3 ms·

For hedge funds, doesn't it still ultimately come to the bottom line? My experience with traders and hedge fund quantis is ultimately they get paid a % on reve

For hedge funds, doesn't it still ultimately come to the bottom line? My experience with traders and hedge fund quantis is ultimately they get paid a % on revenue or gains - for junior people it's more political, but the more senior they get the more it's correlated. This doesn't count sell side marketing work, or slow money (insurance, mutual fund) buy side work where people get paid for Assets Under Management versus a % of the gains.

p4wnc6 10y ago
Not really. Some hedge funds might be somewhat better, but there are many kinds of hedge funds. A large number of them function in almost precisely the same manner as a traditional asset manager, and are compensated and incentivized in the same way. As a non-manager employee at these firms, your bonus is still usually expressed as a percentage of your base salary with the caveat that it is awarded in a discretionary way that is based on firm performance, but is not given by any explicit formula connected to profits or losses. Some firms also don't even bother to give any details whatsoever, and the job offer will simply say there is a discretionary bonus, no percentage, no description at all. I actually turned down a hedge fund job because of this. I told them that in order for me to feel comfortable accepting an entirely discretionary bonus, with no baseline or agreed upon way of relating it to base salary or profits and losses, I would need a much higher base salary, and they weren't willing to negotiate about it. The number of firms, even among extremely quant-heavy hedge funds, who award bonuses in a manner that is not overwhelmingly political is exceedingly tiny. What this means is that the same political incentives affect even most hedge funds, and so they care far less about the mathematical rigor of what they are doing than about how to sell political stories about it. If "interpretability" sells political stories, then that's what they'll do. Where are the hedge funds using sophisticated statistics? Maybe Renaissance. Maybe. Where else? Certainly not DE Shaw. Certainly not PDT. Certainly not G-Research. Certainly not Coatue. And on and on. When you interview at these places, and see how the sausage is made, it is eye-opening and alarming to understand just how little their business utilizes or cares about mathematics, statistical rigor, and often not even proper software design. They are just more of the same kinds of shoddy software shops cranking out ad hoc code for rapidly varying political whims, but with far better branding.
- jxramos 10y ago
  All this discussion makes me think about that bet Warren Buffet issued some years back about dumb index vs managed hedge fund. Political authority is an interesting slant to all this. Makes me also think about Thomas Sowells "varieties of nothing", ie putting on a show to make it look like someone is doing something when their net contribution is near nil. http://www.npr.org/2016/03/10/469897691/armed-with-an-index-fund-warren-buffett-is-on-track-to-win-hedge-fund-bet http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...

p4wnc6 10y ago

Not really. Some hedge funds might be somewhat better, but there are many kinds of hedge funds. A large number of them function in almost precisely the same manner as a traditional asset manager, and are compensated and incentivized in the same way. As a non-manager employee at these firms, your bonus is still usually expressed as a percentage of your base salary with the caveat that it is awarded in a discretionary way that is based on firm performance, but is not given by any explicit formula connected to profits or losses. Some firms also don't even bother to give any details whatsoever, and the job offer will simply say there is a discretionary bonus, no percentage, no description at all. I actually turned down a hedge fund job because of this. I told them that in order for me to feel comfortable accepting an entirely discretionary bonus, with no baseline or agreed upon way of relating it to base salary or profits and losses, I would need a much higher base salary, and they weren't willing to negotiate about it. The number of firms, even among extremely quant-heavy hedge funds, who award bonuses in a manner that is not overwhelmingly political is exceedingly tiny. What this means is that the same political incentives affect even most hedge funds, and so they care far less about the mathematical rigor of what they are doing than about how to sell political stories about it. If "interpretability" sells political stories, then that's what they'll do. Where are the hedge funds using sophisticated statistics? Maybe Renaissance. Maybe. Where else? Certainly not DE Shaw. Certainly not PDT. Certainly not G-Research. Certainly not Coatue. And on and on. When you interview at these places, and see how the sausage is made, it is eye-opening and alarming to understand just how little their business utilizes or cares about mathematics, statistical rigor, and often not even proper software design. They are just more of the same kinds of shoddy software shops cranking out ad hoc code for rapidly varying political whims, but with far better branding.

jxramos 10y ago
All this discussion makes me think about that bet Warren Buffet issued some years back about dumb index vs managed hedge fund. Political authority is an interesting slant to all this. Makes me also think about Thomas Sowells "varieties of nothing", ie putting on a show to make it look like someone is doing something when their net contribution is near nil. http://www.npr.org/2016/03/10/469897691/armed-with-an-index-fund-warren-buffett-is-on-track-to-win-hedge-fund-bet http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...