Over the past few years the biggest firms have been locked in a bitter talent war that has sparked conflict, litigation and retaliation; and contributed to at least one outfit going bankrupt.
Amid a brutal hiring war, Steve Cohen’s hedge fund, Point72, is going in a radical new direction: Training schemes for in-house superstars. More than a decade ago, hedge fund titan Steve Cohen and his portfolio manager Harry Schwefel sat huddled on SAC Capital’s busy trading floor. Schwefel was musing on how a run of lucky breaks had powered his rise at the firm. Cohen’s reaction: “We shouldn’t allow it to be luck anymore.
At Citadel, trainees are taught how to back pitches from colleagues lower down the food chain; at Balyasny they get a limited pot of cash and have to deliver returns that match or beat the firm’s older hands; Point72 wants its cadre to think like CEOs, meaning they’ll need to create and run a book of ideas, all while getting total buy in from their teams. Their every move is tracked and analyzed, and the data pored over to make sure they have the right stuff.
Staff shortages put serious limits on the large “multi-strategy” firms, those who hand capital to dozens of traders. Citadel, Millennium Management, Point72 and Balyasny have all slammed doors on new cash despite rampant demand for their funds. Citadel has gone further, giving back $25 billion to clients since 2017, equal to half the industry’s total net inflows over the past 13 years.
Talent gets you in the building, but Point72’s Schwefel insists on genuine passion for investing. Citadel’s Lee says it could be a trader’s ability to assemble and lead a team, not always an obvious trait in a world ruled by alphas. At billionaire Dmitry Balyasny’s hedge fund, pure grit is prized highly.
Point72’s Mike Mongiardini took a similar path and has gone that extra step. Another ex-baseball pro, he spent five years in U.S. special forces before heading to Columbia Business School and then Point72. In a recent company podcast, Mongiardini talks about military attributes that equipped him for high-stakes finance such as surviving without the full picture, taking risks that you learn from and building expertise through repeatable behavior.
A trader losing 5% at some places including Millennium may see capital partially withdrawn, according to people familiar with the matter. A 7% decline could bring instant termination. Eisler Capital has stopped out traders for losing less than 5%. If Warren Buffett worked for one of these firms, he could have got himself fired eight times over the past decade for breaching risk limits, judged by Berkshire Hathaway Inc.’s share performance.
Cohen’s Point72, whose training scheme allowed it to rebuild after SAC paid a record $1.8 billion fine to settle a long-running insider-trading probe, taps bright sparks anywhere from university to senior analyst level. The program is helping the firm discover what skills are absent in-house so it can concentrate its fire on outside recruitment targets who bring what’s missing.
Lee recalls presenting to Griffin within a year of taking over Surveyor, one of Citadel’s stocks units. On the first page, he described his ambition: I’m going to create the best equities platform on Wall Street. Griffin, sitting across the table, interrupted: Not platform, team. “It seems like a really small difference, but it’s actually pretty powerful in my mind,” Lee says.
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