MM Hedge Fund vs Prop Trader
Have been at a MM hedge fund doing equity L/S for 3+ years, but pod recently blew up so have had to look for new jobs. Have offers from other large MMs in similar roles, and also from a big prop trading firm (CitSec/Jane Street/Optiver). How do you think about the differences in day-to-day/hours/career progression in those firms vs more traditional fundamental equities? And how to compare the two?
What will you be doing at the prop shops that is similar to what you'd be doing at the pods?
Would be in equities/quantamental type thing
Personally, would spring for the prop firm offer in a heartbeat. Not sure what you're optimizing for in your career, but I think prop offers a good mix of both stability and earnings potential. You probably won't be the guy making $10mm+ in a year and will instead be making a cool $1mm - $3mm at your peak. However, you will be able to do that for a much longer period of time with a lot less stress given the sharpe of your strategy will be far higher. All in, your lifetime career earnings are likely to be higher in prop as opposed to hedge funds for the median performer with less volatility. Then again you might be a degen and want to hit it out of the park and chill on a boat somewhere. Up to you.
What do people normally do after or if they leave prop firms? Or do most people normally stay once they’re in? Am just trying to figure out what the rest of my career could look like if I move vs from a HF where it feels like there are more options
lol this is true for quant but not at all for discretionary… discretionary prop is just a crappier version of MM L/S, u get a tighter leash, lower downside protection, 0 firm support, nonexistent exit opps…
I would disagree with this comment. The key difference between discretionary prop trading and mm l/s is that you are judged on total return as opposed to all the hoops you have to jump through to be factor neutral at an mm. It is more similar to what people think of when they think of trading which gives you a fair bit more freedom to express your view, with the caveat that you will have short time-frames like an mm pm will. Not sure what firm support you would be referring to at an mm as they are just a platform for you to run your business. If anything there is a lot less bureaucracy at a prop firm which experienced PMs would probably appreciate (eg. biz dev says you need to keep a team of analysts when you know they are not needed and are just going to be window dressing). As far as exit opps go, you can fail out of prop into a stable execution trading role where you will make similar to most other parts of finance. If you want you can use that as a springboard into something else depending on the firm. From what I can tell a lot of failed PMs/sub-PMs/analysts at an mm might end up out of the industry altogether. You might be right about the tighter leash and lower downside protection, but that's why you get far higher splits and superior tax advantages. Again, that comes down to your individual preferences. I'd say that the tradeoff between the two environments is properly priced and that you are trading for what you are optimizing for in your career.
What are examples of some of these "prop firms" for you?
hijacking the thread to ask a question - didn't realize there was that much cross over between fundamental l/s at a pod shop and working at a prop shop like JS/2sig. Can someone basically run the same strategy that was being done at MMHF at the prop shop (talking to management teams, models on coverage + alt data, pair trading?). Wouldn't that be a bit strange though?
My assumption was the prop world mostly consisted of quant analysis first and foremost, and uncovering inefficiencies in different parts of the market and exploiting them. Or basically, the circle of competence is primarily market making, which has then been expanded upon into new areas).
At the end of the day, is the thinking that this is a person who can contribute incremental perspectives on the fundamental daily drivers within a sector, which will aid in some of the more discretionary day to day parts of prop world?
Idk - maybe someone needs to ELI5 what the hell discretionary / fundamental people do at prop shops like optiver, jane street, 2sig, etc. Was always above my competency level lol
They feed discretionary inputs into a quantitative model - sometimes just things like EPS estimates, sometimes the quant firm asks you to run a sleeve like you would at a pod (could be paper or real $) and uses these inputs from multiple discretionary analysts as a trading signal. Think TOPS at Marshall Wace or alpha capture/centre book at the platforms, I’m sure the mechanics of the strategies differ but the idea is the same.
"Can someone basically run the same strategy that was being done at MMHF at the prop shop?"
https://www.ft.com/content/b7b2508a-e68c-42d3-864e-2eec0c4541a3
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