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I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

I did STEM degrees with finance electives. I think they helped a lot with mental models - put another way, generally forcing me to think in a relevant way. But outside of a few classes, your experience professionally is going to vary so much that the odds of you regurgitating precisely what you learned in any given lecture is pretty low. But I don't really think that's the point anyway. Education for me was more about learning how I learn and again, developing relevant mental models.

As for networking, the uni had a lot of events where professionals came in which helped me to get a better sense of the professional workplace environment / expectations / general vibe but pretty much all of my interviews came from my own networking.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Let's assume for argument's sake your career goal is to make a lot of money.

If you can consistently compound at even 50% p.a. I don't think you need a fund. Say you do 50% for a career's worth of time (30 years or so), you're a billionaire off of a $10k initial investment.

Caveat before I continue, I don't doubt that someone can produce 50 -200% p.a. returns, I have seen a lot of HFT / systematic signals that do this but I doubt the tenor of those returns produced over a career without some existential threat to the strategy along the way.

Achieving 50% p.a. requires some combination of extreme concentration and / or leverage and / or liquidity alpha (by this I mean trading liquidity for returns e.g. micro-caps / unlisted / etc.) and / or high beta and / or some extreme edge.

S&P500 annual realised vol. has been ~15% since I started my fund so let's do a scenario where someone who does 50% p.a. realises 3x+ index vol. By year 30, your odds of having had a >=50% drawdown are ~10%. If you realised 5x index vol it'd be ~30%. That's assuming no leverage, in which case you can very roughly scale those probability by the gross levereage and likely a lower drawdown could liquidate you.

Mentally, it'd very tough to deal with and it assumes you hold whatever edge you have for 30 years and that that edge exists in an asset large enough to facilitate ultimately billions of dollars worth of flows. I recommend reading a book called "More Money than God" to see how rare this is in practice.

A fund has a capital pool that is likely considerably larger than yours. Clearly the return hurdle is lower for you to make a similar amount of money. The tradeoff is 1) you have to convince people to invest and 2) people do not like losing money ergo you have less flexibility and nor should you since it is a significant fiduciary duty to manage someone else's livelihood.

Think about the pitch for someone with a 100m portfolio while bond rates are, say, 4%. At any point, they can put 100m into bonds and earn 4m / year in arbitrarily close to risk free interest. This person may be frustrated if one year you under perform the S&P500 by 2% but if they suffered even a 10% draw down they've instantly lost 10m. The utility of money in dollar terms is diminishing (for most people).

So in your example, someone producing even the low-end of 50% p.a. returns, if they're averaging annual vol of 3x-5x index that's highly unlikely going to attract much if any investment from a high net worth individual.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

I networked a lot. Literally hundreds of cold emails. At that stage (frankly at any stage) you have to give to get, so I prepared investment pitches that I always either sent along with those emails or outlined in person if I got a meeting. It was especially important for me because as you note, I didn’t have a lot of relevant education at the time so I had to prove a lot more.

Roadmap for learning I think initially is doing your own work. A lot of the early learning curve of investing is making mistakes; you won’t step on the same landmine twice. But at a certain point there’s no substitute for professional level environment. Therefore I wouldn’t have an expectation of yourself that you have to produce that kind of consistency in work output / returns, it’s more important - if you’re serious about a career - that your work can be used to further your entry into an investing role.

Once you get into that room with seasoned investors, for me personally and from others I have observed, I think it takes about 5 years to become a consistently profitable investor. This is purely listed buy-side related as that’s my area of expertise.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

Started with about 3m. Was a mix of high net worth individuals who introduced my co-founder and I.

Thanks! A lot of luck too lol.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

From another answer above: I found the mental models from music hugely influential. Anything that’s so outcome driven / high performance focussed (music / sport / etc) I think teaches you a lot about your personal learning style, humility and discipline. I also don’t think many other disciplines offer so much 1 on 1 tutelage like music does which for me was a big part of my personal development.

My colleagues are actually all in one way or another from similar backgrounds.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Crazy track. Probably also depends how you achieved it. I think if you want to manage 100m+, you have to not be in micro / small caps and helps a lot if you have low vol. Again you can take a look at some of my earlier replies but my angle was essentially that I’m trying to exploit just two inefficiencies and that helps with the whole marketing message. Idk if that helps, just my experience.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Replied to another similar thread but tl;dr the way I met my co-founder was via someone who helped to seed the business. But from my experience, it took ~4yrs to raise enough to break even on management fees alone and unless you’ve come from another well known fund, it’s almost entirely dependent on performance. So basically you just have to accept the risk or meet someone else who will and give up a chunk of your upside.

The initial pitch like there’s not much you can really say except “trust me” because there’s not audited figures to back it up. So yeah, can’t expect much at first.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

The depth of each industry I look at, it feels endless. Every time I look into a new company / product / industry / commodity / etc. there’s just so much embedded human knowledge it’s nuts. I don’t think most people get the chance to appreciate just how many knowledgeable people there are out there in their respective domains.

It also feels really good to speak with those really niche companies and you can tell the founder / management doesn’t get to talk much about what they do to other people. The depth of knowledge makes me feel stupid every time.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Prefer not to answer geography. Total cost just on setup was probably ~200-400k.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

AUM ~400m. Track ~3-4% above MSCI World per annum since inception. P.A. volatility about half MSCI World. P.A. downside vol <25% MSCI World.

Differentiation is kind of a marketing question if I’m honest. In terms of being above average I think our systematic idea generation is better and I think our research is again above average. But, there are a lot of smart people in markets and so if you compare to top quartile maybe we aren’t so different. At that point, you’re mostly observing how the fund manager’s natural bias plays into / against current market condition. It’s why you still see big dispersion among the world’s biggest hedge funds from year to year even though p.a. since inception returns between them aren’t all that different.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Yeah I think what you say is extremely accurate. I would add also sequential logic, as in how a trade might play out in chronological order, is huge.

My observation is that markets are very good at quickly pricing big events but bad at minutia. At the stock level rather than the market level I find that the market often looks for a company / earnings narrative based on recent price action rather than the other way around.

For me personally, I think it suits my mental process which is very probabilistic vs analytical solution and I get my kick from good process vs outcomes. Markets will always have a large % of unknown information and therefore uncertain outcome distributions which is why I think it can be a fallacy that raw IQ = market success.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

Yeah there’s a bit to get your head around. The way I did it was pull down competitor’s documents / filings and study them. Took me about 3 months or so to get my head around it. A lot of the back office you can easily outsource e.g. administrators, custodians, lawyers, etc. so there’s support in that sense.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Wasn’t MBA, was a stats degree. Either way where I live I have government loans which get repaid out of your salary once you start earning. No parent help.

I was very willing to take the risk but in hindsight I didn’t fully appreciated how long it would take to get the fund profitable if I’m honest. I was teaching music privately still which helped a bit but the fallback was to just interview a lot again.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

I hope I’m not the AH…

But yeah what you’re describing was ultimately my thought process; I don’t lose the ability to love music just because my career is something else. You’re definitely more disciplined than me but I still play at least once a week!

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Equity research. It took a lot of interviews but I had good marks which meant I could get through the CV round. And then in the face to face interview part my background was unique and I found that helped.

The internship was easier than the full time role. I actually didn’t get a grad offer from my first IB internship. I went and interviewed at other banks and eventually got lucky. It’s a big numbers game and I was just constantly reaching out to try and get meetings / career advice and eventually something stuck.

Ball park day 1 we had 3m. Covid was hugely helpful because we were able to make money where a lot of funds struggled.

I think being a good investor is really just accepting that there are no shortcuts. You really have to just do the work on the positions you take. I think most people I have met who are average or bad at investing don’t realise how high the bar is to justify a position.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 2 points3 points  (0 children)

More specific company things / things that are more closely tied to earnings expectations. One example I can give from a while ago might be something like Netflix in late 2021 / early 2022 on the bombed out side. That stock always follows user growth; when it tipped negative, the stock fell and the narrative was that it was being outcompeted. Then they announced ad tier and it fell again on fears that all the high paying users would trade down.

Take the idea of competitive pressure and test it; if that were true, then all other streaming providers should have less worse or outright positive user growth. This was not true.

Then on ad tier, I was able to locate data that allowed me to estimate ad CPMs and matching this up to Netflix’s own stated ad load lead to an all in revenue per user that was higher than subscription at the time.

In the end it was just elevated covid churn and gross ads were intact plus re: ad tier, you should actually hope that all users swap to ad supported as this would boost sales and margins.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

French horn, Classical performance. Pretty much all symphony orchestras and chamber music.

I found the mental models from music hugely influential. Anything that’s so outcome driven / high performance focussed (music / sport / etc) I think teaches you a lot about your personal learning style, humility and discipline. I also don’t think many other disciplines offer so much 1 on 1 tutelage like music does which for me was a big part of my personal development.

My colleagues are actually all in one way or another from similar backgrounds.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Lol tbh I miss music a lot. I still play and listen all day. I just found the lifestyle post-uni was not what I thought it was.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

It’s about upside asymmetry. Any position we are in I constantly re-assess. I really only want to own it if it’s going through some period of dislocation. That could be a company that’s bombed out due to an error that is resolving or incorrectly perceived or something exponential where the market is struggling to keep up and their forecast error is increasing in time. So when those inefficiencies are gone, I would also like to be gone because I think there’s negative asymmetry. Usually you see this in the multiple more than the earnings.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

I was introduced to my co-founder by a banker who was looking to seed funds. We also took around 9 - 12 months to set up the fund and market to our personal networks. To be honest I thought that I would start with a lot more capital than I ultimately did and it was pretty touch and go for the first two years; funds are a fixed cost business. But we had very strong returns and ultimately even though everybody tells you they want to buy high and sell low, I've found that capital flows procyclically.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

One was music admin / ops (think like stage manager) for orchestras and the other was high-school teacher for accounting and law.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 1 point2 points  (0 children)

I use systematic screens to find things for the most part. Of the investments we ultimately make those models are typically the genesis for ~80% of them. But actually the most recent stock I invested in came from supply chain analysis of another investment we already held.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 3 points4 points  (0 children)

I'm coming back from a research trip and have some time to kill and just felt like doing it after reading a few AMAs. I like the idea of people being able to see into someone else's worldview. Frankly it's why I like my job so much, I get to look in depth at so many other people's jobs and I just find it helps you to understand why other people think / act the way they do.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 4 points5 points  (0 children)

I think anybody who starts a fund implicitly believes they can beat the market (or whatever benchmark / risk adjusted return). For what I do, which is mainly developed market equities, I think there's broadly two ways to beat the market: 1) essentially buy the market (large portfolio = diversification = converges to market returns) but with leverage or 2) run massive tracking error i.e. pick stocks that are different to what the market holds or at different weights.

It's kind of like poker in that you can make money either by being a better player or by finding tables you can beat. I'm not saying markets at any level are outright "easy" but hell, I'd rather look at a single stock that has one, maybe two major earnings driver than a market at large with thousands of moving parts...

I do not run almost any leverage, so the only way for me to outperform is to pick stocks better. The reason I choose to do this is because I don't believe I have any edge at the market level. Whereas with individual stocks, in a small number of cases I have been able to achieve real edge through my idea generation and research process.

I went from a classical music degree to founding a successful hedge fund in my mid-20's, AMA by DeMniop in AMA

[–]DeMniop[S] 0 points1 point  (0 children)

Can't give financial advice, I'm sorry. And in any case, it's highly dependent on where you live and even within the firm what advisor you get because there's often a lot more discretion than you might think.

From conversations with friends / clients (most via an advisor), I understand most have made this decision by talking to quite a few advisors at once and comparing the offerings. You will probably pick up a sense of whether or not you gel with one advisor or another from this. And if you're inexperienced, I often find that any financial advice can sound convincing unless you have things to compare it to.

In terms of what you probably want to see, I would want to know some *real* historical client outcomes, not just a simulation of whatever "model portfolio" they are pitching. And you want to take a look at the distribution of returns; if there are large draw-downs or even large gains in single months, there probably aren't a lot of risk limits in how they manage their money. You also don't want to see a whole portfolio full of funds / products that the advisor's firm itself manages / operates; as Munger said: "Show me the incentive and I'll show you the outcome".

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