Hedge Funds in a recession

Facebook Valmanway
Dec 16, 2018 19 Comments

With all this talk of a recession in the near future, is it safe to join a quantitative hedge fund like Two Sigma as a SWE? On the one hand, the volatility could be an opportunity for them to make more money, but seems like it could go bad too with clients pulling out their invested funds.

Is there a significant enough risk of layoffs at quant hedge funds that I should stick to FANG? I imagine being a SWE at a hedge fund might be even more risky since they're generally seen as less important than the quant researchers.

Is FANG that much safer? FB and Google make most of their money from ads, but there'd probably be a lot less businesses paying for those ads in a recession.

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TOP 19 Comments
  • Apple ijyA68
    In theory, hedge funds should make money regardless of whether the market goes up or down, just as long as it is moving. Depends on the skills of the people picking investments.
    Dec 16, 2018 1
    • New newew
      IN THEORY.
      Dec 16, 2018
  • Microsoft tdBE51
    Lol, used to work in investments. I saw a few quant hedge blowing up in my days. Honestly, if they pay you then go, but don’t expect staying forever. Nobody has a crystal ball in this industry, one year you make money next year you lose money.
    Dec 16, 2018 0
  • Chase tjPE83
    Two sigma has teams doing market making and other strategies which benefit from high vol. so they should be ok. On the other hand if the hedge fund is a long only hf, then it’s a no no
    Dec 16, 2018 0
  • New / Eng RhpJ71
    Is there any difference between buying a stock Vs shorting it? You can make or loose money both ways. In either case, you are betting.
    Dec 16, 2018 3
    • Varian Medical / Product
      NzLh55

      Varian Medical Product

      PRE
      Apple
      NzLh55more
      Yes there is a huge difference, your potential downside is unlimited in a short. The proper analogy is buying a stock versus buying a put option.
      Dec 16, 2018
    • New / Eng RhpJ71
      Is this the scenario that you are talking about: if a stock is worth $10 and I buy it, I could loose up to $10. If I short it and it rises up to $30, I loose $20.

      In the above scenario, sure the upside is theoretically unbounded. But practically speaking, if I run a hedge fund, I would: 1) sell/unshort when my effective loss crosses a threshold, 2) in a down market, your stocks are more likely to go down than not. So how are they different from a practical perspective?
      Dec 16, 2018
    • Varian Medical / Product
      NzLh55

      Varian Medical Product

      PRE
      Apple
      NzLh55more
      You don’t “sell/unshort” - you have to buy to cover. And you will get margin called when the value increases enough.

      From a practical perspective you want to buy the put option, it is in the money when the stock decreases, can be sold, and your total risk is capped.

      Please learn to spell “lose” before starting a hedge fund.
      Dec 17, 2018
  • Amazon / Eng jNeo42
    Do you have an offer with 2S? If not, then this thread is a waste of time. I rode with a hedge fund from $10b to $16b and eventually down to zero. Over 7 years of my career. And it was the best damn job I will ever have.
    Dec 16, 2018 1
    • Facebook Valmanway
      OP
      Yes have an offer.
      Dec 16, 2018
  • Bloomberg / Eng
    WPslayer

    Bloomberg Eng

    PRE
    Fidessa
    WPslayermore
    Hedge fund always have the danger of customer withdrawal. Plus they have to outperform benchmarks each and every year.

    Then again you like at the hurdles Facebook is facing.
    Dec 16, 2018 3
    • Facebook Valmanway
      OP
      I'm planning to leave FB :)

      But trying to decide if a hedge fund like Two Sigma would be just as or even more unstable and risky or if I should just go to a place like Google.
      Dec 16, 2018
    • Two Sigma coMi35
      Two Sigma didn’t have any lay offs during the last recession :)
      Dec 27, 2018
    • Bloomberg / Eng
      WPslayer

      Bloomberg Eng

      PRE
      Fidessa
      WPslayermore
      You mean the financial crisis in 2008 and following years? How’d they weather the storm? They have enough insider money that they didn’t need to worry about withdrawals?
      Dec 27, 2018
  • Roku / Eng UXdesign
    Most quant hedge funds are market neutral. They didn’t make a shit ton of money in the bull rally previously, and they don’t lose a shit ton of money in the bear market now. They operate on relative movements of stocks, and not the absolute movement of stocks.
    Dec 27, 2018 2
    • Cisco / Finance baby jesus
      Not true, quants make more money in bull and bear markets due to the increased volatility. When the market runs sideways, they make less (still profitable)
      Dec 27, 2018
    • Roku / Eng UXdesign
      You are assuming that bull/bear market == high volatility which is not necessarily true. My statement still holds.
      I tend to agree that they make more money on increased volatility because of increased inefficiencies in the market. But, to say that they make more money in a bull/bear market is false.
      Dec 27, 2018
  • Amazon / Eng jNeo42
    Hedge funds will make money wherever they can. They’ll invest in brothels if it’s profitable. There are always profits to be had somewhere no matter what. Where they can go wrong is over-levering risky bets. But the “hedge” part has been traditionally to offset those with other strategies. So in flat years the investors are left paying fees for ho-hum returns. But institutional investors only put a small allocation in HFs, so they can survive average returns as long as they’re not losses. But then the pressure is on the funds to dial up the risk to differentiate, otherwise they’ll gradually lose clients. But they’ll take their fee earnings and will parlay those into new ventures.
    Dec 28, 2018 0
  • Cisco / Mktg IhaveAIDS🌈
    They make more money in bear markets (and more more bulls) than sideway markets
    Dec 16, 2018 0

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