Is fundamental L/S equity a dying strategy?
Question is in the title. I am currently a freshman in college with a dream of working at a pod shop on a fundamental L/S team, but I am worried that the strategy is becoming too quantitative and the 2+2 path might not be the best route. I know pod shops and certain SM's like Viking continue to do well with this strategy, but I am wondering if the day-to-day analysis/work has changed. With how hard it is to find that variant perception in public markets due to the lack of information asymmetry, has fundamental L/S equity analysis become more quantitative? Are fundamental analysts working more with the QR teams and analyzing their models? I just don't understand how one can generate alpha with the fundamental L/S strategy simply following the companies, building the models, etc. There are so many L/S funds with extremely talented analysts and they are all analyzing the same companies with such great detail and extreme amounts of data that obtaining any sort of edge fundamentally is nearly impossible.
I would love to hear from pod shop fundamental analysts to see if their day-to-day work still consists of fundamental business analysis, or if it has become more focused on studying mathematical models and high-level data analysis built by the quants? If this is the case, it would make sense why all the SM L/S funds have shifted more into PE, while only the huge pod shops (Citadel, Millennium, BAM) are still able to only focus on public markets?
Any feedback is much appreciated. Thanks fellas.
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Why must someone ask this same silly question every 3-6 months...
This is just so grossly incorrect I'm not even sure what led you to think it.
Explain how this is incorrect. Most tiger cubs (Viking, Coatue, D1) all have private equity strategies as well now
Tiger cubs are a small fraction of SMs and not even remotely representative of the entire fundamental L/S universe, they are a small subset almost exclusively focused on tech (with many essentially just being long levered beta). While some may call it a "Private Equity" strategy they are nothing like PE in a traditional sense, they operate more akin to early stage/growth equity VCs (i.e. they're largely momentum driven) that can write bigger checks than many of their smaller VC competitors. Also worth noting funds like Viking and D1 are more restrained with their private investments and don't have the same size/type of approach to it as funds Coatue or Tiger Global, so it doesn't make sense to bucket them all together in the first place.
this is primarily because SM HF would sell for like 2.5x but you can have succession in a PE platform and trade at like 20x instead.
You don’t know enough about hedge funds, and working at hedge funds, to meaningfully say working at a pod shop is your dream without people thinking you’re wasting their time. Get clued up by reading around and as a bare minimum get a decent banking offer before you graduate.
You’re worrying about something that isn’t going to be an issue for you for a long time, your competition that will likely get hedge fund offers out of school aren’t asking questions like this…
And no, we are not using mathematical models from the quants. Its still fundamental, but ultimately there is a HUGE data overlay and we don’t bet on businesses, we’re holding stocks for a few weeks or months so we don’t need to express deeply fundamental views. Not to say we don’t know what these narratives are though…
If you’re not numerically oriented, can stand really deep modelling in excel (seriously I have like 6 analysis lines under revenue and then EBIT, never mind by revenue builds and EBIT bridges) and can’t work with big datasets efficiently, I don’t think this career is going to be a good place for you…
Thank you, I really appreciate your feedback.
Why would u recommend he go into banking first if hf is his dream job?
Feel like this is self explanatory
How’d you get “clued up”? Best way to read around?
Yes, this is it really. The good news is that unless you’re already 2 years into an IB stint and need to exit, you have enough time to do so. I’d say pick a strategy and start looking on WSO for old recruiting guides/Q&As, from there if you see a term you don’t understand look it up. You can also just look up “how does a global macro hedge fund work” and that will lead you down some good pathways.
No shortcuts to knowledge unfortunately. The unfortunate truth is that people who are lucky enough to intern at places like P72, and get real facetime with PM’s and analysts reviewing their work and speaking to them, have a huge headstart to understanding the inner workings of the business and are already “clued up”, even moreso then sellsiders wanting to move over
are 6 analysis lines a lot?
and you’re implying the excel modelling is extremely intensive correct?
apologies i was never an equity analyst
Yes it’s intestive and yes 6 lines for each significant KPI in a model a thousands of populated cells can become a lot
mind I’m speaking relatively here, pod models are significantly more granular and detailed than a LO or SM fund’s model usually with more add-ins and trackers. Compared to macro, where the data overlay demands SQL/python at times, it’s probably not a lot.
Single manager is shrinking, MM is growing
doubt SM dies but it is structural decline. The fee structure is many times what LO offers but it doesn’t offer commeasurately lower vol to justify
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