Thread by @FundamentEdge

THE PROBLEM WITH ANALYST TRAINING

In the fall of '07, about three months into my investment banking stint, I came to a realization that I HATED investment banking (my Greenhill staffer reads these threads though so Ashish you're cool...)

I hated the mindless processing, I hated being a glorified powerpoint

formatter, I hated sitting around all day doing nothing then getting an assignment at 8pm due the next morning, but mostly I hated starting with the answer already figured out and being tasked with work to justify that answer. When I first learned what a fairness opinion was,

I almost puked in my mouth (the concept of back-filling a fairness opinion on a potentially unfair deal just really irked me).

So I started to speak with some Greenhill 2nd years about their post-banking plans. Most went into PE, but a few went the hedge fund route. And the HF

route was explained to me as an "inverted pyramid of influence". Whereas private equity was "banking 2.0", a fundamental equity hedge fund was a totally different beast. Instead of being a junior cog, the junior analysts at a hedge fund were sourcing & advocating new investment

ideas that could become 9-figure winners. And even better, the public markets were the truest form of meritocracy. Being a blue collar kid from rural Idaho w/ zero professional network and a distaste for the blue blood culture of private clubs & social status, that hit my like

a ton of FUCK YEAH bricks. I felt like I could out-work and out-learn and ultimately out-compete my peers if only the playing field was level. And the playing field was axiomatically level in the public markets.

So, in an act of grace, I joined Maverick in '08 and had the

amazing fortune of learning the business from some of the best mentors around over the next 7 years (some true legends). But, not everyone has that opportunity. And I still use this "inverted pyramid of influence" metaphor when talking to young people about post-IB exit opps.

THE INVERTED PYRAMID OF INFLUENCE

Fundamental equity managers, whose success or failure is dependent on their ability to surface idiosyncratic alpha ideas, a task usually assigned to juniors, spend a TON of time to train & develop these juniors at the tip of the

inverted pyramid of influence, right? Ummm. Actually no. My wife works in medical sales, an industry where training programs can span 3-6 months for new reps selling a podiatry product. Yet, we hire analysts in asset management to recommend $100m+ positions and we offer minimal

to no up front training. The more I've thought about this, the more absurd it really is!

Steve Cohen realized this back in 2016, saying he was "blown away by the lack of available talent". And he did something about it, starting the Point 72 Academy (investing, by my estimate

over $50m cumulatively and over $10m annually in that program). Via the power of Twitter, I've had the opportunity to speak with a handful of P72 Academy graduates. It's an intense, structured program that is the first program I've ever seen that actually prepares young people

to do this job. P72 Academy is an imperfect solution to this training problem, however. Specifically, it's a closed loop program whose 15,000 applicants turn into 50 admissions who all end up on a P72 desk. A powerful example of a better way, but not the open-access system that

the industry needs (are you starting to see the genesis story of Fundamental Edge?)

CURRENT TRAINING APPROACHES: "LEARN BY OSMOSIS"

"It's an apprenticeship industry"
"I learned by osmosis"

Would anyone accept this level of training rigor in the field of medicine or for

new airline pilots? Obviously not. The hedge fund industry has moved from the wild west to a mature, institutionalized industry. Yet this is how we still train new analysts. Come on. We can do better.

I've known some really wonderful PMs who are exceptional educators and

mentors. Sadly, these are the exceptions. Mozart wasn't the world's best piano teacher, and Michael Jordan would be a shitty basketball coach. PMs are the same. Geniuses of alpha generation and incredible, multi-dimensional, intuitive alpha generators. Though many are introverted

and show attributes of being mildly "on the spectrum". A senior sector head at Maverick told me one time, "Brett, this industry is an escalating treadmill". And it's so true. The complexity of being a PM, leading a team, leading an investment firm, managing idea generation,

portfolio management, relationships with LPs, and having any time & energy left over to hire, train & develop new analysts (not to mention spending time with family), it's just overwhelming. So PMs often just leave new analysts to fend for themselves, to learn "via osmosis".

And I am VERY MUCH guilty of doing this. Despite coming from a deeply committed learning culture at Maverick, when I joined at D.E. Shaw I failed at training my analysts. I had big plans. I hired a new analyst, and we had weekly 90 minute training sessions scheduled for the

6 months of his ramp. Each 90 minute session we'd sit down and walk through a piece of the analyst arsenal. 30 separate lessons. We made it through exactly 1 and and half. Shortly after he joined, Valeant blew up. Despite only own a small position, the blow up inverted my book.

I lost $18m the day I was in the hospital for my second son's birth. I had to go into crisis prevention mode. Analyst trainings were cleared from the calendar, and my relationship with this analyst (who was responsible for the spec pharma positions) deteriorated and became

confrontational on bad days and passive aggressive on good days. I didn't have the emotional gas-tank to continue training him. I failed. Big time. (he quit a year later. Surprise, surprise). So I get it. I deeply understand why it is so hard to do a good job training new

analysts. And I deeply wish I had the perspective then that I have now, and a partner to help with that ramp period who had both the frameworks and the dedication to do a better job.

A BETTER WAY

I honestly believe we have been doing such a shit job of training juniors in this

industry that any shift in our perspective and approach is a massive improvement.

There is an obvious foundational practicum that is universal to being a good fundamental equity analyst: modeling, deep dive research, thesis development, idea generation, idea pitching,

idea maintenance. Whether you are a growth investor, value investor, hedge fund or RIA, your analysts need to know these skills. And isn't it a better idea to lay out these frameworks in a structured 3-month process right upon joining, then rely on them to slowly learn by trial

and error, or "by osmosis". Do you want your analysts learning how NOT do to the job with live ammo? That's how I learned. I lost $100m in my first PM seat by "trying to figure it out". How I wish I could have gone to a "New PM Academy" for 30 days.

So, this is a large problem.

What I'm saying here, we all know.

Fundamental Edge was formed to help provide a solution to this problem, to provide a rigorous level of analyst training that isn't available out there today.

There are some great point solutions, teaching one spike of the process or another.

BIA to teach the CIA way of interviewing, for example. We are working to integrate as much of those point solutions into our platform. But, at core, what we are working to deliver is the first soup to nuts academy program (well, second, including P72 academy) that actually

provides young analysts with the toolkit to do the job (and, eventually, young PMs).

The clay is still forming. I am so grateful for all of your feedback so far and love seeing a community build around a passion for solving this problem.

And I am so excited to share more. Stay tuned.