great thread.

its a nice idea to want to start your own firm. in technology startup land that is arguably easier than it has ever been.

in asset management, it is harder than it's ever been.

in the vast majority of cases it makes more sense to grow in an existing firm...
Every small fund business has to replicate an institutional operations and compliance infrastructure, regulatory registrations, market data, technology, cybersecurity, investor relations, bookkeeping, billing, ... its expensive, hard work, and risky if you screw up
Institutional investors generally have very little interest in business+operational risk, as opposed to market risk. It typically takes at least 3-4 years of operation at scale before large institutional investors will seriously consider what you have to offer as a firm.
On the other hand, firms like Millennium will fund your whole cost base and run all those ancillary services for you while paying you quite well on your upside. In most cases that's going to make more sense as a goal.
And long run it is much easier to spin out of a larger place with their backing and the backing of large institutional investors who know you from there, than it is to bootstrap a tiny new thing from nothing.

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More from @bennpeifert

8 Apr
There are many cycles in markets. One that will always be with us is the dealer cowbell cycle.
Most business verticals within the world of global megabanks have a couple of leaders, who know how to run that business line well, have a long history and a strong client base.
Prime financing; stock loan; option clearing; dealer desks in each asset class and product category.
Read 9 tweets
3 Apr
Friday night junior derivatives trader interview question. Read the footnotes in the quoted tweet before you mouth off.

A major exchange just launched quarterly NGDP futures. They are simple: March, June, September and December quarterly expirations, settling into BEA's quarterly GDP % growth estimates:

bea.gov/data/gdp/gross…
Estimates come out with a one-quarter lag. The contract expiring in March settles into the 4Q GDP estimate from the prior year; the June settles into the 1Q GDP estimate; and so forth.
Read 9 tweets
2 Apr
Related point here that is getting muddled quite a bit in the media. Prime brokerage relationships and ISDA counterparty relationships are very different things.
In prime brokerage relationship, a bank provides risk-based portfolio margin to an overall portfolio of customer positions, which might be held in shares or on equity swap or in traditional shares. The overall portfolio margin framework governs all existing and new positions.
In a bilateral ISDA, each trade is margined on a stand-alone basis according to the bank's assessment of the trade, without taking into account any theoretical diversification benefits from other positions the client may have.
Read 5 tweets
31 Mar
Lets just do a very basic "how do ISDAs and CSAs work" since there are so many odd statements flying around this last few days.

(This will be oversimplified for clarity but bear with me. Also I hope there are no calculation errors below in my examples but can't promise ha)
Sara is a hedge fund manager. She trades over-the-counter (OTC) derivatives like swaps with banks.

Her firm has bilateral ISDAs with eight bank counterparties. An ISDA is the legal contract that governs OTC derivatives transactions between two parties.

isda.org
One of the four related documents under an ISDA Master Agreement is a CSA (credit support annex). This sets out the rules about who posts collateral to whom, why and when.
Read 25 tweets
6 Mar
The year is 2036. Banks operating in the unregulated Eurobitcoin market create tens of billions of BTC deposits out of thin air to leverage their exposure to mezzanine tranches of NFT-backed structured credit products
"but there were only 21 million! how did this happen??" a lonely hayek fan sobs
risk.net will be giving awards for the innovative application of Gaussian copulas for the pricing of microtranches of NFTBS and hedge funds will be quoting them twelve ways in comp
Read 4 tweets
27 Feb
there isnt anything new about penny stock pump and dump schemes, they have always been illegal, they used to be run over the phone out of boiler rooms and now they are run by bot farms.
you can be an active retail trader in a community like r/wsb and be excited about a narrative stock! thats not what is going on here
Read 4 tweets

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