Hedge fund professionals are hurting: "There's no career. You're screwed as you get older"
The golden age of multistrategy hedge funds may be over as quickly as it came. Last year, Millennium was rumoured to be paying $60m to buy people out. This year, investors have withdrawn money from the multi-manager segment for the first time in seven years and underperforming funds like ExodusPoint are submitting to investors' insistence that they'll only pay performance fees if returns exceed those available on three month US Treasury bills.
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While yesterday's 50ps US rate cut will be welcome, portfolio managers and analysts tell us they're wilting under the pressure. "People are burning out," says one senior analyst who worked for a major fund in the US and has now left the industry for good. "You're working 14-hour days and it's not worth it. You can climb the mountain all year, but if you fall down again on the 21st December, you'll get paid nothing."
Although one portfolio manager last year told us he was working eight-hour days, the gruelling nature of hedge fund jobs isn't exactly a secret. Speaking off the record, one leading hedge fund manager recently informed students that if you've done the job for any period of time, you'll probably understand what hell is. Will England, the CEO and Co-CIO of Walleye Capital said last September that the job of portfolio manager is "is psychologically extremely toxic." Even Giuseppe Paleologo, the jovial quant researcher, says it's a hard road: money messes with your head, Paleologo told a podcast two weeks ago, people who lose $5m+ often develop physical tics and insomnia, it happened to him.
As the screws tighten, though, it seems to be getting worse. One former Millennium portfolio manager says the PMs that he speaks to are increasingly drained. There's been a deterioration, says another: "There's just too much competition between and within multi pod funds. It's harder to justify fees. And it doesn't help that talent levels have gone down - the focus is just on filling seats."
The big funds are partly victims of their own success. Dmitry Balyasny, the founder of Balyansy Asset Management, said this week that whereas funds in the past wanted PMs to run $300m each in AUM, they now need PMs who can each run $3bn. They also need to be able to generate returns above the risk-free rate and to do so with a Sharpe ratio of less than three. Managing billions with a Sharpe ratio of two is "infinitely harder" than managing $30m, said Paleologo. This is where it's at.
It explains why some people are returning to banking jobs. It's also why hedge fund managers who succeed are earning more than ever. "Of course, they’re going to get paid more if they do well,” said Balynasy this week.
The problem, say insiders, is that the proportion of people who can survive in multistrats now is small. "There are only 10-20% of people who can scale the capital," says the senior analyst. "Everyone else gets burned and leaves. There's no career, and you're screwed as you get older."
One hedge fund manager turned entrepreneur said the all-consuming "pod shop" jobs are akin to being a start-up founder. The golden age for hedge fund jobs was really decades ago, he suggests: "I can remember the early 2000s when were people were clipping 2 and 20 for being long beta. Now, you're having to compete with the low-cost ETFs."
Life is predictably easiest when you're at a fund that's generating strong returns, says one ex-Goldman Sachs MD. "You rarely find a burned out portfolio manager that's making good money," he says. He says life is hardest of all when you're at a struggling fund, are not generating returns, and are having your returns scrutinized by quant researchers armed with factor models that question whether your alpha is real.
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