Luke Ellis, CEO of Man Group, knew that he wanted to work in finance by the time he was seven. At aged three, he was playing cards. By five, he was betting on horses under the supervision of a “badly behaved” grandfather.
His motivation for going into the City, he says, was never to get rich, but because he knew he wanted to work with numbers and finance was the best place for this. Anyone thinking of signing up to a hedge fund today as a path to riches needs to get real, he said.
“There are 10,000 hedge funds and if you can list 20 billionaires, you’re doing well,” he told the London School of Economics Alternative Investments Conference.
“It’s a business where you have to work really hard. You cannot be the smartest guy in the room any more, or the smartest guy in the market because the availability of information today is so great,” he said.
Billionaire status might be elusive, but you can still do well in a hedge fund, particularly if it's large. Top performing hedge funds with over $4bn in assets under management – making a return of over 9.5% - paid their portfolio managers an average of $6.7m last year, according to headhunters Glocap, Even those making a loss earned $774k, the figures suggest.
But hedge funds are living off past glories – the whole idea that you can simply walk into a money management role and make millions is out of touch with reality, believes Ellis.
“In the early 80s, people went into the City because it was interesting. I would not encourage anyone to work in finance if they think it’s a way to get rich quickly,” he said. “A lot of people working in finance have been very lucky that their careers coincided with a 25-30 year bull market and they were able to make money.”
Ellis retired from finance in 2007 after 10 years working at J.P. Morgan as global head of equity derivatives because it wasn’t “fun anymore”, he said. Anyone who has earned enough money to support their life, but continue to work if they’re not enjoying it is an “idiot”, he added.
Since returning to finance to work at Man Group in 2009, Ellis said that one of the biggest challenges is competing for the right people. Man Group has a mix of quantitative and discretionary strategies, but the issue has been attracting quants and data scientists, he said.
“We’re not competing against Point72 or Credit Suisse, we’re competing against Google. Google wants to hoover up every data scientist out there, so we need to give them something interesting to do. We can’t compete with Google when it comes to money. Sergey could probably buy Man with his pocket money,” he said.
Man Group has been running a Python coding competition to unearth talent from non-traditional areas and it's been creating code that its programmers are putting on open source platforms - despite hedge funds' traditional protectionist attitude towards intellectual property, he said.
However, Ellis remains convinced that despite the overwhelming talk of quant strategies taking over the hedge fund industry, they will still be the minority.
“A sensible estimate is that quant strategies make up 10%. In ten years’ time that number will be higher, but still 20-25%. The quant businesses are interesting, they make for some good stories and it’s something people can relate to. But the vast majority of humans still have an aversion to algorithms,” he said.