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Portfolio management jobs in hedge funds are so toxic, few can cope

If you want to be a portfolio manager (PM) at a hedge fund, then good luck. Yes, there is extravagant pay as leading multi-strategy funds chase the same people, but the job of a portfolio manager is not easy. 

Speaking on the Colossus podcastWill England, the CEO and Co-CIO of Walleye Capital, the Minnesota-based fund that's been transforming itself into a multi-strat, said it's not easy to find portfolio managers simply because so few people have the psychological stamina to do the job.

 "There is a finite pool of talent," said England. "The job of being a PM, whether you're quantitative or fundamental, is psychologically extremely toxic because you're going to be wrong basically just as much as you're going to be right. You're going to get kicked in the face a lot, and you're going to be someone who's the smartest person that they've known their entire life, and then they're just going to get beat up all the time."

Toxic portfolio manager jobs in hedge funds are not an anomaly, said England: they are "what the job is." Becoming a top performing portfolio manager "takes a certain psychological profile and that requires training, and I just don't think many humans are wired that way," he added. 

High staff churn, arbitrary stop losses and curtailed capital allocations 

England's observations echo complaints of high staff churn and arbitrary stop loss limits at some leading funds. Former portfolio manager Brent Donnelly has long warned that portfolio manager jobs in hedge funds are a slog. "Out of around 10 guys that I know who left banks for hedge funds, three have gone back to banking and seven are still in hedge funds,” Donnelly told us last year. “Of those seven, four are doing well and three are struggling.”


The fundamental problem, said Donnelly, is that if you lose $10m at a hedge fund, you'll need to make it back the next year along with the cost of your seat if you're to be eligible for a bonus. In a bank, the slate is wiped clean: “If you lose $10m in bank, you go back to zero the next year, and you can get a bonus again.” 

Equally, to compensate for that loss at a hedge fund, you'll need to outperform even more impressively in the future. "If you lose 1%, you need to make more than 1% to get back to flat,” observed Donnelly. And once you've lost money, the capital the fund allocates to you will typically be cut until you can show that your strategy is profitable.  The hill is steep and it gets steeper.

"The big platforms often allocate capital on a monthly or quarterly basis," says recruiter Natalie Basiratpour. "If you do badly, you will get less capital in the future. It's very hard to trade your way out of that." 

The best portfolio managers don't need to work... 

Only a particular kind of person can cope with this pressure, and those particular kinds of people are usually high-performing traders who don't necessarily need to work. 

This makes hiring top portfolio managers even more challenging, said England. "They don't want to be motivated by fear or they've already been burned out." They're not interested in ping pong tables or any of the paraphernalia of tech firms and start-ups. What they're really interested in is genuine culture, said England. It needs to be more than skin-deep. 

England said top PMS want to be treated with respect by the senior management. In turn, they want to respect the senior management. And they want this to endure. This, together with a culture of intellectual honesty, are what create a fund portfolio managers want to work for in 2023, he added. 

Drawdowns and offboarding 

What happens when a portfolio manager underperforms (and loses money)?

At this point, England said it helps to keep the process entirely rational.  Drawdown limits, risk allocations and offboarding are automated at Walleye to "take the human emotion" out of the process. Nonetheless, conversations can be had about the broader strategy. No one is "essentially being fired by some 23-year-old because in the spreadsheet, the cell goes from green to red."

How to get a portfolio manager job at Walleye 

Walleye has 100 portfolio managers and England said the fund is hiring.

The number one thing it looks for is "intellectual honesty," which he defines as really understanding why you made money in the past and why you will make money in the future.

Walleye also hires "excellent humans" who look after themselves in work and beyond. It doesn't hire prima donnas. "We're not going to hire high-maintenance people," said England. "Believe me, there's a lot of high-maintenance people in finance."

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Photo by Beth Jnr on Unsplash

AUTHORSarah Butcher Global Editor
  • ph
    15 September 2023

    Over about 3 decades in IB, I dealt with a lot of head traders, some of whom were both nice and smart - and capable, some nasty and often idiots, but a lot fewer PM's (none in hedge funds). The PM's were to be approached like royalty, only when they were ready, willing and able to give you a minute. But the ones I met, despite all this, always seemed professional, but yes, tightly wound up.

    As messed up as the IB world is, I think I'll take that any day over hedge funds. And not just because of PM's, but because of the incredibly bad management I encountered when dealing with bosses (think OPS) in hedge funds. Though the IB's were also loaded with incompetent and arrogant management. At least most head traders and PM's were actually accomplishing things.

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