Hedge Funds in a recession
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.
They make more money in bear markets (and more more bulls) than sideway markets
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.
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.
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.
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?
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.
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.
Two Sigma didn’t have any lay offs during the last recession :)
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
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.
Yes have an offer.
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.
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)
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.
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.
really depends on what type of fund is in question. market makers like jane street or optiver aren't dependent on bull or bear, but they do make more money in periods of high volatility. funds that pick stocks and are directionally long now that's a different story
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.
IN THEORY.