How can an Average Joe break their way into a Hedge Fund career? (w Chun)

Amidst all the flare and vibes of a career in the financial world, the question many will have is, can I? Do I have what it takes to be part of this space? Do I need to be a top scorer of my cohort? Do I need some insider connection to get a foot in the door? Do I need to stack multiple internships during my holidays? Do I need a fancy resume to even be considered? Today we break down these questions with Chun, a self-proclaimed humble background trader cum coder in an Algo-trading firm. His journey was long and winding, hopping around before finding his sponsor to help him break into the fast-growing space of Algo-trading.

Many great real tips in today’s episode, enjoy!

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podcast Transcript

Sato: Hello, hello, hello! My name is Sato Shi and I warmly invite you to my show, Finding your (H)edge. 

Finding your (H)edge is a five-part special brought to you by the good people at The Financial Coconut. Join us on a journey into the deep universe of hedge funds as we seek to uncover the truth behind their workings. We’ll be inviting industry experts and insiders on our show, coaxing them, grilling them, and convincing them to share with us the keys to the promised land. Ultimately, we want to give you that edge as you venture into the vast arenas of the financial world. 

In today’s episode, we have Chun joining us. Chun is working as a boss and he heads up one of the algo trading divisions in a hedge fund. Fun fact about Chun, he is gifted in the fine arts. And he’s here with us to answer the question of this episode: will an average Joe be able to join a hedge fund? Welcome to the show. 

Chun, thanks for joining us today. So, I mean, in the day-to-day , if you could just share you know, what do you do? 

Expand Full Transcript

Chun: For me, I have to monitor the markets and then look at the different algorithms , the strategies when they’re running, because there’s no kind of like additional manual input. You’re not like pushing buttons to make sure that the trades are entered or exited. So these are done pre-programmed. But you have to monitor at certain market intervals, whether or not t eseh strategies, these algorithms are running as per expected outcomes. And so if it’s not, then you can actually think of it like a pilot.

So you actually need the pilot only for takeoff and landing. The pilot in the air is actually done autopilot. So it’s like they push the autopilot, they can, in theory, read newspapers, they can do whatever they want, but you only need the pilot there as the ‘just in case.’ So this is where the just in case comes in.

So you can think of just in case that the algorithm doesn’t work as well. Just in case there’s a sudden market event that is unexplainable. Suddenly, maybe the Swiss decided to unpack the currency, for example, then these are like events that are like, some might call them Black Swan event, unexpected events.

And this is where you have to, well, make some decisions, maybe to cut off some trades or whatnot. So this is where the human comes in. But by and large, it’s automatic. 

Sato: So it’s designed, from what you’re sharing, it’s designed to be automated, totally hands off. Only when things hit the fan then you come in and you do the… Would you say that ? 

Chun: I would say 90% of it will be like that. There will be the, of course, that 10% where you still got to maintain the strategies, maintain the algorithms . Reason being that strategies tend to decay. So markets move, what might work last year may no longer work this year.

So you always have to find like strategies that will work better in this market environment versus the next. So this is like … but it doesn’t happen every day. That’s what I mean. So it’s like over time, then you realize that, okay, maybe it’s time to review the mix of the different strategies in the portfolio.

Sato: Could you just share a bit for the benefit of our listeners , you know, before your hedge fund , can you just share, you know, how did you get to this point? 

Chun: Okay, so specifically regarding to the hedge fund, in university, I was introduced to the concept of algorithm trading by a friend. He’s a very smart friend who eventually became the valedictorian.

So he was telling me that, oh, you can actually like, make some good returns with algorithm trading. So that’s how I got interested in it. And since then I just got interested and try to put some money into it. I invested and tried it out. And what happened was, so I did a few stints in a bank, in a FinTech startup . Along the way I have always kind of been doing this too.

So subsequently, they managed to get a licensed entity in Singapore MAS. So they say that, okay, now we want to bring you in. So it’s like, okay , name a price, we want to do like, bring you in now permanently full-time. And so that’s just how I got in. So definitely not a very typical route where I guess most people would assume it to be, for example, like, from, let’s say, investment banking and then sales and trading to hedge fund. So in this case for me, it’s really because I happen to know the right person. I happened to be there at the right place, at the right time. 

Sato: And I want to really like, you know, just go a bit in depth with regards to that.

So they made you the offer, they named the price, you know, what you wanted. And then you, you sign. Can you just share a bit of insights about, you know, what was the employment arrangement like? Was it like a  full-time thing?  If it’s okay for you to share. 

Chun: Sure. So it is full time. Of course a key difference is that because the team is very, very lean. It’s very different from, I guess, the standard job in a large organization where it’s like a 9 to 6. There’s no 9 to 6. To put it bluntly, you can think of it as 24/7 sometimes. But there’s flexibility in that. So I think there’s something that I thrive very well in. So I cannot follow a regimental 9 to 6 personally speaking.

But if you want me to work, let’s say to do something like 11:00 PM, 12:00 AM and all that I can actually do it, provided I know that that’s something I’m able to do and I would need to do it willingly. 

Sato: So the  culture, I mean, it allows that kind of flexibility? 

Chun: Yes. So like I decide my own schedule. As long as I reach… the fund achieves certain outcomes, certain targets, et cetera, it’s okay. Like to put it bluntly, no one gives a damn. I mean, in a way, I think also because we are remunerated also with like how it performs and how is it growing. So, and before that, my colleagues and myself would be all intrinsically motivated. Yeah. So, yeah.

Sato: Oh, all intrinsically motivated?

Chun: Yeah, we’re all intrinsically motivated. So in fact, it’s something that I… I would like to join them, I guess my idea was to ask them if I could join them in let’s say 5, 10 years down the road, maybe when I become something like a director or MD level somewhere in some large organization and then I’ll ask them, okay, can I join you guys now?

So that was kind of rough plan that I had. I never expected to join them so early on. It just so happened, like I mentioned, right place at a right time, and they happened to need someone. 

Sato: Maybe I just want to talk about the intrinsic motivation aspect about things. So is it important, like a prerequisite to be successful in a role, to be internally motivated? Because why I say this is that different beings are motivated by different sort of things.

You know, some are motivated by money. It seems you are motivated by being good at what you’re doing and, you know, making money is not really primary. It’s more of a secondary. Would you say that is a prerequisite? What do you look for in a potential colleague that wants to actually join your hedge fund. 

Chun: Well, for this hedge fund in particular, first thing I would look for, of course, is someone who has an interest in it. So to the point on intrinsically motivated, sometimes, you know, you can just tell when you speak with someone and the things that they say about the particular, let’s say, asset class, a particular trading, like let’s say, what they personally, they’re got skin in the game, and they’re personally invested in. Say if they already have like 1% or something of their portfolio in it, then I can hardly say that that’s conviction. I can hardly say that they have skin in the game. 

So, but let’s say if they themselves put in like also quite a significant portion, they really believe in a product… 

Sato: Can you put a number to it? 

Chun: Oh I would say that anything more than half your portfolio, that is strong conviction, right there. 

Yes. It goes against the principles of… there’s a lot of online talk nowadays about diversification, MPT, modern portfolio theory, and so on. And yeah, sure. It goes against all these principles, but that is precisely what we mean by like, okay, you are really focused and dedicated, like you believe in this and you are willing to put in a significant portion of your portfolio into it.

Sato: Personally, do you feel that the average Joe will be able to join a hedge fund? Or there has to be something special? There’s a special sauce about it. 

Chun: I believe that any average Joe can join a hedge fund, but I will have to preface it by saying that not every Joe actually really wants to join a hedge fund. 

Sato: Oh, okay. Can you please elaborate on that? 

Chun: Yeah. So being in a hedge fund row, it’s very different from what I guess most people expect. 

Sato: What do you think is a common misconception about hedge funds? 

Chun: So, okay. A common misconception is that once I am a hedge fund manager, I will be managing, let’s say, a 1 billion, 10 billion fund. I’ll be making like so much money in every minute that I would have earned in a year and all that. Yeah. 

Sato: So more like a get rich kind of job, am I right to say that? 

Chun: There is actually a range. Range being like, most of the time a remuneration is really proportional to the size of the funds that you are managing. Yeah. So there’s also this component where you also have to think about like for example, institutional investors or like individuals, like how many of them wants to invest in it as well.

So there’s also a component of fundraising. So it’s also a component of how, I guess, you can think of it like, how convincing you are. So there’s also a component of being able to present your ideas in an articulate and clear manner to the other investor, explaining your investment thesis and your strategies so much so that you are able to attract funding.

So some hedge fund stars can attract a lot funding because they were previously from a large hedge fund organization firm, where then they have a brand name behind them. And then when they start their own fund, for example, the previous one, they have like some kind of halo behind them, i.e. I was from this very famous hedge fund. Number one. 

And number two is that perhaps their previous employer would then like, okay, let me allocate, like here, a half a billion or 1 billion to kick start it to kind of like, seed it. And then, there you go. So imagine that if your remuneration, you are being given a percentage of that straight up.Someone’s putting money into your pocket, literally. Yeah.

So versus like starting one from ground up. So then of course, then it’s a, yeah, you’re fighting against these like big boys and all that. So it’s also different thing. You can, I guess you can think of it in nowadays terms, a hedge fund startup if you will.

Sato: But I think for a typical hedge fund startup, I mean, just for your thoughts, you know, I learned from TenX in the previous episode that, you know, there are hedge funds with one or two founders and they do their own thing. But will a typical trajectory be something like, you know, they actually leverage on your previous experience at a big brand name startup, then they do their own business? Have you ever seen cases like, you know, someone who is fresh, just decided to you know, do hedge fund start up, have you seen it before? 

Chun: I’ve not seen it yet. 

Sato: Okay, but do you think that it could happen? Like, you know, you just have an idea?

Chun: Yes. You can just have an idea. However, I would say that you definitely need to look for a sponsor. A sponsor, like a backer, maybe someone with credentials. Unfortunately in this industry — even if you don’t have the credentials, I think that is still okay — but you need to have a, you need to know someone who does and is willing to support you in it.

So you don’t necessarily need to have it yourself yet, but you can, for example, work with someone who does. And then from there, you get the, in a way, like an opportunity to prove yourself. And then with that, then you can, I guess, stand on your own two feet next time. You can think of it like an aid or something like that it can help you with.

Sato: I think that’s a, probably a scenario that I painted that could potentially happen, but you haven’t seen it for yourself, but if it happened, it could be this route, am I right to say? In your own words.

Chun: I would say that that is actually how I got in. So I’m actually describing myself. [Laughs] So I have no strong backing. I just happened to, like I mentioned, like I mentioned happen to be at a right place at a right time. And I happened to meet like strong backers, Able to give me like a little foot in the door. And then from there, it’s really about how I push and make it grow.

Sato: And I mean, in your own words, you don’t feel that it’s a typical route, am I right to say that? You mentioned that before. 

Chun: I don’t think it’s a typical route, but yeah, well, it’s not a typical expected route, sorry, to put it that way. For example, most people would expect you to be, for example, like in a big bank, you have been in a sales and trading role or for example yeah, or like an investment banker or whatnot, and then you join like a hedge fund.

And then, well the reason I say that is because depending on the hedge fund, depending on the strategy or the investment thesis, they may require different skill sets. So some may require, for example, that you do have some investment banking background, some require some trading background. In this case, for example, we require some algorithm background . for example, in this case quite a bit of like programming background.

Yeah, so, so it’s like the way I see it is there’s not a lot of algorithm hedge funds out there. So, which is why I don’t think that is typical, so to speak. 

Sato: Oh, okay, okay. So thanks for putting that in context, because I think the reason why we, you know, we’re finding a bit more about your recruitment, your own personal recruitment process. So you know, we wanted to understand it a little bit more. And I like how you, I think you’re putting it out there that, you know, there are multiple paths to get there. 

Chun: Yes, that’s right. 

Sato: Yours is just one path. But you have seen your peers. Is the path, you know, you look at their background, their credentials, are they from a big bank? Have you seen it happen with your peers in your current…? 

Chun: Yes. So there’ll be yep, from like a well-known brand name, from big banks or they joined a hedge fund. They started out, for example, not necessarily doing fund related. I wouldn’t say fund related, but they wouldn’t be managing a portfolio initially.

Perhaps they started off, let’s say, doing risk. Like a risk manager. And then after that they managed to move and then to change their portfolio and became a portfolio manager, managing a portfolio. From there on then they come and start their own one. So, so yes, that’s sort of a route that I’ve seen as well.

So for example, one way that quite a number of my peers are trying to do and some have managed to do it, would be for example, to get a certain qualification, like a degree or graduate degree in a field such as like financial engineering, quantitative finance, and so on. And then they join a hedge fund or a bank in the risk department, and then they move to, let’s say, a trading role and whatnot.

And then with that experience, they come out and start their own one. So, yes, that’s actually more, quite a standard route that we are seeing now. 

Sato: Oh, so that is a standard route, in your opinion? 

Chun: One standard route.

Sato: So there are multiple routes? Basically… 

Chun: Okay, so there are also other routes. Well, another more straightforward route, I guess, would be like doing an internship. Yeah. That would actually be also quite… And then you manage to prove yourself and to manage a small portfolio and then you increase there. And then, then you would have it. But this is referring to of course larger hedge funds. Only the larger hedge funds would have the luxury of hiring an intern, I guess. So for example, a small set up like the one that I’m with, for example, it’s a very small set up, we don’t have the luxury to, so I’d like to say that I’m my own intern.

Chun: So I do my own, like, reporting and all that. In fact like, over the weekend. So in the morning I was just doing some of the reporting for the week myself. There’s not really a lot of value addedness to it, if you ask me, from a very blunt perspective. Yeah, but for myself it has to be done.

And well, it’s like a small fund. You’ve got to save costs. You don’t want to spend  unnecessarily. It’s out of your own pocket. So yeah. 

Sato: Makes a lot of sense to me because you know, it’s a competitive market out there. Can you give us an idea of, you know, the number of hedge funds in Singapore, just approximate. Is there, can you even put a number to it? 

Chun: Based on an approximation, this is based on what I… I might remember the number wrongly, but from how many licenses the MAS has given out so far, based on the asset measurement, I recall is some high three digits. In terms of the firms. Each firm may have between one to however many funds that they have. However, not all of them are hedge funds necessarily.

So some of them may be like mutual funds, maybe like, they’re different kind of funds. 

Sato: And all fighting for the investors’ dollars, am I right to say that? Competing against each other. 

Chun: Yes. Okay, so some are competing, some are very different asset classes that you are fighting in a different space, so to speak. So for example, let’s say you are doing H Japan equities.Then I happen to be doing H Japan equities. Clearly we are competitors. But let’s say I’m doing gold. For example, then we are doing quite a different and like we’re targeting a… 

Sato: You’re not a direct competitor. 

Chun: Not a direct competitor in that sense. However, you are still competing against the portfolio. So for example, like whether or not they — they only have this amount to allocate either to you or to me, then it’ll be like, yeah. Then in that case, there is competition in that sense, so different, I guess, dimensions of competition if you think about it that way. 

Sato: Do you have any hacks to share with listeners or, you know, how do you actually increase the chance of entering a hedge fund? 

Chun: One way could be to try best to get an internship with a big one.

Sato: Okay. Is that the easiest way in your…? 

Chun: Wah, I definitely wouldn’t call it easy.

Sato: Okay, the most straightforward way, am I right to say that?

Chun: Direct way. It’s a direct way. And you also get to know whether or not this is really the industry for you. So but I guess this is not really a hack per se. So I guess another so-called a hack would be really, and something that an average Joe can do. I guess, in this case I would actually argue that internship is probably not an average Joe route. 

Okay, an average Joe route, get to find a certain asset class that you are really interested in and then actually in your like free time, or spend as much time as you want to show that, well, first of all, if you are really passionate in it, you would any way spend your free time exploring and researching it.

And then have some track record, put some skin in the game. So like putting some money into it and then show some track record. And then from there find a sponsor. Find a sponsor, so like networking in this case, that’s what I mean. So really go out, meet different people, and let them know that this is what you do.

And then like just, to put it bluntly, like, you need to sell yourself. You need to put yourself out there and let them know that, okay, I actually have this record, like, let me show you that I can actually grow this amount to be a larger amount as well. 

Sato: Definitely. From what you’ve shared, basically there are three hacks.

So the first hack , to summarize is, you know, we want to, you know, have an interest and have a passion from the start. It must be something that, an asset, it could be gold, it could be silver.

Chun: I’ll come up one, for example, currencies. Currencies, because by nature is that you can both long and short the market. So you can have some in a way, like protect some of the positions that some of the open positions that you have, some of the trades that you have in the market, and you want to trade in the other direction and you can either long or short of it, right? So you can trade in either direction and kind of protect this position from bleeding further, you can hedge it literally. So by design that’s where you have it. 

Sato: So I want to talk a bit more about the second hack. So you mentioned about skin in the game. For, you know, the average Joes are there. How do we show skin in the game, as in, can we put a dollar amount to the notion, like, you know, what, you put a hundred thousand, you’ve got skin in the game?

Chun: No, it’s not a exact amount per se, but I would say it’s also very closely related to the first one, it’s like how much time you spend in it. And let’s say you spend a lot of time finding a c rtaine so-called profitable strategy that you’re interested in, particular asset class, then so given that you find that it works and then you put your own money into it. And then it grows your own wealth and portfolio as well. Then that’s, that’s a good testimony that it works and you actually have conviction in your own strategy. So that’s what I meant really. 

Sato: Oh, okay. So there’s not really an amount per se. I mean, it really depends. Would you say it depends on the financial situation of the, you know, the average Joe in that sense. 

Chun: Well, I guess it’s very dangerous to tell everyone to put in a lot of money into your own strategies, because it could very well be that if, for example, you’re new and you’re starting in it, you might lose money.

And it’s true that as you experiment with different strategies, most people are not going to get it right. First time, first 10 times, first 100 times, you’re probably going to have many different iterations before you get some kind of I guess, a probabilistic strategy that you can get a certain outcome.

But eventually once you do find that, then the expectation would be that, okay, you have conviction because you spent a lot of time researching it. So naturally you want to put like a, quite a portion of it into your fund. And then when it comes to really setting up a proper fund itself, the expectation  is that you better be like all in and then you can show that, okay, yep. I really believe in what I’m doing and like, almost like my top portfolio, it’s because I truly believe in this product. So if you are, just think about it the other way round. So if someone were to tell you that, oh, this is a really good fund, but he himself like didn’t invest in a single cent in it. 

Sato: Yeah. No credibility.  

Chun: Yeah, so there’s really no credibility right there. 

Sato: I see. I see. So I get what you mean, so it’s more like, you know, you have a thesis in a sense, you have a strategy and it’s best that you have some, you know, some credentials that actually back it up, you know, it could be a dollar amount, it… 

Chun: So for credentials, if you don’t have like a big brand name behind you in your resume, then you, I guess for a start, you can really try to start building your own one at the side. Perhaps after work, you start working in a portfolio, you start building a track record. You’re diligently… so for example, you could use a broker, some broker and then you get some track record and then you put in monies. And so you have that record now and you can show that oh, I have been  profitable since let’s say 5 years ago, 10 years ago, this is my record, this is my yeah. So then you can be a fund manager, so that’s not necessarily a hedge fund manager. So that’s a fund manager.

Yeah. So the hedge word nowadays really comes about beating market returns or, for example, you have a different way of approaching the market. So, yeah. I’ll say that it’s really a fine line between a hedge fund manager and a fund manager, but end of the day, you’ll be managing funds la. I think that’s the common …

Sato: Yeah, and I mean, thanks for sharing with our listeners, because I think sometimes when you think of hedge funds, I mean you know, if we talk about  pop culture references, we think of the, you know, movies like the Big Short. Where, you know, they actually could foretell what was happening and they made a lot of money from it, you know, they’re writing on chalkboards and stuff like this. But I think, yeah, I mean, you really made it clear to a lot of listeners. 

I want to deep dive a bit more into the last hack, which is, you know, you talked about sponsorship and you talked about networking and you talked about, you  know, putting yourself out there. Can you just, you know, elaborate a bit based on your personal experience, because I think for Asians in general, because we tend to be a bit more conservative.

Sato: Do you feel personally, like you know, putting yourself out there, was it tough for you? Did you have to, you know, speak to… is there an inner voice,  you know, holding you back and…? 

Chun: Well so probably not very hedge fund specific, but in general for like networking, putting yourself out there, just think of it like you’re already there at that event. You really spend the time and all the effort to appear at the event. You might as well make the most out of it. Else, the alternative would be heading back home with, let’s say, not knowing anyone, not meeting anyone new and then thinking back and having regret that you could have done something.

And I’ll say that if you were to think about it that way, the regret vastly outweighs the potential fleeting moment of so-called embarrassment that you have in putting yourself out there. When you think about it. The regret is always more painful. 

Sato: Yeah. So, I mean, yeah, this is a very pragmatic way of looking at it. It really makes sense. If it works for you, I’m sure it could work with everyone. So these are the three hacks that can actually increase your chance of entering a hedge fund. In Chun’s own words. Of course, everyone you know, every listener, you can find your own path over there. 

I think there’s also a variety of paths. There is no one straight road. You know, so basically all roads lead to Rome in a sense. So I hope that we actually answered the question, “Will an average Joe be able to join a hedge fund?” 

Chun, thank you for your time. And I hope to have you on another show or another episode.  

Chun: Thank you, Sato. 

Sato: So arigato, my friends, and my deepest appreciation for joining me on this journey. Please reach out to us on The Financial Coconut socials and Telegram group. Everything can be found in the description below. We would love to hear from you and discover which other sectors of finance to demystify. Until then, ciao!

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