An interesting twist...

[Sam Harris]

Hi,

As some of you know, I am an engineer and an officer in the Air Force. I am half way through Columbia's online MFE and live in New Mexico. I have my resume posted on Columbia's MonsterTRAK and got a call from a small defense contractor a month ago wanting me to come work for them. I wasn't particularly interested, since I forsee a transition to finance in my near future, but they paid for the hotel, rental car, and plane, so what's to lose other than 27hrs of my life?

They want me to be an intel engineer 40hrs a week for the Army Test & Evaluation Center--no surprise there. But the second part of their offer was totally unexpected. After my 40hrs a week are done, they want me to... run a hedge fund they want to start. Their HF strategy is very creative and industry-specific. They just need someone who knows how to execute and magnify returns. And I would be paid a pretty standard HF MD pay scale.

The base pay is exceedingly competitive (about 2x industry standard) and the total package includes a lot of very valuable benefits including their paying a lump sum for the entire cost of my MFE.

What do you think?

 

[Uncle Max]

Sounds strange the fact that they want you to run a hedge fund after 40hr/week work. Usually it is vise versa - first you make money for us, then you do research and everything else you want. On the other hand, not everyday you have an opportunity to manage a hedge fund.

Anyway, this story sounds like movie script to me Very unusual situation with promise of a happy end.

 

[dstefan]

sounds strangely interesting, and hard to say no to, given that they would also reimburse the cost of education...

 

[Sam Harris]

It kind of makes sense that my primary job would be the engineering role because their main business is filling contract slots for the Army. They get paid an hourly rate by the Army, take a fee out, and then pass the rest on to their employees. In exchange, they take on the responsibility of finding contracts so if there is a gap, the employee isn't out on the street.

It also kind of makes sense why they would go after someone so young and inexperienced to run their fund. They want to maintain control over its direction (which they probability couldn't do as just another customer) and they probably can't attract an experienced pro because the fund is way too small.

...A question...

Aside from finishing my degree, where could I go to learn more about this additional duty? Are there classes or societies or journals or forums on the subject? I'm sure there are.

Thanks!

 

[Andy Nguyen]

Aside from finishing my degree, where could I go to learn more about this additional duty? Are there classes or societies or journals or forums on the subject? I'm sure there are.

You probably can find readings about daily task of a portfolio manager but you won't find anything that helps you getting alpha. Most books are very generic. Nobody wants to share their trade secrets

Good luck with the opportunity. I'd say take it. It's one in a life time opportunity to learn how to run a hedge fund.

 

[joe_bradley]

I have a question for Sam, partly out of curiousity, but partly for selfish reasons, as me joining a small company isn't out of the question.

My question is, do you know how many more senior people will you be working with? Is it just one or two? And to everyoe else, if that is the case, is that a problem? One benefit you get of being at a big firm is that there are much more senior people that you can learn from, and I'm curious if that's something of a downside to working with a really small operation.

 

[GusTsahas]

Sam, You certainly have an interesting offer but I want to take a bit of a devils advocate here….

As you primary goal is to get into the financial industry and have completed half of the CVN Methods of finance curriculum, I would keep your goal in focus to complete this degree ASAP and move full time into this business. It is hard to believe that after spending 40 hours working on a government project, you will be able to spend another 20 or so hours working on a hedge fund business and another 20 hours studying for two courses per semester to complete the Columbia degree. It’s not that I have not worked 80 hours a week in my life (as many others on QN have), but the three different endeavors scatter your attention to a degree where your performance suffers greatly.

Based on my experience in trading, setting up a trading vehicle that makes money without experience takes time…. Something like 4 or 5 years, which is about the time it takes to succeed in any business start up situation. As such, your relationship with your employers will suffer if they are in the hole for a million or two by the end of the first year. Think about it, 90% of mutual funds can’t beat the non-managed indexes, hundreds of hedge funds open and close per year as the fees cannot pay for the infrastructure or retain the capital. As a HF you are competing with companies that have almost zero cost of funding (LOL, it has gone up a bit over the last few months), rooms full of super computers and rows of PhD’s trying to squeeze money out of the markets.

As I said in the opening statement, the offer is interesting…… if you negotiate and manage the expectations correctly.

A) Take the job, and perform the normal duties expected from the government contract.

B) Complete your education ASAP, on their dime…. Get the money as a sign up bonus if possible. You should focus the remaining course work and research projects in school to learning about trading, risk and alpha. You can also do additional research on strategies, software, brokers and all the mundane things that come up with HF work during this time.

C) Right after you complete the degree in record time (a year or so??) you will focus your energy on creating this HF and making a zillion dollars for you and your investors.

While in their employee for the year you should also travel around, meet people in the financial field and set up relationships that you can use after your start up. The upside with this phased approach is a win-win for you, and mitigates the risk for your employers if they are smart… the markets will always be there for trading, it is the risk that is not properly analyzed.

I did run long, but people tend to only get interesting opportunities a couple of times in their lives so I figured, I’d give you my two dollars instead of the usual two cents.

 

[Sam Harris]

Excellent contribution! I'm glad to see that both the company and I see this progressing much the same way as you described (expectations management). First year will be all about meeting the contractual 40hrs of consulting + finishing the degree. 2 classes per semester x 3 semesters (Spring, Summer, Fall) is not out of the question. So, this time next year, the degree is done and we haven't invested penny #1. It also doesn't hurt that my MS counts as O.R., which will increase my billing rate to the government by $20/hr.

As for the HF (or whatever we should call it) I get invites to seminars from PRIMA and IAFE, and although I've been ingoring them, I'll start going and start learning more specific things from other people. With the degree under my belt, I'll probably know the right questions to ask, the right journals to read, etc, etc, and I'll still have the steady 9-5 paycheck rolling in.

Then and only then would we start seriously putting money into this HF.

EDIT: I guess what I'm trying to say is I'm not being hired to run a HF. I'm being hired to be an engineer. The HF bit is like a fun project on the side that the owner wants to mess around with and will take advantage of my extracurricular passions in the process.

I greatly appreciate your insight on risk being the primary concern. I guess making money isn't as difficult as not losing it. :-P

 

[Yuriy]

Very interesting
I don't picture running a HF as a side project, especially if you are right out of school. Of course, it is great to in terms of money they want to give and the opportunity, but what if you lose, say, 50% the next year

 

[Uncle Max]

It's also possible, that they want you to run a hedge fund "undercover", which means that in reality you are not going to do your 40hr/week research. Defense companies love secrets