of tracking down past newsletters, conducting reference checks, etc. Not much analysis. That said, the hours are decent and it’s a steadier job. Good FoF’s mint money.
“Also, the “research” often consists of tracking down past newsletters, conducting reference checks, etc. Not much analysis.” I’m not sure what hedge fund of funds you’ve talk to, but this completely contradicts what I’ve heard/seen in person from some of the top tier fund of funds (grosvenor, mesirow, blackstone, etc)
I would agree with NOVADCA. Most of the time is spent learning names and discussing different points of view on a stock, reading sell side research, conducting risk and portfolio analysis with standard software packages (FactSet, Northfield, Barra, etc.). I have never heard of tracking down newsletters or reference checks. More likely you will be receiving holdings from managers and analyzing them. Basically the relationship with a good manager comes from being able to ask insightful, interesting questions and sharing knowledge on what is going on in the market place. Where are you seeing new fund flows? How is this managers product line up differentiated, and is that what the market is paying for right now? Is this manager showing exposure to the same factors (alpha source) as many other managers? BTW, being “second class to actual PMs” is true of almost any position you can name on the buy side. Many, if not most, of the people working in AM have aspirations of being a PM. That said, you will have acccess to many PMs who will be willing to talk to you (especially if you work at a decent FoF that they have heard of). Also, there is a distinction within this area. Some are “consultants” which basically means they recomend funds to institutional clients but do not invest the money. Some are FoF: pick the investments and invest the money in a FoF structure and have little or no interaction with clients except when they agree to pitch in on a sales presentation. There is a buy v. sell side distinction here: some people would prefer to be the ones distributing the money (most managers are going to give you access if you could potentially greatly increase their AUM), and some people would prefer to be the ones bringing money in (have a sales mentality and enjoy the marketing process/client interaction). Also, not all FoF are hedge FoF, but if you work at a good shop (as I said above) you will be able to follow your own research and recommend investment ideas.
>>I’m not sure what hedge fund of funds you’ve talk to, but this completely contradicts what I’ve >>heard/seen in person from some of the top tier fund of funds (grosvenor, mesirow, blackstone, >>etc) all I’m trying to say is that the ‘research’ at a fund of hedge funds is research on managers, not on companies. instead of trying to value a company, you’re trying to understand a manager. to me, it’s a huge distinction.
Not going to disclose where I work (not sure who reads this). I work at one of the largest FoF shops on the investment side. Research is a joke and many times where to invest resorts to whether your kids happen to attend the same private school together. OK maybe slight exageration. But the research conducted is not comprehensive and often times involves collecting mty/qty letters and risk reports. Most first tier HF’s are not comfortable providing adequate transparency in order to evaluate their portfolio’s. It’s more a function of being confident in the PM’s process/philosophy and buying into a excellent track record. Once you write the check - that’s where it stops. I tend to agree with that mentality though. HF managers do not need to be bugged 24/7 over non-sensical inquiries such as “how much did your net exposure change since last month.” You either express conviction in a manager OR NOT. The time to have dfoubt’s is during the DD process. You are wasting their time and taking their focus of of their # 1 job - which is managing money. That’s why they hire IR folks. Also, FoF’s are “hot” money in the sense that they advertise a committment to the LT view but everytime an underlying manager experiences a slight drawdown it’s like a chinese fire drill. Hindsight 20/20 is a useless but one of the most often used tools.
“ll I’m trying to say is that the ‘research’ at a fund of hedge funds is research on managers, not on companies.” From what I’ve seen, the top shops do perform their own research, not necessary at a micro (security) level position, but definitely from a top down level. There are a few funds I know that had managers execute top down bets they saw (i.e. short subprime/MBS/ABS securities). "Most first tier HF’s are not comfortable providing adequate transparency in order to evaluate their portfolio’s. " They won’t provide them to the average fund of funds, but the top tier funds definitely gain access. Maybe not on a position basis, but definitely on an exposure basis. At the consultant level, I can see the some of the underlying managers net long/short positions, number of positions, sector exposures (both long and short), top 5-10 long positions, by either name, but usually by sector, top short positions by sector, total amount of leverage, etc. “HF managers do not need to be bugged 24/7 over non-sensical inquiries such as “how much did your net exposure change since last month.” You either express conviction in a manager OR NOT” This describes the difference in a fund of funds manager who was exposed to Amaranth and one who made a redemption before hand. Some of the top fund of funds were able to get out before it blew up, while others did not see that they made a significant deviation in how they traditionally managed their portfolio and in turned leveraged themselves in a part of the market which wasn’t their traditional core strength.
NOVADCA Wrote: -> “HF managers do not need to be bugged 24/7 over > non-sensical inquiries such as “how much did your > net exposure change since last month.” You either > express conviction in a manager OR NOT” > > This describes the difference in a fund of funds > manager who was exposed to Amaranth and one who > made a redemption before hand. Some of the top > fund of funds were able to get out before it blew > up, while others did not see that they made a > significant deviation in how they traditionally > managed their portfolio and in turned leveraged > themselves in a part of the market which wasn’t > their traditional core strength. Good point, the same thing about HF blowups could also be said about LTCM, as they began to turn away from traditional strong areas like developed nation bond arb, and into more exotic, speculative stuff like merger arb etc. When HF’s move away from their core competencies, they usually fail in the long run, same as any other corporation
To those with experience - does much of your research focus on seeding HF managers? how difficult is it to be a “value-added” to a FoF without many first hand HF relationships? what exit opportunities have you considered? Thanks for the insight.
CFA_Halifax Wrote: ------------------------------------------------------- > Good point, the same thing about HF blowups could > also be said about LTCM, as they began to turn > away from traditional strong areas like developed > nation bond arb, and into more exotic, speculative > stuff like merger arb etc. When HF’s move away > from their core competencies, they usually fail in > the long run, same as any other corporation Nonsense, I can talk about several funds which started out as single strat and now have successful mutlistrat operations. Also I would hardly call merger arb “exotic” and “speculative”. Now 100X levered NG spreads, that’s another story.
what are the investors paying you for if you aren’t finding out net exposures on a regular basis?
_Q_: 1) It really depends on the size of the FoF and the target risk of the end project. 2) At the junior level you will not need too many contacts, but you will be expected to make them.
Thanks, eureka and others. Any more thoughts on day to day analyst reponsibilities? how jmuch travel? comp strucuture?
I second _Q_'s question about common exit opportunities…
Really depends on what level you are at and at what quality FoF, perhaps obviously. I have seen people go to PE, marketing roles in traditional AM, strategist jobs at AM, heads of research at tradition AM, consulting to traditional asset manager. I think sometimes people get too caught up in what the “exit ops” are. Is certain lines of work, such as IB or sell side research, where there is a high burn out rate exit ops are more relevant. If you do a good job and try to learn, then your exit ops will be just fine, IMO.
HoldSideAnalyst Wrote: ------------------------------------------------------- > CFA_Halifax Wrote: > -------------------------------------------------- > ----- > > > Good point, the same thing about HF blowups > could > > also be said about LTCM, as they began to turn > > away from traditional strong areas like > developed > > nation bond arb, and into more exotic, > speculative > > stuff like merger arb etc. When HF’s move away > > from their core competencies, they usually fail > in > > the long run, same as any other corporation > > Nonsense, I can talk about several funds which > started out as single strat and now have > successful mutlistrat operations. Also I would > hardly call merger arb “exotic” and “speculative”. > Now 100X levered NG spreads, that’s another > story. No but it was for a bunch of bond arb math geeks.
Does anyone know of analysts at Fund of Funds making the transition to a single strategy hedge fund? perhaps one of the FoF’s managers? Anyone speak about pre-MBA positions at FoF in terms of exposure to hedge fund managers as well as how it is looked upon by mba admissions? Thanks again.
I recently received an interview for a PE/VC Fund of Funds around the Silicon Valley area. I’m a pre-MBA. Could that be a stepping stone to an associate role at a PE/VC firm, or am I way off there?
I know two people who worked at PE fund of funds and the short answer from my very limited sample would be “no.” One of the FoF does some co-investing but aside from taking a wall street prep, the one guy does not have a financial modeling background and the partners have not let him venture to that side. He’s looking to get out. I assume it depends on the fund. If its a pre-MBA position anyway, I would be upfront and ask where previous analysts landed and where you could expect to be. From the consulting background you posted, however, I would think a PE FoF would be a step back, IMHO.