Brett Caughran

Brett Caughran



THE LIFE: GETTING FIRED I've had a couple DMs since I posted my Tough Times Playbook from people who have been fired from a buy-side seat recently, and I've been working on gathering my thoughts in that hopes that I could provide some tips to help people in this situation.

First of all, I'm a bit of an expert in getting fired... In fact, my firing was publicly reported to the world by Reuters. That certainly didn't help an already uncomfortable situation!

Through my career I've spoken with many friends & colleagues going through these situations, and I've unfortunately had to fire two analysts in my career as a PM (easily two of the most painful situations of my career). Here is what I've learned from those experiences:

SHIT HAPPENS. The business model of a hedge fund is simultaneously one of the best in the world (astronomical ROIC, insane incremental margins) and one of the worst (high fragility to poor returns, particularly in young funds). This dichotomy creates a paranoia to perform, and,

at its worst, a complete intolerance for loss making (so...let's not train people adequately, then fire them when they don't perform well...good plan, team). And the pod model is the most unapologetic in this approach. A business model backed by 4-6x leverage that seeks to turn

3-5% gross returns into 15-20% returns to equity can't afford to give PMs too much rope. As good traders "pull their weeds and water their flowers", so do the best GPs at pod firms. So if you want to play this game, you must be pragmatic and clear-headed about what type of world

you are walking into. Even worse, you can get a stop-out based on pure variance. It's commonly understood that most pods allocate risk on a 1-sigma vol budget. So say you are allocated $50m of volatility (~$3m/day). Roughly 2/3 of the time the stats say you should be plus/minus

$50m. Pure statistical variance alone can get your portfolio down 2-3% ($30-$50m), enough to at least get capital cut most places, some a pure stop-out, and this wouldn't even be a 2-sigma event!!! So, the game is designed to be tough to beat. The buy-side is unique in that

incredibly talented, dedicated, hard-working people can fail by pure bad luck. So, shit happens sometimes. There's not anything wrong with you. In the cosmic disaggregation of luck vs. skill, sometimes you just get unlucky. This can be a hard pill to swallow for Type A, hard

charging Wall Street types not used to failure. Don't beat yourself up too much. The buy-side is high turnover, often by design (the rewards for consistent success are so high that it HAS TO be hard to get there).

GET FIRED THE RIGHT WAY. It can be VERY tempting to unload all of your grievances in the exit interview. But it's not productive. You are a gladiator in the arena and just got your head chopped off. Leave with honor. Thank your CIO/PM for the opportunity, let them know you will

only speak good words about them, and thank them for the experience. Listen, this can be a hard pill to swallow. But the buy-side is a small place, and you never know when your paths will cross again (or whether the next PM went to biz school with this PM and does an informal

check on you). CULTIVATE YOUR REFERENCES. This is probably the best piece of advice in this thread. When going to the next shop, they will ask for references. It's unlikely your prior PM will serve as that reference (after all, that PM just fired you). So work hard to find

other references at the prior firm. Having even 1-2 people who will say very nice things about you is CRITICAL in landing that next gig. Those people can be your peers at prior shop. The best thing to do is to actively cultivate friendships and relationships while you are at

your current shop. To be a good person, give freely of yourself, create genuine relationships. And if someone gets fired at your shop, please reach out to them. Have a quick coffee. Offer to give them a "glowing reference" and help anyway you can. This doesn't cost you anything,

and it means the world to them. I learned to do this later in my career, and I very much wish I would have done it earlier and more consistently. Please do this for people. TAKE YOUR TIME. Headhunters have a valuable place in the ecosystem, but they are also economic animals.

When a talented pod investment professional hits the streets, it's like blood in the water. And the easiest spot to place a ex-pod person is...another pod. So they are on you right way, sending your resume to the other pods. And this makes you feel good, and excited! You got

fired on Monday and you have another interview on Wednesday. I would encourage you to take a second to pause. There was a reason that last seat didn't work out. Do you want to jump back into the same game? Or perhaps a family office or long only role is better suited to your

investment personality. Well, the headhunter who sees that commission from the easy pod intro might not like that, and discourage you from that path (some are more shady than others...I had a HH SCREAM at me after I got fired for not wanting to interview with her client).

Take your time. Figure out what you want to do next. This is a clean break. No one will question, 3-6 or even 9 months between seats. Take your time to find the right next seat. THE NEXT SEAT. As a PM or senior analyst, your next seat will generally ask for a track record.

First of all, in pod land, people fudge their track record (they obviously aren't audited). I was a sucker for not. Most PM track records I've ever seen in interviews look like early Steve Cohen numbers. Ok, so you've been putting up 3-sharpes but you got fired? GOTCHA.

And communicating the situation is a delicate balance. The way to do it wrong = blame the firm, blame your past PM, say bad things about PM. This will only reflect poorly on YOU. The way to do it right = balance self-awareness, self-reflection with an in-tact sense of your own

abilities to do the job. Admit openly what you did wrong, how you are learning from the situation, and show up with passion and a chip on your shoulder that SCREAMS you are hungry for redemption. Don't obfuscate the facts, be open with them about what happened. Address the issue

head on and take ownership. GETTING FIRED CAN BE TRAUMATIC. We as Type A Wall-Streeters wrap our egos up in our jobs. That job is taken away from us, and it can be traumatic (in retrospect part of why I actually appreciate getting fired was an ego-death it helped spark in me,

creating a mindset where external outcomes don't bother me like they once did). But take care of yourself. Don't let yourself spiral. I gave my best advice on avoiding a spiral in the Tough Times Playbook. CONT'D

SEE IT AS A BLESSING. It might be a blessing. Ultimately, the firing from the above Reuters article was one of the best things that ever happened to me. It pushed me onto a path where I was much more in alignment. I got to see what the path was like to launch a fund, and then

teamed up with a large quant fund to help them design their fundamental business (a period where I spent 6 months dissecting the analyst process and got very passionate about teaching that process). So for me, what seemed like a shit sandwich was actually the universe's way to

putting me on the right path. I also just find life a lot less stressful when you assume everything that is happening is here to serve you (that's not a license to become a victim of your circumstances). So maybe that thing that really feels like it sucks right now could be

your biggest blessing. I hope it is. FIRE, HUMANELY Listen as a PM/CIO, sometimes you just have the wrong person in the wrong seat. I've seen some firms fix these situations humanely, and I've seen some not. But I've come to one conclusion. Letting someone hang around at your

firm for a long time that you know isn't a good fit isn't good for either sides. Sometimes the kindest thing to do is to help put people on their path. As an investment pro, you might be clinging to a bad situation. As a PM, being irrationally loyal can actually be a bad thing.

A truth of the jungle, "it's easier to find a job if you have a job". If you know you have a person who isn't the right fit, I would encourage you to help that person find a better seat. Put that person on his/her path. From an existing buy-side seat, the next seat is much easier

to find. Where the future firm feels like they are poaching a rising star, it's even easier. But the cost of turnover is high. Fundamental Edge is working on a Performance Improvement program to help address these sorts of situations. A struggling analyst who just needs a

little direction. Some analytical tools. Some frameworks. Come coaching. Even just a pep talk. We are here for that - if you have a struggling analyst, please DM me. But when it's clear the situation is no longer tenable, rip off the bandaid post-haste (i always regretted when I

didn't). MY TWO QUESTIONS As my life evolved and I cared less about the pure pursuit of money and more about practicing the craft of investing with great people together in the foxhole, two questions started to bubble to the top of my due diligence list:

1) tell me about your voluntary turnover 2) is this a humane environment? For those of you looking for your next seat, I would encourage you to find a humane environment, working for smart people who are good to their core. Life's too short to do otherwise.

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