Describe your career path.
I graduated from the Wharton School of Business in 1981. From 1981 to 1987 I worked in Goldman Sachs' equity department. I left in 1987 to found Metropolitan Capital, a hedge fund specializing in risk arbitrage. I returned to Goldman in 1990 to manage domestic derivative sales, trading, and research. In 1992 I joined Wasserstein Perella to help create a equity trading operation. In 1993 I joined Bankers Trust, where I was hired to run the firm's equity derivatives trading platform and later my responsibilities were expanded to include the firm's proprietary equity products and ultimately the acquisition of Alex Brown. I left after the firm was acquired by Deutsche Bank in 1999 to start Broadlawn Capital, which I have been running for the past ten years.
What is a typical day like for you?
Our fund has four strategies -long/short, black box, derivatives, and risk arbitrage. I can be involved in any of these strategies at any given time, depending upon which strategies offers the best risk-reward option at that juncture. Any of them can be a large or small component of what I am doing, depending on the environment that exists at that point in time. On a given day, I'm involved in pre-market activities - determining what positions and strategies may be attractive. Usually the day is dictated by what the market gives you. At the end of the day, I'll take a post-mortem look at what went right or wrong. I look to leave a balanced risk book in terms of how various stock and commodity investments are moving.
What advice do you have for an up-and-coming hedge fund manager?
The hedge fund business has become much more specialized since I entered it; whether it be administration or knowledge of computer systems, future hedge funders should have an expertise or depth of knowledge of a specific facet of the business that interests them. He or she should understand the workflow of fund management; if they are interested in research, they should be familiar with a broad base of industries, and have complete knowledge of a specific industry group. If they are pursuing trading, they should have an understanding of all of the traded products that exist. The abundance of sophisticated information available online, allows someone to elevate their level of knowledge somewhat easily. It's difficult for someone to prove their talent directly out of school. In order to bridge that gap, becoming expert in all of the nuances of the business will give a prospective employee a significant jump on the competition. And of course, a timeless quality of any manager is fervor and enthusiasm; anyone who wants to find success in the business must be absolutely passionate about finance.
What are the most important skills for a career in hedge funds?
In research, it's thoroughness, the ability to know accounting, balance sheets-the details of a company's business. Most people have a cursory knowledge of these skills but are unwilling to delve into the minutiae of companies' actions; for entry-level individuals in research, I see this as a hindrance to their ability to do their job. On the trading side, most people don't have the risk discipline that affords them an opportunity to become a successful trader. This characteristic is innate for some; and others can acquire it through training, playing online games of chance, casino gambling, etc,, but without it (especially in markets with heavy volatility) one can't be a successful trader.
What should people wanting to work a hedge fund be doing to prepare, i.e. groups to join, networking, reading?
Most successful traders seem to be active in online or face to face poker tournaments, because they involve the principles of risk discipline. Risk management skills are important for all successful stock and commodity trading. This online phenomenon didn't exist when I started out in the business, but I and my peers were actively involved in playing poker, bridge, and gin. The concentration involved in playing these games provides an advantage when you get into investment management. To impress a job interviewer you need to demonstrate your skill set so that you can get your foot in the door and prove that you have the capacity to be elevated into positions with more responsibility.
People should be looking at roles based on their skill set. Funds that are not tied to a long-only model and that are able to stay as liquid and flexible as possible in the ongoing evolution of the market environment will offer the best opportunities. People coming out of school should be experienced in technology, software programming and as knowledgeable about accounting and various investment products as they can. Reading various books on trading and investment management are also essential. "The Logical Trader" by Mark Fisher, "The Quants" by Scott Patterson, "Options as a Strategic Investment" by Lawrence McMillan, "The Little Book that Beats the Markets" by Joel Greenblatt, and "The New Market Wizards" by Jack Schwager, are five of my must reads to better understand where we have been and where we are going in the professional money management business.