need advice to whether to join a hedge fund or a prop shop or to go solo?

V

vita

I am in a crossroad that am sure is familiar to many of you. I have to decide how to move forward from here. I left my quant position in wall st a couple of years ago to develop and test trading models. I finally came across a great model, and build a production level trading system around it. But it's a little too late as I already ran out of money to trade it or even create a track record and look for a PM position. I've been talking to several hedge funds and prop shops and here are the options:

1) Join a hedge fund who is willing to help with their capital and resources to make the model up and running. The catch is that they want me to share the secret sauce with them!?
2) Join a hedge fund with a long-term commitment. They provide the capital but I am legally binded and locked with them for +5 years.
3) Hibernate the model, go back to work as a high-frequency quant strategist or a jr trader for years until I pay off my debt and make enough money to give it another shot in 3-4 years.
4) Borrow my last 10K credit line and trade with this scared money but with the highest discipline I can find in myself.

I'd appreciate your advice in which option you recommend putting yourself in my shoes. I also want to add that I'm professionally familiar with trading psychology and back testing problems and hence have full confidence in the model I have (3digit return w/ Sharpe >5).

Sorry for the long post and many thanks in advance.
 
Quote from vita:


1) Join a hedge fund who is willing to help with their capital and resources to make the model up and running. The catch is that they want me to share the secret sauce with them!?
2) Join a hedge fund with a long-term commitment. They provide the capital but I am legally binded and locked with them for +5 years.
3) Hibernate the model, go back to work as a high-frequency quant strategist or a jr trader for years until I pay off my debt and make enough money to give it another shot in 3-4 years.
4) Borrow my last 10K credit line and trade with this scared money but with the highest discipline I can find in myself.
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If you have an opportunity to join a hedge fund to employ your ideas (and get paid), then you should take the opportunity imo. It's a remote probability that this single "system" is the last or only trading approach you will use or develop. Intellectually, you probably know that. Emotionally, you probably hope not.

Don't wait, put your ideas into practice one way or another. If it'a an invaluable system, new doors will open up. If it tanks, then you can move one.

Don't borrow if it's your "last" 10k. Borrowing is leverage, which we all know can be a useful option . . . but not when it's your last option. That's desperation. Successful people aren't desperate.

Keep trading.
 
Quote from JScott:

If you have an opportunity to join a hedge fund to employ your ideas (and get paid), then you should take the opportunity imo. It's a remote probability that this single "system" is the last or only trading approach you will use or develop. Intellectually, you probably know that. Emotionally, you probably hope not.

Don't wait, put your ideas into practice one way or another. If it'a an invaluable system, new doors will open up. If it tanks, then you can move one.

Don't borrow if it's your "last" 10k. Borrowing is leverage, which we all know can be a useful option . . . but not when it's your last option. That's desperation. Successful people aren't desperate.

Keep trading.
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Great and concise words of wisdom. Thank you.
I was warned by several professionals about 2 things which can go wrong when joining a hedge fund. First, is the non-compete clause and the other legal bindings which gives the hedge fund the shared ownership over the model. Second is the high probability that once they get your model, they won't recognize you and push you out. In other words, you gave your model away AND are stuck with legal obstacles to use your own creation for a year. It's really a pickle. I totally agree with you but I have to come in terms with my feeling about this and become "reasonable".

Thanks again.
 
IMHO I'd say go with the hedge fund with the long term commitment. Remember that the clauses don't have to be one sided and just talk with someone experienced (ie lawyer) when negotiating the contract so you get some protection too. I'm assuming the model is highly scalable, so you'll probably stand to make a lot more money quickly by getting the smaller share of the pnl through the hedge funds bigger pot. Plus, if your model is working today, you want to employ it now as heavily as you can - you never know when the edge will change. You might get lucky, the firm might not make you hand over your rights to the model (rare, but it dows happen), though you can understand them wanting to peak inside for risk management purposes.

You don't want to trade with your last 10k availible. I don't know you and don't mean to be a jerk, but I would imagine that if you're honest with yourself you'll find the only reason to try it with your last 10k is greed. Some people get lucky, but it doesn't tend to turn out well. If you can make mid 3 digit % returns it would still take you years to catch up to your potential hedge fund compensation.

All just my humble opinion, so take it for what its worth.
 
Quote from nebulous:

IMHO I'd say go with the hedge fund with the long term commitment. Remember that the clauses don't have to be one sided and just talk with someone experienced (ie lawyer) when negotiating the contract so you get some protection too. I'm assuming the model is highly scalable, so you'll probably stand to make a lot more money quickly by getting the smaller share of the pnl through the hedge funds bigger pot. Plus, if your model is working today, you want to employ it now as heavily as you can - you never know when the edge will change. You might get lucky, the firm might not make you hand over your rights to the model (rare, but it dows happen), though you can understand them wanting to peak inside for risk management purposes.

You don't want to trade with your last 10k availible. I don't know you and don't mean to be a jerk, but I would imagine that if you're honest with yourself you'll find the only reason to try it with your last 10k is greed. Some people get lucky, but it doesn't tend to turn out well. If you can make mid 3 digit % returns it would still take you years to catch up to your potential hedge fund compensation.

All just my humble opinion, so take it for what its worth.
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Thanks for the tip for the legal issues. And you're also right about avoiding more leverage. But I think you're slightly more optimistic than I am about hedge fund loyalty. My lack of optimism comes not from fear but from the warning of market insiders including prop traders and hedge fund PM's. I appreciate you response.
 
Quote from vita:

I am in a crossroad that am sure is familiar to many of you. I have to decide how to move forward from here. I left my quant position in wall st a couple of years ago to develop and test trading models. I finally came across a great model, and build a production level trading system around it. But it's a little too late as I already ran out of money to trade it or even create a track record and look for a PM position. I've been talking to several hedge funds and prop shops and here are the options:

1) Join a hedge fund who is willing to help with their capital and resources to make the model up and running. The catch is that they want me to share the secret sauce with them!?
2) Join a hedge fund with a long-term commitment. They provide the capital but I am legally binded and locked with them for +5 years.
3) Hibernate the model, go back to work as a high-frequency quant strategist or a jr trader for years until I pay off my debt and make enough money to give it another shot in 3-4 years.
4) Borrow my last 10K credit line and trade with this scared money but with the highest discipline I can find in myself.

I'd appreciate your advice in which option you recommend putting yourself in my shoes. I also want to add that I'm professionally familiar with trading psychology and back testing problems and hence have full confidence in the model I have (3digit return w/ Sharpe >5).

Sorry for the long post and many thanks in advance.
More...
Join a hedge fund, negotiate well (with a professional's help), do not sign anything punitive. I think it's the best option.

You have to remember that HF people are not stupid. They, as well as, hopefully, yourself, realize that the thing you have created is not guaranteed to work forever and edge erodes with time. Thus, if they are interested, they would be interested in the creator of 'secret sauce', rather than the 'sauce' itself.

My 2c...
 
Look at smaller funds and ask to be made a partner based on your success after a certain time or objective is met. Also look into having a "key man" insurance policy that is not only in their favor. This is all depending on how close to the holy grail you think your edge is.
 
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