Anyone know what kind of capital you get to trade with as hedge fund trader ? What you get usually for the beginning and what can expect later ? Maybe it depends on the size of the hedge fund too, so if you could factor in that too in your answer, that would be fine. And what are usually the profit split (20% or only 10% e.g. ?) and the max. drawdown you can do as trader ? I am in early stadium of talks of being hired as hedge fund trader, so I would like to know more, if I get an offer.
What kind of AUM you get as hedge fund trader ?
- Thread starter TrAndy2022
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Robert Morse
Sponsor
Interesting you asked this in the "Prop Firm" forum. It would depend on the AUM of the fund, how scalable your strategy is, how the risk/reward fits into their metrics and if a multi-strategy fund, what size "bucket" you are filling. Basically, the larger multi-strategy funds will look for a manager to fit a need they have targeted. They sometimes go to a Manager Of Managers (MoM) to review other hedge funds or managers to find the best fit.
Robert Morse
Sponsor
Short story-Many years ago, mid-90's, the head of risk at a well-known hedge fund brought me in to meet management to discuss opening an option desk. I was well prepared for the meeting, but they asked one question I was not expecting. I was very accustomed to talking to those that wanted to know how much money would the strategy require. They asked, how much money can we allocate? When I asked for color on the question, they said if we can't start with $25mm and in 6 months, if happy scale to $250mm, it was not worth their time. At the time, my best guess is they had about $7b in AUM. No, I did not get the job. One reason was I pitched the option desk as a combination of floor market makers and off floor traders, and they had no interest in becoming a broker dealer and losing allocations of IPOs that were easy money.
Robert Morse
Sponsor
I'm not sure what type of example you are asking for. You need to look at it from your POV, not theirs. You need to profit a certain amount of money to do just that business for just them. You need to determine what allocation makes sense for your time. If that is $300,000, ask for that. If that is $30mm, ask for that. If there is no path for you to get what you need, it does not matter.
About 12 years ago, I traded for a HF where they started me off with $10m notional funding. Fee split was 20% of profits to me at the $10m level. As the assets went up there was a declining split for me according to a sliding scale. Never got to that stage though as I was shut down after a few months of crappy performance.
...do you can recall what was the max. allowable drawdown they permitted for those 10mm funds ?
If I recall, I was in a -10% drawdown when they shut me down. But I think the agreement allowed for a -20%. It was a pre-emptive move - they felt my model was broken. It was a quantitative macro prediction strategy.
Such bad luck!, any idea how the strategy would have done in the months or years after they shut it down?
I ran it for a few months after shut down for my own personal curiosity. It did not make a stellar recovery. It was during the Bernanke era and the early days of zero interest rates and asset prices were not moving normally. The model might have roared back to life in recent years but I haven't bothered looking at it.
I think he means as a trader, man a person asks a simple question and everyone has to stomp on this guy first.
Well usually you need to be of a certain breed, high pedigree I think they call it.
But if you can land a job at a hedge fund make sure your profit split is 50% at the minimum. The online props can do 80% or 90% profit split. I would try something small first and see if the strategy works but not small enough that you are not piking it, but big enough that you won’t throw up looking at the numbers. Usually they charge you desk fees, commissions, data fees they’ll get there money out of you somehow.
Well usually you need to be of a certain breed, high pedigree I think they call it.
But if you can land a job at a hedge fund make sure your profit split is 50% at the minimum. The online props can do 80% or 90% profit split. I would try something small first and see if the strategy works but not small enough that you are not piking it, but big enough that you won’t throw up looking at the numbers. Usually they charge you desk fees, commissions, data fees they’ll get there money out of you somehow.