4 ms·

Don't know how long ago you worked in trading, but the changes, technically and culturally, have been coming hot and heavy since about 2010. First the technical

Don't know how long ago you worked in trading, but the changes, technically and culturally, have been coming hot and heavy since about 2010. First the technical: as the Bloomberg article points out, most traders today are also coders. Trading floors on the big equity exchanges are empty and quiet as most trades occur electronically. Many seven and eight figure/year NYSE specialists have had to find new careers or retire. You many remember the old NYSE DOT and super DOT program trading systems, both of which sent orders directly to the specialists on the floor, preserving their hold on the exchange-based trades. All of which has gone the way of the dinosaur. Along the way, low, low commissions, low-friction, low touch, low-latency trades are now the new normal. On top of this, I started in this business almost 40 years ago, when guys were animals on the trading floor. When I think of the misbehavior from that era and the new ultra-PC, metoo social environment, I'm amazed the old culture has all but been erased from today's trading floors. I do miss the levity, the practical jokes and general yuks we had, but that's the price we pay.

michalu 7y ago
Sure, most guys are coders, but every hedge fund, every investment bank 100% relies on people who raise money. To have a hedge fund is all about your ability to attract funds, 95% don't outperform index. Nobody will do this without huge bonuses, they'll simply launch their own funds, hire developers themselves and offer bonuses to other people like they are.
- SEJeff 7y ago
  We should let the market decide. This is exactly how it does it.
- n4r9 7y ago
  Bit of a rookie here, but aren't the people who are giving the funds doing at least some due diligence researching how much better the returns will be than on index funds?
  - realtalk_sp 7y ago
    There are a number of tactics used to obfuscate the likelihood of underperformance, such as rotating funds within the firm (it's amusing to see how many funds were closed/created around 08/09), advancing an esoteric investment thesis (often in a way that plays well to various cognitive biases; this is where the salespeople come in), having a strong personal brand (e.g. Bill Ackman), showing strong past performance and misleadingly implying future success (success is quite often one-off or close to it), etc. And maybe the most powerful weapons Wall Street has have nothing to do with them: investors get really amped up about an occasional big win (especially failing to understand when that win is predominantly explained by being near the top of an economic cycle or more generally correlated with some random variable well outside of anyone's control) and/or fail to track net results over time.
    - n4r9 7y ago
      Hah, fascinating. I've read a bit about that anecdote where Warren Buffett set a public challenge to outperform a basic index fund, and I was stumped as to why hedge funds are as popular as they are. You'd intuitively assume that agents become more rational the farther up the ladder you go, but this seems like a testament to the contrary. It reminds me a little of a blanket email that was sent out to the entire mathematics department while I was a grad student. The sender was looking to poach people who'd be interested in implementing his idea for the sports betting industry. He explained that he understood that any strategy was likely to have runs of poor performance, and his idea whenever it happened was to "swap" to a better performing strategy which was having a good run at the same time.
      - fossuser 7y ago
        Maybe it is a rational response? The actively managed hedge funds farther up the ladder get individual agents lower on the ladder to give them massive amounts of money they can take huge cuts from while putting little at risk themselves. The people not managing their money as a job are at a disadvantage and the active managers can leverage that. I'd suspect most people should passively track the market via index funds and then make the occasional active bet if they have some reason to. The index fund bubble seems likely to be a real thing, but it's not obvious how to correct for it, so probably still worth doing total market and hoping for the best.
- hinkley 7y ago
  Given just how many funds there are now, I wonder if we aren't already seeing a bit of this happening?
- pheug 7y ago
  The bad ones don't outperform and need marketing to find suckers. The good ones won't take your money even if you beg, don't need to advertise themselves and are rarely if ever in the news.
- hermitdev 7y ago
  I used to work for a hedge fund until 2013. Was there for 9 years. I was in back office IT. In 2005, we were around 1200 employees, around 900 of which IT/development. We didnt beat the S&P 500 that year. Knee jerk reaction was to fire 600 from IT. Personally went from being 1 of a team of 13 managing 2 critical systems and a couple of GUIs and various tools to being a team of 1 inside of a week. Lasted that way for 7 years. 2008 was a shit show. We lost around 80% of all AUM in the space of a single month. Earned it all back in 2 years (40:1 leverage is a bitch when the market turns and what youre holding isnt liquid). I now work at a firm that primarily operates mutual funds. Far less stress, but far lower performance of the funds. The MF is far more cobservative. The great hedge funds look great, probably mostly due to survivorship bias. The ones that last are mostly lucky (although there's some strategy there). Some of the big losers are also remembered. Such as Brian Hunter and Amaranth (fun read, look it up. Single trader blew up a 9 billion USD hedge fund). I also remember when someone taped a $2 bill to the front door of Bear Stearns when their stock price dropped below $2. That said, I put in long hours over the years I was at the hedge fund. 80 hour weeks were expected. Did 6 months once of 100 weeks (only went home every other day). The only carrot to do that was the bonus, which for backoffice IT was was 20-25% of my base salary. I bought a pretty nice car with my last bonus. My bonus was certainly a far, far lower percent of my overall comp than the traders, but that bonus was huge for me. Also, my base salary was likely higher than the traders.
  - natalyarostova 7y ago
    Why did you work 100 hours a week? Were you being paid 500k+?
  - cheez 7y ago
    Jesus Christ I was getting paid $500K base, arranged to get at least $250K bonus and I barely showed up to work. I hope you were getting at least double. I should be clear that I was one of the best coders they had at that time. My work didn't suffer.

michalu 7y ago

Sure, most guys are coders, but every hedge fund, every investment bank 100% relies on people who raise money. To have a hedge fund is all about your ability to attract funds, 95% don't outperform index. Nobody will do this without huge bonuses, they'll simply launch their own funds, hire developers themselves and offer bonuses to other people like they are.

SEJeff 7y ago
We should let the market decide. This is exactly how it does it.
n4r9 7y ago
Bit of a rookie here, but aren't the people who are giving the funds doing at least some due diligence researching how much better the returns will be than on index funds?
- realtalk_sp 7y ago
  There are a number of tactics used to obfuscate the likelihood of underperformance, such as rotating funds within the firm (it's amusing to see how many funds were closed/created around 08/09), advancing an esoteric investment thesis (often in a way that plays well to various cognitive biases; this is where the salespeople come in), having a strong personal brand (e.g. Bill Ackman), showing strong past performance and misleadingly implying future success (success is quite often one-off or close to it), etc. And maybe the most powerful weapons Wall Street has have nothing to do with them: investors get really amped up about an occasional big win (especially failing to understand when that win is predominantly explained by being near the top of an economic cycle or more generally correlated with some random variable well outside of anyone's control) and/or fail to track net results over time.
  - n4r9 7y ago
    Hah, fascinating. I've read a bit about that anecdote where Warren Buffett set a public challenge to outperform a basic index fund, and I was stumped as to why hedge funds are as popular as they are. You'd intuitively assume that agents become more rational the farther up the ladder you go, but this seems like a testament to the contrary. It reminds me a little of a blanket email that was sent out to the entire mathematics department while I was a grad student. The sender was looking to poach people who'd be interested in implementing his idea for the sports betting industry. He explained that he understood that any strategy was likely to have runs of poor performance, and his idea whenever it happened was to "swap" to a better performing strategy which was having a good run at the same time.
    - fossuser 7y ago
      Maybe it is a rational response? The actively managed hedge funds farther up the ladder get individual agents lower on the ladder to give them massive amounts of money they can take huge cuts from while putting little at risk themselves. The people not managing their money as a job are at a disadvantage and the active managers can leverage that. I'd suspect most people should passively track the market via index funds and then make the occasional active bet if they have some reason to. The index fund bubble seems likely to be a real thing, but it's not obvious how to correct for it, so probably still worth doing total market and hoping for the best.
hinkley 7y ago
Given just how many funds there are now, I wonder if we aren't already seeing a bit of this happening?
pheug 7y ago
The bad ones don't outperform and need marketing to find suckers. The good ones won't take your money even if you beg, don't need to advertise themselves and are rarely if ever in the news.
hermitdev 7y ago
I used to work for a hedge fund until 2013. Was there for 9 years. I was in back office IT. In 2005, we were around 1200 employees, around 900 of which IT/development. We didnt beat the S&P 500 that year. Knee jerk reaction was to fire 600 from IT. Personally went from being 1 of a team of 13 managing 2 critical systems and a couple of GUIs and various tools to being a team of 1 inside of a week. Lasted that way for 7 years. 2008 was a shit show. We lost around 80% of all AUM in the space of a single month. Earned it all back in 2 years (40:1 leverage is a bitch when the market turns and what youre holding isnt liquid). I now work at a firm that primarily operates mutual funds. Far less stress, but far lower performance of the funds. The MF is far more cobservative. The great hedge funds look great, probably mostly due to survivorship bias. The ones that last are mostly lucky (although there's some strategy there). Some of the big losers are also remembered. Such as Brian Hunter and Amaranth (fun read, look it up. Single trader blew up a 9 billion USD hedge fund). I also remember when someone taped a $2 bill to the front door of Bear Stearns when their stock price dropped below $2. That said, I put in long hours over the years I was at the hedge fund. 80 hour weeks were expected. Did 6 months once of 100 weeks (only went home every other day). The only carrot to do that was the bonus, which for backoffice IT was was 20-25% of my base salary. I bought a pretty nice car with my last bonus. My bonus was certainly a far, far lower percent of my overall comp than the traders, but that bonus was huge for me. Also, my base salary was likely higher than the traders.
- natalyarostova 7y ago
  Why did you work 100 hours a week? Were you being paid 500k+?
- cheez 7y ago
  Jesus Christ I was getting paid $500K base, arranged to get at least $250K bonus and I barely showed up to work. I hope you were getting at least double. I should be clear that I was one of the best coders they had at that time. My work didn't suffer.