transitioning into an institutional career from prop

thanks for the perspective and I can understand some of the concerns that an institution would have in hiring a prop trader. I have worked at brokerage houses before becoming a prop trader, so I am familiar with and would easily re-adapt to corporate culture. That is not the issue- I know I would perform well with one of these types of firms. It took me being a broker, then a trader, to decide EXACTLY what I wanted to be doing for a career in the financial arena. I also am well versed in both fundamental and technical analysis- I read extensively and put in a lot of work after hours- it drives my GF crazy. So, I'm working my old brokerage contacts, but REALLY need a list of hedge funds/ asset management firms by locale. I can sell myself and am young enough (almost 27) that I am still (and will be for a very long time) hungry, hard-working, disciplined and ambitious. I think for an institution to overlook someone merely based on the fact that they were once a prop trader is naive. Hiring should be based on:
1- if you really know your shit and have a solid education
2-if you are passionate about the market
3- you can demonstrate a track record
4- you demonstrate that you work well with a team (past exp.)
5- you won't waste their time and money, you will generate revenues and work VERY hard.

I can satisfy those criteria and more, so, what do I have to do to get a shot????
 
The institutional ranks have been indeed thinned by 2/3rds over the past 2 years due to declining volume and profit margins, even in the more lucrative area of Prime Brokerage where lots of banks are able to make good money on loans for leveraging positions, especially derivative positions.

Example: Deutsche Bank, which has the most aggressive equity derivatives desk in the business ( formerly Nat-West, formerly Morgan-Stanley personnel ) has a Prime Brokerage group that doesn't even have a West Coast Sales/Trader on the West Coast, and hasn't had one on the coast for many years.

As far as hedge-funds are concerned, no one on this thread has mentioned the fact that a majority of the hedge-funds out there are very small, with 2-3 people running them. Even the bigger funds that are around $1 billion ( and a dozen or so employees )have a big tendency to "skimp" on personnel costs.

Here are some issues to think about:

1.) Money Management just isn't a "body-count" intensive type of business.

2.) Most hedge-funds are FUNDAMENTALLY based where the partners have been former research analysts, and NOT traders.

Thus, there is no emphasis on the trading desk, or the mind-set that a good trader can add VALUE to the fund. ie.) Technical analysis is looked upon by most hedge-funds as some sort of "weegie-board" occult type stuff, especially at research based shops where MBA's are hired.

3.) Most hedge-funds are very cost-conscious.

Just because a fund is managing $800 millon doesn't necessarily mean that they are making a lot of money off their management fee to run their office and pay for their expenses. A lot of money is introduced to various funds at "razor" thin management fees, or no management fees at all.

4.) Finally, just because a few partners at a hedge-fund have a great track record, doesn't necessarily mean that they know how to run a business, or know what to look for when hiring personnel. Again, this is especially true when it comes to looking at traders.

One of the greatest issues that partners of a new hedge-fund struggle with is whether or not to hire a basic "order-taker / executions clerk" for $45,000 - $55,000 OR hire a senior trader that can add value from his experience level, at $125,000 plus bonus.

The Wall Street Journal loves to "glorify" the top hedge-funds and their traders, like SAC, Moore Capital, Tudor, and Duquesne Capital, but the fact of the matter is that this is just 2% of the hedge-fund universe.

As for getting an MBA:

Make sure that you have an emphasis that is "quantitative" in nature. The AXA-Rosenbergs and Barclays Index Funds of the world all ENGINEER portfolios based on tons of mathematical formulas and parameters. A discretionary "prop" trader background is totally foreign to them.

Best of Luck.
 
As someone who spent some time on the front lines in equity research at a major firm..here's something to consider...

Most people who choose to trade on their own have a major dislike of the corporate structure, taking orders, and are rebellious non-conformists, and have a real need to prove themselves on their own. Whether trading or selling bagels.

The type of people you will find at most I-banks and hedge funds are conformists who have been told that this is the track to follow; make the right contacts etc types.

It's like oil and water; comparing the two.

Make sure those are the type of people you can stand being around if you want to go the institutional route.

Otherwise stay on your own.

Best,
david
 
Beyond the question of why would you want to go institutional if you are already successful at prop, as I am sure you have many value based reasons for wanting to do so.

The consensus I have read here is that those big firms will tend to discount your abilities because the assertion is that when you are a prop trader, you, for lack of a better phrase, cannot really be a team player. This reduces your intrinsic sheep value. Second, that prop traders have little education because they do not read the Wall Street Journal and are technically based. I think the underlying assumptions made in the second point is that the opinion they have of prop traders is that they have no cohesive universal (used in place of the word fundamental to avoid confusion) education in markets. When I am at my busiest trading, I find my least value added time is any time spent reading the WSJ or even listening too much to Bloomberg or CNBC. But if I was at a big firm, whether that knowledge would help or not, I would need to have more up to date knowledge of that stuff to prove myself around the water cooler. To me that time is an investment in the institution, and the choice is yours and mine.

Whatever the truth to the above is, if thats the belief system of the people hiring you and evaluating your performance, then to the degree that that is true, it will be an issue. I once interviewed for two such positions, and when I presented my yearly returns to my interviewer on one occasion, he did not believe my results, and actually criticized them, albeit politely. Maybe he saw me as one of those California mavericks who would turn his office upside down, or maybe he was jealous that he was married to his office until 5 pm every day, hoping that he always says the right things at company parties. I am trying to be objective here but the 'Maverick' in me can't stay quiet.

The appeal of trading for me initially was, whether ironic or not, freedom. However, I quickly learned that I was bound by the most high of all forces, the market's behavior. If you go institutional, you will probably be bound more my the current social behavior and less by your awareness of the market. When you are wrong, there will be plenty of others to commisserate (sp?) with.

I have a few friends who's MBAs have not given them enough ability or self knowledge to trade their way out of a paper bag, and I consider these friends highly intelligent and they all matriculated from the good old boy institutions. The key word is "institution." I believe how you define and how you place yourself near that definition is probably the most important factor in a good decision about staying prop or making the change to the institutional side initially.
 
Quote from limitdown:

So, you're odds of success are better than even on your own, and what you can give yourself, however, being within a team has its rewards also.
More...

i enjoy what i do - i'm not a "prop", i'm a solo - but there are times i miss my engineering days of working with a team on something bigger than i alone could handle. i also miss the random bits of inspiration or learning that can develop out of interactions under stress.
 
I am also thinking about going institutional from prop-
I have a thread entitled "trading masters degree" where I am asking about the value of getting a masters degree with a trading/ alternative investments concentration. I think it will help, you all should check out the thread and tell me what you think :D
 
honestly, besides hedge funds, trading for a mutual fund (basically an order clerk handling larger size, or being a programmer/tradaer, I think the "old" school salestrading and marketmaking jobs are being computerized..

NASDAQ marketmaking is done as far as we know it (I know, my firm shut down last summer :(), many clients are using ECN's so saletraders cant keep the accounts happy...

Unles you can land a job on the NYSE as a specialist (even this will be gone in 10 years is my guess), you are best off using your track record and trying to impress a hedge fund..
 
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