As a firm specializing in placing Portfolio Management and Research professionals into Hedge Funds, we at Laz Partners understand the world of hedge fund recruitment quite well, including the various metrics that our hedge fund clients look for when making a decision about whether or not to interview a candidate.
In my previous LinkedIn post, I shared some insights that were hopefully helpful around transitioning from asset management to landing a seat at a hedge fund (an achievable yet difficult move).
Today, I will be focusing on some of the specific performance metrics that hedge funds look for when hiring PMs, APMs, and Analysts/Strategists, regardless of whether they are joining from the sell-side, another hedge fund, or from an asset manager.
These metrics/benchmarks are based on the years of experience we have operating in this space and should hopefully be helpful for any candidates who are considering making the move. While these might not touch on the requirements for every HF out there (and there will certainly be some things I have missed!), they should still give a good overall view of expectations, as the bar is higher than ever.
Portfolio Managers (For a book size of at least $200m-$500m+):
- Current Book Size: Hedge Funds typically look for PM candidates that have been running at least $200m-$500m+ in another Hedge Fund (or similar) setting, ideally with at least 2-3+ years with full ownership of the track. While some funds will consider PMs that have been running books in the $100m-$150m range for a larger capital allocation, it would typically be some of the smaller, up-and-coming multi-strats (but we have certainly seen exceptions)
- Annualized Pnl & Performance History: Our clients typically look for at least $20m-$25m+ average annualized pnl over 2-3+ years for a PM (from another HF), however for some our clients, the bar can be as high as $40m-$50m+ and this will depend on the fund. Typically the larger, more successful multi-strats set the bar much higher for a Senior PM, and it will also depend on how saturated the firm already is within your asset class/strategy type. If, for example, you are an EM Macro PM who is interviewing with a fund that already has a large amount of EM Macro talent, the bar might be a lot higher for them to consider hiring you, as they often times like to spread risk across the firm and strategy types. Lastly, if you are looking to be given a sizeable capital allocation while coming from the sell-side as a trader, the bar is typically extremely high and a fund might be expecting you to have generated $50m-$100m+ pnl, however for lower but respectable sell-side pnl numbers (eg. $20m-$30m+), you will be more likely to be given an Assistant PM/Associate PM seat (see below)
- Monthly pnl: While this might not be an up-front requirement to secure an interview, oftentimes HFs will want to take a deeper dive into monthly pnl numbers whenever possible and for some of our clients, this is an up-front requirement if they are going to interview someone for a Senior PM seat.
- Sharpe Ratio: While some firms place a lot more emphasis on Sharpe than others, if you do have a good Sharpe Ratio, you should definitely highlight it when possible. A good Sharpe on average would typically be considered 1.5+ (for Macro RV as an example), however this widely varies based on strategy, with some firms looking for a Sharpe of 2+ and others preferring to focus more on pnl numbers and max drawdown, especially if you run a more volatile strategy (like Macro Credit, Opportunistic Credit, Special Sits etc)
- Max Drawdown/Historical Drawdowns: A very important metric, especially during periods of market volatility. Most HFs will be placing a lot of emphasis on how you will have performed against other PMs with similar strategies during certain periods. For example, we recently had a fund ask us “What was this PM’s drawdown in March 2020?” when we shared a candidate with them.
- Book Size Growth Over Time: Hedge Funds like it when someone can demonstrate growth in their capital allocation history over time. While not a requirement, it certainly doesn’t hurt if you can demonstrate this.
- How Unique/Differentiated is the Strategy: If your strategy is quite unique, niche, differentiated, and/or uncorrelated to a lot of the other strategies being run in the firm, while still being very easy and clear to articulate, this can oftentimes really help. As an example, someone running a LatAm Rates RV Strategy might end up having more luck (if performance is good) in landing a role vs another PM that runs a Global Macro RV Strategy that might be too broad and not differentiated enough.
Associate PMs/Assistant PMs (Smaller capital allocation and/or supporting a lead risk-taker without managing any capital):
- Pnl & Performance History: Typically, APM seats would be a more likely first move for a good sell-side trader with $20m-$25m+ annualized pnl (although we have also seen some funds happily hiring strong traders in the $10m-$15m range). If someone has been a PM at an asset manager, even if running a large fund ($500m-$1bn+) with a strong track record, we will oftentimes see HFs giving them an APM seat (with a small capital allocation to start - maybe $100m for example), with a view to quickly progressing to running a larger pool of capital if performance is strong in the first 6-12 months. Strong performance as an Assistant/Associate PM can lead to increased capital allocations and potential spin-off opportunities.
Analysts/Strategists (non-risk-taking roles with a view to becoming a risk-taker):
Quantifiable achievements: Whether you come from the sell-side as a desk analyst or even from an asset manager as an equity analyst or a macro strategist, the more you can demonstrate in terms of quantifiable achievements and contributions to performance, the better.
Here are some examples:
- "7:1 Hit ratio" or "36% average return on each trade idea"
- “My trade ideas contributed $22m to total desk pnl in 2022, which is 46% of total pnl and the highest of all the desk analysts on the team”
- “Fast-tracked and promoted to VP far ahead of my peer group” or “consistently ranked in the top 10% of my whole cohort/peer group in terms of performance”
- “Built a quantitative model on G10 interest rates using Python that is now used by the whole PM team and has significantly contributed to strong returns”
- “Ranked #1 out of 465 students in my graduating class”
Positioning Yourself for Success
The more you can quantify your returns and contributions, the more likely you are to secure interviews.
In the competitive world of hedge funds, performance metrics and quantifiable achievements play a crucial role in getting your foot in the door.
Whether you're a Portfolio Manager, Trader, Analyst, or Strategist working across any asset class or strategy type, the ability to showcase your track record and quantifiable achievements is key.
Partnering with a reputable search firm can provide you with the support and guidance you need to make the right connections and secure those coveted interviews, as the way you are positioned to a hedge fund is critical and can play a large role in whether or not your profile stands out among the 1000s of profiles that these funds receive every week.
Please do not hesitate to reach out to us at Laz Partners for assistance in advancing your hedge fund career. We are here to help you succeed and will always let you know whether or not we think we can realistically help you.
