The reason is that when you work in environment that's all about getting more funds, selling more products it's not a rewarding job like marketing or software development.
The only rewarding part is making money, scoring deals and beating your other colleagues, competitors. Other than that, most people hate these jobs. And even to manage sales teams isn't easy. High-turnover rates, bunch of high-testosterone jerks ...
I'm talking about finance here. Yes software sales or gym membership sales you can be a nice consultative sales person who's simply there to maintain the status quo and benefit from a good product that sells itself.
Turn these jobs into regular consultative sales and you're going belly up. That's because in wall street you don't simply have a game-changing product like some Silicon Valley startup - that's solving real need.
There's no difference in what you offer other than how you can win clients on your side. And most of these clients don't want to deal with average sales dude ... because they're simply not one of them.
The top traders at the floor in one of my past jobs didn't even sell, they talked about cars, yachting, girls and played golf and poker with clients.
And yes, everyone gets bonuses in investment banks, but it's really the commissions they earn and dealmakers who drive the performance.
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.
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.
I should be clear that I was one of the best coders they had at that time. My work didn't suffer.
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.
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.
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.
This is a well known bet from Warren Buffett, but you should not take conclusions without really understanding what the bet is about, and its underlying assumptions.
- The first assumption is that you're in for 10 years, this is the duration of the bet.
- The second assumption is that you don't need that money during the whole duration of the bet.
Why are these assumptions important? Because different investors have different risk profiles.
If you are in your twenties, saving for your retirement, then you should definitely follow Buffett's advice: just "buy the market" (S&P, Russel, whatever low expense ratio ETF or index fund tracking these will do).
This is because the longer horizon you have on an investment, the higher the volatility you can afford. It will always average out after a while.
Imagine now you have a different risk profile:
- You are now in your late fifties and expect to retire in ~5 years;
- You are an insurance company and may have to withdraw from your portfolio at any time to cover for expenses of your clients;
- You are an income investor and expect to live from the interests of your portfolio;
Would you be well advised to invest in an equity index? Definitely no! The volatility will crush you at the worst time, and you cannot afford to wait 5/6 years for the market to catchup.
In these scenarios (and there are plenty of them) what you want is diversification. You can accept to have less performance, in exchange for less volatility; so that once you sum all your different, uncorrelated portfolios, you have something with the risk profile that you can afford.
On a more local scale, you can apply this idea intra-portfolio. This is called "minimum variance" optimization.
Now there are a lot of things you can do to tailor your portfolio to your preferred risk profile. Traditional literature (e.g. "The Smart Investor") will advise you to buy some investment grade bonds, since they are almost anti-correlated to equities. You could also buy some real-estate, that will provide you cover during recession or very high inflation. etc, etc, etc.
What I want to emphasize here is that you cannot just look at the performance of a fund and decide whether it's a good or bad investment. If it exists, it means someone, somewhere, has a need for such investment, because it fits well with its current portfolio.
> 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.
That's called "market timing", it's the unicorn of alpha combination. You will find multiple papers on internet explaining you why this is incredibly hard to do, and "beating the 1/n" is almost never possible.
I'm pretty conservative when it comes to gambling my own money so I doubt I'd ever go near a hedge fund. Since getting involved in a debate on here about the Kelly Criterion I've wondered on-and-off what the best way to bet is, if you want to maximise the bottom 5th percentile of your profit.
I think one of the things that the ridiculously wealthy have trouble finding is people they trust - deservedly or otherwise. Money they've got figured out. Next week they'll have a little more or a little less, but they know where to find it if things get bad.
All that yammering on the phone is building rapport, and putting in time interacting. It doesn't sound that different than the way that informants are recruited (eg, The Like Switch). They feel comfortable with the guy who gave them tips on how to get out of a sand trap. Despite the fact this proves nothing about whether IBM is a good buy right now.
I've always been a bit confused and frustrated by this job categorization. Someone good on CS can easily have a stronger effect on contract retention than the flashy sales folks - and all of our jobs are performance oriented, it's just a question of being fired vs. keeping our jobs instead of the magnitude of bonus.
If Alice in sales lands a client by showing off a shiny new dashboard which Bob the programmer built, obviously they both had to perform. But it's fairly easy to run the counterfactual Alice: if Carol didn't land a similar client with the same dashboard, Alice is adding more value. (At least over large sample sizes.) It's very hard to run the counterfactual for Bob: would a worse dashboard have lost Alice's client? Would a better one have landed Carol's? Would another programmer have built something better or worse, in more time or less? Since you only want one of that dashboard, those things are exceedingly hard to answer.
Notably, some companies with consulting/deployed engineers do pay bonuses, because like a physical craftsman they're building many client-specific products. If one person's dashboards consistently land contract extensions than another's they're probably performing better.
(Of course, nothing is ever this clear or easy. If Alice just gets better clients, Glengarry Glen Ross style, Alice didn't actually sell better. If Alice promises a dashboard that doesn't exist yet, leaving Bob too busy to fulfill Carol's client's requests, that's not better either. And at Wall Street is infamously asymmetric, rewarding risk taking rather than actual performance.)
but more genuinely i do think sales does bring more value. customers aren't rational actors so closing a deal isn't about features or stats or whatever material a software dev contributes. it's about value prop and trust and meeting needs and all the language sales people use.
I just wonder if there is some way to counter that effectively and also probably couple that with taxation and service provision to make it so that someone working hard at a dying company has a chance at a decent life compared to someone doing nothing at a successful company that gets a wealthy life due to happenstance.
It's interesting to me that the income security of a non-commissioned job is sort of a trade off against profit sharing - where one extreme can leave a hard worker destitute and the other extreme can leave a lazy worker wealthy.
It's a cop out for the sales team to point and say "we made the sale, we're itemizing the value as ours when the whole possibility of the sale is made by the team.
This is why I like an RSU component as an engineer. If our value goes up, I expect to see some of it.
If there is no equity upside, engineers should stop working for bankers.
So maybe "The sales man gets the glory, but if the bad comes they don't get quite as much." is a more accurate statement.
What happens next?
The results were, among other things:
- allocation of resources happened through centralized planning committees of credentialed supposed experts, rather than organically by decentralized market forces checked and balanced automatically via competition among the actors, leading to huge economic inefficiencies. Perpetual shortages of consumer goods, and at times even basic foodstuffs. 10+ year waits to get a car. Hours-long lines for bread.
- a massive increase in corruption, bribery, and influence trading (collectively known as блат, "favors"), as people turned to unofficial backchannels to further the economic interests of themselves and their organization, since there were no effective legal channels to do so anymore;
- concominant erosion of any notion of popular respect for doing things properly or legally. There simply was no legal way to advance your own economic position.
- The expansion of an institutionalized system of severe punishments to force people to work productively at their jobs anyway, absent any possible reward.
- Eventually, economic and technological stagnation. With no legal economic reward possible for working harder, trying new things, or improving conditions, why bother? Your salary is the same if you succeed, and you'll be punished severely for counterrevolutionary activity if you fail.
I think this is one often underappreciated quality of the corporate world - an outlet for people who would otherwise cause a lot more direct harm.
It's possible they'll do it in a specific area that isn't where everyone is (or that is where most people are not). I'd argue that we would be collectively better off in that case.
The point being, bonuses are just a way for finance companies to flex your salary down when the firm has a bad quarter, or you're unvalued or working on an unvalued project. From that standpoint, I don't see bonuses going away any time soon, but if they do then all the better for the employees.
Edit: Did someone read some snark in my question? It was an honest question.
It's not about being squeamish about eliminating a position, companies have no concerns with that.
If that's the case, wouldn't it make sense to offer a 'stable' higher salary to an employee, and then sack them when it's financially beneficial to the company? I think the company does indeed have a concern with that - it becomes known that a particular company just thins the ranks every 18mos, and they'll have fewer folks lining up to take jobs.
On the other hand, even if the salary is lower, an employee can be more confident in keeping at least a modicum of income in lean times, and can also 'compete with colleagues' when bonuses are available. The perception (of the employer to the employee) is valuable to some extent.
Depends on how onerous a task it is to rehire when things pick up again ... I presume that’s part of the reason foe generous separation packages when a company actually must let people go ... at least you won’t have a bad reputation militating against you!
I don't think this is a thing at the high levels sadly. Both the employer and employees have moved away from the job security concept long time ago.
On Wall St., if you're older than say 45 yo and make a good salary for your years of experience, you have a target on your back. This is somewhat the same for tech, but stand outside any bank's office in Manhattan and you'll notice the youth of the employees.
When I was at university, the people I knew who wanted to work in finance seemed to be planning to work stupidly hard for some number of years and make a load of money and then retire. So maybe an alternative reason is that many people choose to retire at a relatively young age. But those people didn’t exactly have much actual experience in investment banks and so maybe they were just wrong or maybe those ideas are more predominantly held by people who are keen on investment banking while in university than in investment bankers at large.
Or maybe the old people all turn up at a different time or spend all their time meeting with clients outside their office (or half the time with clients so they arrive at the office at weird times), so you just don’t see them if you watch.
To be clear I don’t want to suggest that I disagree with what you say, just that there may be other forces at play than a bank’s desire to fire senior staff.
RSU comp can be quite competitive when you take those factors into account.
Of course, at RenTech in particular the employee-only fund is the good fund. But that's not always the case, so the parent commenter has a point. Deferred/locked up compensation can really suck.
Yeah, but only the long tenured/high performing employees get access to the good fund (there's a merely average fund that most employee deferred comp goes into, if I understand correctly).
Former colleague of mine was a M&A trader at Lehman during the crash. 95% of his net worth was in his fund, which was up 50%+ for the year when the bankruptcy trustee seized everything. IIRC, he was starting to get his money back in ~2014-15.
This. At the height of "bonus culture" the smart folks realized that it was a means of trimming comp costs without reducing headcount.
Sure, tech companies have significant bonuses and RSUs as well. But the bonus is more limited in size. And the RSU vesting schedule is more fine-grained, explicitly defined in your employment contract, and the stock valuations are determined by the wider market.
Imagine working in finance for a year, expecting to earn $300k for a year's work, and then finding out at the end of the year that you're only going to get a fraction of that. It blows my mind that this doesn't scare more people.
Adjusting bonuses like that seems like a cruel way of enforcing "up or out". If for whatever reason you don't like some subordinate, or think they're cut out for future promotions, just hand out mediocre bonuses until they jump ship.
I think that in banking (and many other businesses), it's entire possible to be a good / well-performing junior banker, but not necessarily have the skills of succeeding in more senior roles, where your job is very different. (e.g mostly dealing with clients)
I don’t work for finance anymore, but when I did, the reality was I could walk down the street to another firm (even in 2000/2001) and I was seen as creating value for my current firm and forecast to continue doing so.
If you want to nerf my bonus, you can do it legally, but I’ll take a cardboard box and pack up. If the company overall temporarily stumbled and bonuses are poor, some people leave; others stay and get “made whole” in the future.
I honestly think bonus culture is about power - specifically the power you're describing there. Your boss's boss can ask you to come in at 2am because if you don't, you risk taking a massive hit to your comp.
The other reason - also related to what you're pointing out - is that if you quit six months into the year, you leave a significant chunk of money on the table. Silicon Valley has similar golden handcuffs in that regard though.
It's about shifting the budgeted comp of the under-performers to the over-performers. Inevitably, you will end up with a bunch of over-performers killing it, and the under-performers who can't make their number will leave. It's a giant selection process.
Good employees make bank. Bad employees quit and go somewhere with less downside risk.
Also this is only talking about trading at bulge bracket banks like UBS but "Wall Street" is much larger and more complex than that.
Even when buying individual equities I would get emails indicating my trades were flagged for further analysis. It isn't enjoyable to be good at managing money but unable to do so without fear of punishment.
Even though I follow the rules, the process made it too difficult to manage. It is a real opportunity cost because in order to invest aggressively I would have to quit.
As for the stress and greener pastures bit, really you aren't wrong.
Two friends at Apple illustrate: one says he does basically nothing but surf the web, the other last I heard is is nearly sleeping under his desk in a crunch.
Banks are where the arbitrary high stress jobs reside, and then certain specific companies that choose to enforce stress culture, like GSAM and Citadel.
But most have normal 9-5 hours, few deadlines, autonomy, project self-selection.
Not much different than shipping something broken to millions of users and needing to triage a rollback.
Of course there are outlier firms that play fast and loose and can have risk of huge sudden losses that can’t be stemmed, but most firms do risk management as a core part of their purpose for existing, and this applies to risk of bad code / bad model just like anything else.
Again, maybe I just don't know enough about how it works, or maybe I just know enough about what I do -- but every once in a while you make some catastrophic mistake that takes done Google or Facebook for a few minutes -- the only cost you incur is opportunity. The same mistake at Knight Capital cost them like $500M in 15 minutes or something crazy.
So, taken a step further, the little bugs that regularly make it into Google that cause 1% of requests to 500 on some service is a big deal, the opportunity cost can exceed your salary for years. I imagine the same thing is true in trading, except it's not opportunity -- it's real money. That just seems way more stressful to me, but maybe it just doesn't happen very often, or the test coverage is taken much more seriously, and it's better.
Don't know about London though. All values in USD.
Another is cagey about what he earns but it's stipulated he earns more than the number above.
Meanwhile another friend at a different hedge-fund had a budget over ~20k USD to decorate his personal office at work.
The excesses of finance are absolutely still alive and well but somehow the buy-side has managed to escape the public eye (presumably because they're mostly private)
Is it a case of spending your 20s 8am-10pm in the office, no weekends, no vacation, etc?
Or, if not, then what's the path into a job like this? Are they simply 0.00001% level brilliant people, lucky, well connected?
If you survive 4 years, then you get into the really well paid positions with 300K bonus a year being common. I have seen 2 scenario unfold: either the 4 previous completely ruin your value system, so you are either a complete asshole or addicted to a life of excess that keeps you in the system. A few will get promoted to hire levels yet and enter a weird world of mostly networking.
In rare circumstances, generally the one lucky to have a good and sane social circle before going into the grinder, you retire at 30 with several millions in your bank account.
And honestly the wash out was a mix of things: quit, got fired, suffered too much took a random job, suffered too much held out and got an amazing job....etc.
I believe the ratio is better at other banks and also better in current times.
I had drinks with my old boss a few months ago and I warned him he would kill a kid one of these days. His answer was "oh culture is fixed, we give one Saturday off a month now. Morale is much better".
Granted this is a tiny skewed example. But your message is spot on.
Edit: source: https://www.google.com/amp/s/www.wallstreetoasis.com/forums/...
I have not seen any of the typical sell side grind common to investment banking among hedge funds. New grads hired to reputable hedge funds typically work comparable hours to their friends who work at Google/Facebook. They might earn 20 - 100% more though.
Being an associate in mergers and acquisitions at an investment bank is famously gruelling - long hours, terrible work culture - and as far as i can tell pretty menial, low-skill stuff most of the time.
Being a quant at a hedge fund can be pretty fun.
My general impression is:
1. Smaller companies are better, on all axes, than bigger ones
2. Trader/associate/etc > developer in all of hours, stress, and pay
3. Front office > back office in all of hours, stress, and pay
I also know another new grad recently hired at Hudson River Trading, and another new grad recently hired at Jump Trading. Both are earning over $400k per year, but they work 45 hour weeks. And since RenTech has been mentioned in this thread: the people I know there have wonderful work life balance.
I have found that most popular conceptions of bad work life balance in finance apply to banking and sell side, not to the buy side. Working as a developer at a bank usually sucks, both financially and culturally, in my experience. Not always, but commonly. Working at a hedge fund can be very nice both financially and culturally.
As an aside, i love that the names for things vary so much across the industry. Where i am, "research development" means things like building historical market data archives that other people can use to backtest algorithms etc.
One of his teen daughters said, when asked how she felt about her dad retiring and being home all the time, that it was ok because he is “nice” now. She went on to explain how her primary memory of him over her youth is that he was always “mad”.
When you're fresh out of grad school I can imagine the thought process of grinding it out for a couple of years to get to the higher pay brackets. But when there's a wife and kids involved... not so much.
I'm not being facetious. With anything trading-related, a big part of having the ability to make three million dollars more-or-less "on your own" is to have tens of millions of dollars to sling around, plus a good idea of the manner in which to sling it. So a firm will give their people a couple million in buying power and then tell them to go make an X% return. Those that can do so are compensated.
The downside, as I have it, is that the "work-life balance" is, as you mentioned, non-existent and also immensely stressful. Plus, having that kind of money in your 20's can be a problem all on its own.
Trading/Sales is normally 6.30am start to 5pm-ish in the evening, which possibly drinks/client entertaining some nights after that. You probably have to spend a few years as desk gopher - coffees, doing the trade reporting admin no-one else wants to do etc. I don't think trading or sales typically work weekends. I think some may trade out of hours as well, but I think (in large IBs in the UK) that they are in the minority.
>what are the kinds of tradeoffs involved in these jobs that pay so extraordinarily well so early in one's career?
>Is it a case of spending your 20s 8am-10pm in the office, no weekends, no vacation, etc?
You'll be in the office for the bulk of the trading day. You will need to be available/online though not necessarily "working" around open and close (possibly from home, many employers are flexible about butt-in-seat hours). Early mornings are rare. Late evenings will be commonplace if your employer does not have their end of day routine down.
If the team you work with is on their game this business is basically a money tree and predictably with that comes a very good work life balance. I have no idea how much vacation these people take but things get very, very quite around basically every holiday so I don't think they're lacking.
>Or, if not, then what's the path into a job like this? Are they simply 0.00001% level brilliant people, lucky, well connected?
Some combination of all of the above and being in the right place at the right time. These are smart people who understand finance, understand tech and understand the implementation. The algorithmic arms race isn't all that fast but the competition is stiff enough that you need to have all your T's crossed and you I's dotted to make money. Have you ever considered buying a microwave link because the fastest fiber money can buy is too slow. That's the level to which everything is built. People roll their own implementations of protocols because the off the shelf ones aren't optimized for what they want to do. Some of these firms reverse engineer the topology of the exchange's computer systems (by sending various orders and carefully analyzing the responses) in order to gain a competitive edge. This stuff can get crazy.
A lot of these firms need to stay under a specific headcount for legal/compliance reasons and when you need to cram that level of competency in all those skills into very few people they obviously wind up being exceptional (in the literal sense) people and they are compensated accordingly (because supply and demand).
A lot of it is about jumping through hoops but also I think a lot of people who "overachieve" just started young.
I knew people who knew they wanted to be lawyers from age 12 and were finding ways to do work experience from that age.
Similarly, I know many people who were coding from <small age>. (Maybe on the BBC micro, or learning BASIC or learning Java for Minecraft, take your pick).
I have also known people managing personal investment portfolios, and pianists sinking 50 hours per week practising when they were 8 years old.
My personal favorite (because it concerns people close to me) are two people who have instinctively honed the skill to sell and have been selling in some shape or form since they could essentially talk.
When it comes to these "prestigious" type jobs, I think a lot of the people who did well and got the jobs had been prepped a long time in advance. Quite a lot of it is worldview/personality grooming that happens from the high school you go to and your parents but less about direct connections because there are very few grad-level people who get blatant nepotistic hand-me-outs at the big companies you've heard of. Though coaching and interview prep probably does probably abound.
That's not to say it's too late in life to try learn something new, but inevitably life takes over (relationships, and kids).
I have 5 friends in that bucket. And none of them had the "right connection".
Some are immigrants, some are minorities, some were dirt poor and came from nothing.
But all of them had some of the highest drive and grit and sometimes intelligence out of my friend group. These guys would have done well in absolutely any industry.
8 to 10pm x 7 days a week would be an absolutely pleasure. It's hard to convey how hours longer than that weigh on you with multiple back to back subsequent years of "service".
But finance isn't special. 27 year old top attorneys make 300k. And suffer similar pain.
Even in consulting like BCG comp is not as high but you get weekends off. But you're still elbow to elbow with ambitious people.
But heres the rub. I did the math once. My calculation showed there were 4,000 private equity professions in the US. Maybe that's changed. That's an absurdly small number. How many bariatric surgeons are there? Like when you compare these very small knifes edge type quantities, sure, you see excess.
So finance used to be 7% of GDP, up from 4%, so for a period you had the ratio of people to GDP skewed so smart people rushed to normalize it. And it normalized. Now you see the equilibrium hit. But that doesn't mean sometimes the equilibrium is high. There's no 28 year old making 500k in silicon valley? Or spending 20k decorating their office?
Like it's just a matter of perspective.
Sorry for the rant. But the connection thing drives me crazy. I'm sure the silicon valley guy has really hard to obtain skills and didnt network at a bar into his top engineering job.
Edit: didn't mean for this to be combative. I've long believed humans are sort of fungible. You take a partner at an accounting firm and throw him in a consulting firm (and somehow roll back time) that same person will sort of get to the same spot. I believe when you're 14 or 16 or 18 or 20 and you sort of pick what you want to do you are so impressionable that it ends up being partly passion and partially luck.
I know I like to hire based on personal recommendation of people I trust, it removed a lot of risk for me in dealing with random people. Hence “right connections”.
 I think its more accurate to say that the field requires lack of significant adversity more so than "connections." The median family income at Harvard is $168,000, the 80th percentile. These kids aren't working all summer to help their parents make ends meet. At the same time, their neighbors are engineers, doctors, government employees, etc., not hedge fund managers.
Recruiting has these crazy dance steps. Unless you know in October of your sophomore year what the door knock is on this special process it can be hard to get in. But you can get in later. Its just much much harder.
I've been trying to figure out for a few years what that's called. It's not wealth, because knowing to apply is some sort of social/human capital, and its intergenerational. But I wonder like in the area where I volunteer...how much of the difference in outcome is related to just not knowing how the process works?
Some wealth you’re born with, or you come by from circumstance (many times relating to who you’re born to). Some wealth you can work on obtaining yourself.
Or you can "just" get into a top 5-10 MBA. Still hard, but at least you're an adult at that point
Also, I did not go to Harvard, which typically sends more people to the buy-side then the other top-tier programs (but is somewhat self-selection, because HBS tends to accept a lot of pre-MBA buy-side people from top firms)
These sort of perks are common in senior management in several software companies as well. Especially if your job involves some sort of client/customer facing responsibilities.
Indian IT outsourcing firms give their top management a very lavish budget to spend. Typically 5 - 7 star hotel stay, business class travel, thick daily per diem to spend and the best meals money can buy. Plus they also get paid to spend what it takes to impress clients to win contracts. Office furnishing budget etc. I even know one person who bought a fairly expensive bose sound system, and even took it to his home over time. No one really audits these things, and money once given is large aggregated in a group by statement in a report somewhere, and since its already sanctioned, no one cares how its spent either.
This is one of the biggest motivations for me to move into management as a career upgrade.
It's buying real estate to secure your family's future for generations instead of living hand to mouth.
It's sending your kids to good schools or doctors in the West as opposed to hoping to scrape together enough cash to educate or send them to doctors at all.
It would be really hard for a first world person to understand how big the chasm is in less privileged parts of the world.
You do not want to be on the wrong side of the wealth divide.
It's not about speakers.
Case in point air and water. Just air and water. Like try breathing the dusty, polluted air. Or drinking water which gives you and your family throat infection every two months, and outbreaks of dengue killing family and friends every 6 months or so.
I'd literally do anything at this point just to breath good air. And that's just starting with the most fundamental requirement of life itself.
So less a term used as a value judgement and more a term with contextual meaning in this topic (IMO).
Presumably these organizations have worked out that they can afford to pay their staff this and that it is profitable to do so, in the same way that FANG can pay their engineers pretty well too.
Meanwhile, the median US household income is $56,516 for two adults...
The goal of hedge fund is to reduce volatility and/or to generate uncorrelated returns. Some people are ready to pay a premium for that (in the form of under-performance compared to an index). Hedge funds are more an alternative to fixed income than an alternative to equities, if you think about it.
So it's evidence that fund managers take an unequal share of their outperformance, not that they don't outperform the market/benchmark (of course, not all do that either).
Long short are having a hard time since 2018 for instance, doesn’t mean directional funds have too.
Also, we are in a high deleveraging in L/S environment, so the last 2 years should not be taken as benchmark IMHO.
RenTech and TGS had a spectacular year as always. But even if you don't work at a firm like that, being on the right team at a strong second tier firm can be extremely lucrative.
When the S&P500 is up 25+%, there is a staggeringly large amount of money paid out in bonuses.
Buy-side == hedge funds, proprietary trading companies, high-frequency market makers, maybe also VCs, PEs, investing (their own or other people's) money, buying financing / market access / financial instruments from the sell-side.
Basically the buy side try to be smarter/better/faster/stronger than everyone else, the sell side try to provide an essential service to the buy side, whether that’s a good platform or liquidity or whatever.
So as others have said, sell side typically is the investment banks and brokerage houses, while buy side is your asset managers.
- Linear Algebra
- Numerical Methods
- Stochastic processes
- Time series analysis
- Mathematical Optimization
- Multivariate statistics
- Statistical inference
- Computation intensive statistics
- (Machine Learning)
- (Differential Equations)
- (Mathematical Methods and modelling)
On top of that, some decent knowledge in scripting and programming.
Pretty much any decent Statistics or Applied Math program will provide you with a good foundation of quant jobs.
We really are entering a new era when it comes to employment and the definition of the 'means of production'. Software and robotics is reaching into uncharted territory.
Should be very interesting in the next decade or two to see if society reacts with the adage to just pull yourself up by your bootstraps or starts to seriously look at a UBI.
It's taking operational expenses (which cannot be "owned" as a means of production) and converting them into capital expenses (which can be). The more of the work that can be done by things that are "owned," the more the gains accrue to the ownership class.
In previous eras, the ownership class was known as royalty (later as "landed gentry") and they effectively or literally owned the people working underneath them. This removes the ethical problems of owning people while retaining the benefits.
I've seen a number of mutual fund managers who generally underperform their index for years operating a relatively high-fee fund (compared with ETFs) getting huge bonuses. It's just ridiculous.
Vanguard and ETFs in general are coming for those people, albeit slowly.
There is a bit more nuance here. The fund manager oftentimes has an obligation to follow a given mandate, which may not seek to outperform a given index. For example, investors may want exposure to specific factors (value, growth, momentum, etc.) or asset class (municipal bonds, preferred stocks, etc.). Additionally, investors may seek funds with better risk adjusted returns as opposed to funds with greater absolute returns. In these cases, managers are compensated for delivering on their mandates. The ETF space has similar high fee products.
Bottom line, for me, is that the active management employed by a large portion of the mutual fund complex provides little additional returns, yet they get paid handsomely for delivering a sub-standard product.
But the bonus culture is still alive and well at the small shops, especially the quant shops that embrace automation and scale.
Trading is very much about managing and taking on risk. Even if there are computers managing trading - managing risk is still human driven.
In most trading shops it's becoming more difficult to estimate the contribution of a single individual because technology is more important than before, and plays a role in how competitive you are. That doesn't make them any less talented, educated, hard-working, etc. It just makes it more difficult to know their exact contribution. Which means that their compensation will not necessarily fall down, but will become less performance-based.
In the trading world, as an employer you are disincentived to give the keys to your model - aka your secret sauce - to all your employees. You will reward only a select few who you trust to stay on board, manage the model, continuously improve on it to stay pace with the changing markets. If you give the keys to too many people, eventually they will jump to other shops, copy your ideas and your edge will deteriorate.
Whoever build a good model get a good bonus ?
Lots of agreement and disagreement.
I am sure employees would enjoy having a more fixed Quata and not have to worry about what they get come bonus time