Companies like AHL and Winton have completely different goals and ways of making money... they got into the “quant” (a.k.a. trend following) industry very early and still reap the benefits, they have big AUMs, scalable strategies, etc, but (AFAIK) their actual performance isn’t that amazing (compared to RenTech, Two Sigma, Citadel, ...).

I only interviewed at AHL so I cannot speak of the quality/intelligence of people working there, but judging by the difficulty of the interview, compared to some other companies, my conclusion is that their hiring bar isn’t that high. I also wonder how limited these companies are in their investment strategies - either they cannot invest into more sophisticated strategies (limited by investor agreements), or they don’t want to, because poor known returns are easier to justify (“trend following just had a bad year, nothing we can do about it”) than poor unknown returns (“we tried thes completely new thing that we have no experience in, and it didn’t work and we lost a lot of your money”).

Winton is fundamentally dissimilar to AHL. Winton have a reputation for skill and outperformance. AHL have a reputation for blundering incompetence (that is why the 'H' in AHL left to start Winton, and became a billionaire doing so).

The only goal is to make money. I understand your point in that AHL are dissimilar to RenTech but I didn't say any way was correct. The right way is whatever makes money. You have firms that look like AHL and do better.

I would look at who they actually hire. From what I know, there is almost no-one in their quant team who didn't go into Oxbridge (at least for PG). That is not a low bar.

Btw, I have seen this elsewhere. I know of non-quant firms that only hire from Oxbridge, and they get the same result as firms that don't have a specific analyst program (i.e. everyone rotates through admin/sales/marketing).

The point isn't that this doesn't work. RenTech have a high bar, it works. The point is that you have to really understand why you are doing it. Hiring "smart" people without thought only results in a higher wage bill.

And if we are going to get into it: one big issue with AHL has been the management (that is why David Harding left). They have got better but I don't think they are totally out the woods (I have heard they are trying to do momo in illiquid and esoteric markets...which won't work).

Saying it is the clients is one of the worst excuses in investment management. That is actually true one time in a hundred (BlueCrest is one). It is like the crap football teams complaining about good teams having all the money. Good fund managers have good clients because they don't fuck up all the time. The issue is AHL, for whatever reason, kept trying to do the same thing for decades, and expected to print money.

Thanks, interesting and insightful comment.

Regarding analyst/graduate rotations, what do you think is the actual value there? To me it seems just a way for the team to lose a potentially decent employee just as they’re done training him/her. If the idea is to familiarize juniors with the firm, what it does and how it works, wouldn’t a shorter program with direct lessons work better (e.g. what some investment banks do - send everyone to the HQ for a few weeks - or Jane Street, where everyone first learns OCaml)?

The value is that they hire a ton of people with a very low bar. The smartest go into investment research, the next lot go into sales, the next into marketing, the rest into admin.

The effect, I believe, is two-fold: one, these guys are cheap. And two, you don't have to rely on someone's education, you can see if they actually can function in the workplace.

But this places a huge burden on actually being able to train people who aren't particularly intelligent to do a complex job and creating a team-based culture (i.e. where the sum is greater than the parts).

One example of this is Aberdeen Asset Management. They went from one guy in an office to one of the largest asset managers in the UK (and the world) by hiring this way. A big part of their growth came from acquiring firms with lots of lazy Oxbridge types, firing them all, and moving in their low-cost team of guys.

This isn't like what IBs do, it isn't what Jane Street. Both are highly selective, and hire into specific jobs. IBs will do a big training program over a few weeks to get everyone up to speed (i.e. on accounting, whatever) but what I am talking about is 3-month rotations through every part of the business.

HR at IBs hire "geniuses", they hire the best of the best...if you do this, it makes no sense to pay them a big salary and then stick them in the back office (they will probably get poached). Now most of these people aren't actually any good, most will get promoted up to VP because they have been there X years, and then get laid off during a recession...but the hiring culture is totally different (and btw, massively overstates the ability of HR too). And btw, it is semi-efficient because most IBs understand they will end up with a bunch of overpaid turnips...it is worth it to find the next rainmaker (but the rainmaker in asset management never pays off because they get poached).

Interesting.. yeah you're right, AFAIK better banks (Goldman, BAML) hire for specific roles even for non-IB teams... All in all, I often wonder if/how it's possible to improve on both of these approaches, how to figure out both if someone is actually intelligent (as opposed to just booksmart, or got the interview questions from the recruiter) and whatever else is needed to perform (drive, common sense, not IYI, ... I'm probably not experienced enough even to know, let alone to judge...), particularly for computer developers or generally researcher types.

Btw, I'd love to meet and chat about this. If you're in London, feel free to email me tom.primozic at gmail

I would argue its because academic success is more related to having a great memory than having novel intelligence

I am sure I have no idea why this it is the case. But I would characterise the "novel intelligence" as a combination of creativity and common sense.

RenTech aren't hiring smart people. They are hiring people with technical ability and with a proven track record for solving very open-ended problems.

AHL is mainly hiring grads, definitely very smart people with strong postgrad quals but with no real track record. This can work if your model is technology-based like a Citadel or Jump. But you will get creamed in the world of RenTech.

All I can say for sure is that I have definitely seen this in non-quant investing. Firms that hire people from worse academic institutions, focus heavily on training, and have a culture that encourages teamwork do way better than firms that hire the "genius" types.

Right, I've worked at quant funds and met a ton of people at different funds. The weird thing about hedge funds, is that until recently, prestige and outward appearance have been traditionally more important than returns. This is changing now, especially with ETFs and the explosion of passive management and the media exposure/public discussion about how finance has really been about money managers making themselves rich, at the expense of institutional investors and pension funds. Its a business, where the model is not returns, but instead the appearance of a coherent brilliant investment philosophy.

For example, AQR (which is more of a mutual fund I know, but its a prime example) is known for hiring based on academic prestige, and the returns have been absolutely dismal. But they have a specific "investment philosophy" and a brand name, so the game is to never admit that their strategy is a failed one. They cant outwardly say their strategies dont work. Its the same with replacing a bad portfolio manager, funds whos portfolio managers are well known cannot switch them easily, as soon as investors discover a big internal change (like high up management/PMs leaving) they know something is wrong and may pull their money.

This all ties in to how they hire, with school prestige usually the most important criteria. I worked at one place where everyone on my team went to either princeton, yale, or wharton. They were all intelligent, energetic, on the ball. None of them were "exceptional". Whats worse, none of them could program, none really knew statistics, etc, but they were all "Data Scientists". I was appalled at the amount of money being made and how much these guys were being paid.

This is in contrast to places like Citadel or Two Sigma. Whose business model still holds prestige, but is basically already a well oiled machine. Citadel doesnt need a brilliant mathematician like Jim Simmons, they need a smart guy that can crank out work, who fits as a cog inside their money printing machine. Citadel is better at things like HFT, some alternative data etc, but its a calculated better, they know where to get their edge, how to get it, and who to hire for it. Its a business where the employees can be plugged in.

Thanks. That is very useful. I come from the other side i.e. looking at funds so it is great to get an idea from the inside.

I can only add that I have seen the same thing with prestige outside hedge funds. A fun example is Andreessen Horowitz: no-one feels stupid underperforming with these guys, I mean look at Marc's head...he has to be a genius, right? Lul.