Some portfolio managers barely have enough time to do their own jobs — let alone teach their analysts how to do theirs.
“It seems crazy, but I get it. I’ve been there,” said Brett Caughran, who spent 10 years working as an analyst and portfolio manager for hedge funds, including Maverick Capital, D. E. Shaw, and Citadel.
“I’ve been a PM running a billion-and-a-half-dollar book with a nine-person team, and I had all the positive intent in the world to train my new analysts. But when you’re fighting the markets, and your portfolio’s blowing up, and stocks are going crazy, the last thing you want to do is go spend three hours teaching someone how to write an earnings preview or create a compelling thesis,” Caughran said.
The circumstance that Caughran found himself in with his junior analysts is a common one, he says — and that may be especially true now, as investors increasingly turn to hedge funds to help them navigate volatile markets.
The total assets under management of global hedge funds rose from $3.8 trillion in 2020 to $4.8 trillion in 2022, according to BarclayHedge. In response, funds are boosting sign-on bonuses and sweetening long-term compensation to tens of millions of dollars to attract the top experienced traders.
Even for junior analysts, funds are spending significant time and resources dedicated to recruiting and evaluating hundreds — and sometimes thousands — of candidates for roles that pay six-figure salaries. Despite their lack of experience, junior analysts are usually shown their desks and then expected to learn through observation. There is often little formal training, said Max Heppleston, the executive director of investment management at Lawson Chase, an executive search and recruiting firm for asset managers.
A metaphor Caughran used: Junior analysts show up and are expected to build a house, but they don’t know how to use a saw or a hammer. They need someone to show them how to use foundational tools so they can arrive on site ready to build.
To address this problem, Caughran launched Fundamental Edge in the fall of 2022, a crash-course training program to help prepare junior buy-side analysts already working at investment firms, as well as career-changers, for the demanding industry.
“It’s not a program for individuals on how to make money in stocks. It’s a program for analysts of large asset managers,” Caughran says. “Our goal is to become integrated in the training of the hedge fund industry and the active management industry more in general.”
About 125 students have already participated in Fundamental Edge programs.
The core program is a live, virtual academy that takes place Monday through Thursday evenings over four weeks. The first two weeks are 12 lessons taught by Caughran on subjects including financial modeling, valuations, assessing company management and idea generation. A lot is crammed into each three-hour lesson; they have an average of 105 slides, said one participant who did the math.
“He definitely goes very deep and provides a ton of detail. It’s pretty much like four weeks of drinking out of a firehose. It’s kind of like a sprint, I would call it,” said Dylan Quenneville, who participated in the first live program last fall after finishing an MBA at Columbia Business School.
Quenneville, who previously held various finance roles at Motorola Solutions, is currently working as a contract researcher for a long-short equity fund. But he’s already in the process of interviewing for two buy-side jobs, and preparing applications for others, with a new level of confidence after Fundamental Edge, he said.
The third week of the course is filled with 12 guest speakers, with past ones including François Trahan, president of Trahan Macro Research and part of Institutional Investor’s All-America Research Team Hall of Fame, and Matt Ober, a general partner at Social Leverage who was previously the chief data scientist at Daniel Loeb’s Third Point Management.
During the fourth week, participants compete and pitch investment ideas. Caughran also walks them through “how to be a good analyst” in ways that don’t involve the tools covered the first two weeks. He gives advice on how to develop sector expertise, create a network of peers, become a “learning machine” and solicit feedback from colleagues.
In addition to the live program, Fundamental Edge has another that is 85 percent pre-recorded videos and comes with live office hours.
“This is easily, by far, the greatest training program that I’ve ever seen, and I’ve been a part of several,” said John Bottcher, an analyst at the retail investment platform Titan who previously worked at Bienville Capital Management and DoubleBlue Capital Management.
Bottcher discovered Caughran through some of his popular hedge-fund-related threads on Twitter last year. It seemed clear that Caughran knew what he was talking about, so when Bottcher saw a tweet about Fundamental Edge, he signed up. He knew some of the course material already. But much of it was new, and he said it was beneficial to see another hedge fund professional’s framework and way of thinking.
“I’m the biggest advocate of this program. This is something I wish I would have had. It would have paid multiples if I would have had this 10 years ago,” Bottcher said.
The idea for Fundamental Edge came to Caughran while he was lecturing as an adjunct professor at Arizona State University. Weary from the stress of managing money, Caughran had decided to retire from professional investing and move on to a new phase of his career.
“I just kept coming back to the fact that I really enjoyed the teaching aspect of the [hedge fund] world,” Caughran said. He was eager to help more students and others in finance.
After reflecting on his own career and researching employee development at hedge funds, it dawned on him that the hedge fund industry needed to transform how it trained junior analysts.
“It’s really wild. Hedge funds will pay a headhunter $90,000 for a placement, and pay that analyst $300,000 their first year, and then not do anything to teach and train that person,” Caughran said.
That happens for a couple reasons. For hedge funds, the cost of finding and hiring junior analysts is palatable, even with some attrition. But most hedge funds are still small enough that developing and hiring employees to create and maintain a formalized training program is considered prohibitively expensive, according to Caughran.
As a result, training falls on the more senior analysts and portfolio managers, who might have limited time or interest in shepherding a new hire through their models or listening to their unrefined investment ideas.
Formal training programs exist at some of the largest hedge funds, but none have a high profile like the one at Point72, the global multi-strategy firm founded by Steven Cohen.
Cohen realized the value in formally recruiting and training new college graduates to be its next generation of long-short traders years ago, Caughran said, “because he’s Steve Cohen.” The Point72 Academy started in 2015 with about 400 applicants, and ended up hiring 10. In 2022, it received 21,000 applications and hired more than 35. Participants have graduated from more than 70 different universities across the globe and more than 90 percent “graduate” from the program. Many continue to work at the firm afterwards, said Jaimi Goodfriend, head of investment professional development and director of the Point72 Academy.
The Point72 program is eight months long. It begins with a 10-week bootcamp and then analysts complete case studies, build mock portfolios, and rotate working with different portfolio managers at the firm to find the best fit.
“I think it’s a win for young people out of college now to embark on this career path and I welcome that” Goodfriend said. “I hope that other firms do this for that reason. I do believe it’s easier these days to develop the skills to become a buy-side analyst.”
Caughran hopes that soon Fundamental Edge will become a sort of Point72 Academy that other hedge funds can leverage. He wants it to become part of every junior analyst’s onboarding at the top hedge funds, as well as give others what they need to break into the career. It’s already happening, he said.
According to Caughran, the 30-person live program has been oversubscribed and portfolio managers who have sent their junior employees to participate have been happy with the results. Managers at some of the biggest and high-profile hedge funds have reached out to him about their junior analysts and interns participating, too.
Quenneville and other participants report that the program has prepared them well.
“There were some great ideas during pitch week,” Quenneville said. “It will be fun to see where everyone ends up after this.”
