Day in the life of a fund of hedge funds portfolio manager at an asset management firm
Today we have another series of: A day in the life of a Fund of Hedge Funds Portfolio Manager at an asset management firm.
What comes to mind when you think of the term hedge funds? Aggressive? Leverage? The Big Shot? Wolf of Wall Street?
Or better still the Netflix show, Billions?
Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors. These funds may be managed aggressively or make use of derivatives and leverage to generate higher returns.
Fund of Hedge Funds, also known as multi-manager investment, is a pooled investment fund that invests in other types of funds. The benefits of this is the added layer of diversification, while on the flip side, there is an additional layer of fees.
Today’s feature will be a Fund of Hedge Funds Portfolio Manager (Benjamin, not his real name), at an Asian asset management company.
Benjamin is my ex-colleague at this Asian asset management company and he is currently a Vice President there. Below is what a typical day for him looks like.
I come in office at around 9:00am and slowly start settling in. I used to come in office early during my analyst days back in UBS Hong Kong, but these days, I’m much more relax.
I get a cup of coffee from the Nespresso machine in the pantry and grab the Financial Times and Bloomberg Markets to catch up on what’s happening in the market. These days, the financial markets isn’t doing so well and it’s mainly on news such as the below. I am puzzled to see tech stocks still reaching it’s new high each day.
I have a team meeting together with our Head of Alternatives and 4 other colleagues. This meeting is to update each other on our tasks at hand and to also bounce ideas to see where the opportunities lie. Our team head has created a unique team culture to use creative abrasion to challenge every investment idea openly and constructively. This is to ensure that we do the best for clients and uphold our fiduciary duty by making sure that we invest in the best opportunities for our clients.
We are a lean team and we wear dual hats ie. being the portfolio manager and analyst at the same time.
My other colleagues are covering different types of hedge fund strategies eg Global Macro, Asia Long / Short Equities, Market Neutral, whereas I am covering Global Long / Short Equities. I have been in this industry for almost 15 years and have met with several top hedge fund managers in US, Europe and Asia.
Today, I will be presenting on an American hedge fund which focuses on cyclical equities. I have been in touch with their analysts and portfolio managers, and tracking their performance for the past 2 years. I feel that it is the right time now to invest in this particular hedge fund right now given the current market cycle.
As usual, I presented on the team, structure of the fund, investment thesis, risks and mitigation to my team.
I got some questions with regards to specific underlying investments which I need to follow up on.
All in all, the presentation went well and I got the green light to make the formal investment into this fund once I iron out all the outstanding questions and issues from my teammates.
No dramas to this meeting.
I meet an existing client into our fund of hedge funds program for lunch. This client is a high net worth individual, and she heard of our product offering through word of mouth.
In other asset management companies, we have the Sales team to meeting with clients. But our setup here is rather unique and quite often than not, we meet with our clients to give them updates of the fund.
I share with her what is happening in the current market due to COVID-19, and assured her that although the portfolio have taken a slight beating due to the fall in public equities, but it is on track to hit it’s target returns for the year. It may not display exemplary returns, but at least, it does not lose money.
We catch up over other things and she praised our team for having proactive discussions with clients and providing the necessary assurance in times like this.
I am back at my desk and do some general research by using this database called Eurekahedge, which is one of the top hedge funds database. I use this to do benchmarking for particular regions and strategies, and find out which are the upcoming hedge fund managers.
They have integrated analytics within the database which allows me to find out important information like Sharpe ratio, expense ratio, alpha over equity etc.
Some of my colleagues from the fixed income team have just come back from lunch. I catch up with them casually to find out what are the latest developments in the fixed income space, and also what they are busy with.
It is important to network within the firm and build the rapport with other colleagues as well. This is because you can learn a thing or two from them.
At 2:30pm, I make sure to block out some time to work on the attribution analysis for another fund. As this can be quite data intensive, I listen to some jazz music while doing it.
I segment the attribution based on time period and also region, to see where the returns are really coming from. This can help me to define the manager’s strengths and weaknesses.
Once I have done up the attribution analysis, I include the results in the investment paper.
Today, I have a meeting with a new Japanese hedge fund manager who used to work at Fidelity for more than 10 years. He reached out to me via email and requested for a meeting.
I decided to meet him in my office to see what he has to offer. I asked him questions like:
- Why did he want to leave and set up his own hedge fund?
- What was his track record when he was at Fidelity?
- What is the competitive advantage of his firm?
- What are some of his current long and short ideas?
He shared with me candidly that he can make a lot more while carving it out on his own, hence, he decided to start his own hedge fund.
He has a small team of 3, comprising of an assistant, an analyst and himself. He is in the process of hiring an operations analyst to help with the operational aspects of the fund like booking of trades, recording profits and losses, etc.
He then shared with me that Japanese equities have been rather stagnant for the last five years and there are a lot of stocks that are in a value trap.
For info, a value trap is a stock or other investment that appears to be cheaply priced because it has been trading at low valuation metrics, such as multiples in terms of price to earnings (P/E), price to cash flow (P/CF), or price to book value (P/B) for an extended time period
I thank him for his time and told him to keep in touch. I am slightly cautious on investing in first time managers as they have not proven themselves yet.
Source: Netflix. How many of you watched the show Billions?
I draft quick meeting notes from the meeting with the Japanese hedge fund manager as our firm has strict compliance to log meeting notes within 5 days. I also know that if I were to delay on this, it may get lost in the pile of work.
I also plan my schedule for the next day and prepare in advance if there are any calls. I like to make sure that I am well prep and make the most out of each meeting.
I start to leave office and make my way home to see my kids. I am comfortable with life on the buy-side where we are the decision maker. It is not easy work but I believe my experience gained over the years comes in handy.
A fund of hedge fund portfolio manager must not only have good quantitative skills, but also the qualitative skills. You are also assessing the character, trustworthiness, and reliability of the hedge fund manager. Hence, more often than not, you are also putting a bet on the manager’s stock picking capabilities.
Did you enjoy this episode of “A Day in the Life” series? What other roles would you like to see? Comment in the box below.
If you like our posts, follow our Facebook and Instagram page (@financeandtoast) so that you do not miss a single update.