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semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-25 02:35
We're building a quant prop shop but haven't decided about the structure of the company.

1. Handful number of small teams working with smaller set of strategies and allocation, huge firewall for any specific strategy implementation between team, but more transparent bonus calculations and more flexible arrangements for IP ownership. Literally, you eat what your team kills.

2. Or, just a company where no team or individual has direct access to complete view of the model. Bonus will closely dependent on the company wide PnL.

As a quant, which environment do you guys prefer to have? We tend to lean toward the first one, but we'd welcome any feedback from any perspective.

goldorak


Total Posts: 1046
Joined: Nov 2004
 
Posted: 2018-06-25 03:20
Neither. Totally open environment with sharing of all code, information, ideas and resources is the only way to get good work done.

If you are not living on the edge you are taking up too much space.

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-25 03:29
Well, that's the dream, isn't it?

Suppose you're one of the principals or managing partner, will you still impose strict NDA?

goldorak


Total Posts: 1046
Joined: Nov 2004
 
Posted: 2018-06-25 08:12
I am a managing partner.

If you are not living on the edge you are taking up too much space.

goldorak


Total Posts: 1046
Joined: Nov 2004
 
Posted: 2018-06-25 08:12
and my business is science, not managing mercenaries.


If you are not living on the edge you are taking up too much space.

deeds


Total Posts: 404
Joined: Dec 2008
 
Posted: 2018-06-25 12:55
@semut

Lopez de Prado cites putting quant teams in silos as the first of seven reasons ML/Quant funds fail (does not appear to be specific to ML)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3031282&download=yes

(no endorsement of idea, necessarily, details and implementation always matter, etc, but thought this should be part of dialogue)

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-25 15:38
Sorry, I didn't know that you're a managing partner, but here's the thing that concerns me the most. We're starting our business in an emerging market where we somehow could get our hands on a huge dataset that no other firm that we know of has. So the base models that we have before reaching the talent pool are already producing great performance. Not a secret sauce, but still a secret that we, as a startup, have to protect while it's still highly profitable.

By your definition of "total openness", does it mean that you think it will be better off (even in the situation described above) to just share everything even though there is a risk of new recruits to leak of some parts of our models to competing firms? I'm curious, are you okay if an employee somehow share the model that he didn't even write with other firms?

To be fair, I'm totally not against having an open environment, but without any information barrier, I mean like, none whatsoever... it's a little bit uncomfortable, at least for me. But I'm still keeping my mind opens to other perspectives.

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-25 16:04
@deeds

Interesting paper! It's 10 reason now Scared

Is your working environment totally open like the one described by @goldorak ?

Or if not, do you agree with the idea of full openness?

deeds


Total Posts: 404
Joined: Dec 2008
 
Posted: 2018-06-25 16:49
@Semut,

must confess not in the 'scientific' realm of money management, but do quant pricing and work with exotic financial models

our folks are allowed to exchange ideas, but all so busy that that is rare

your issue seems less one of proprietary models, more one of proprietary data

Would suggest that, in the latter, if sophisticated models are used, they usually require the key modeler to be with the model to be of use...not so with datasets...conceivably can be useful to anyone who walks off with them

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-25 17:30
@deeds

First of all, we believe that exchanging basic ideas, scientific knowledge/understandings, and/or technical solutions should be encouraged as it will likely to be beneficial to any kind of tech/science-based ventures, including ours. So yeah, we are not against total "openness" in that respect.

For the model vs data part, it's a bit tautological since by knowing the model, you can reverse engineer the features, then it will eventually lead to the "aha" moment where you know what to look for.

To be clearer, would you be enjoying more working in a larger part of small interdepartmental team or smaller part of large division?

deeds


Total Posts: 404
Joined: Dec 2008
 
Posted: 2018-06-25 18:11

"would you be enjoying more working in a larger part of small interdepartmental team or smaller part of large division"

not to confuse things, but the question seems to capture one aspect of the work environment...large v small organization and all that that entails...that seems a second order concern

From a technical and risk perspective seems crucial to me to encourage quantitative modelers to exchange information in order to bring consistency of assumptions (or explanations of divergence), gain efficiencies, and to have a robust and efficient review pipeline...most quants thrive on that dialogue and grow where it takes place


goldorak


Total Posts: 1046
Joined: Nov 2004
 
Posted: 2018-06-26 05:12
I think the typical mistake is to consider all employees as potentially problematic and build a business around this. I take the opposite view. Most employees will just do their job properly and honestly, enjoy it and perform as can be reasonably expected from them. The business has to be built around that prior. Exceptions to it must be neutralized and dealt with as soon as possible, but still be considered as exceptions. Neutralized, executed with a shot gun and graved under 6 meters of concrete, they will not be a "problem" anymore, trust me.

It has been studied over and over that money, above a certain level, does not bring any motivation, so do unclear objectives and other typical corporate mishaps. Smooth flow of information in an organization, respect for qualifications of each individual and continuous learning and sharing are highly motivating. The indiscriminate use of firewalls and bonuses at companies is a mistake. Grow stakeholders, not mercenaries.

Most enlightening and inspiring book I have ever read on management and structuring an organisation is Turn the Ship Around, by David Marquet.

Most enlightening movie is probably Godfather I & II though.


If you are not living on the edge you are taking up too much space.

Strange


Total Posts: 1436
Joined: Jun 2004
 
Posted: 2018-06-26 06:05
I am running a portfolio of vol strategies for a "premier" multi-manager shop. Despite all of the resources, excess capital and what, arguably, is a very good payout, it's a bit of a pain.

If I were to build a shop of my own, a more open model is the way to go. You get economies of scale (do I really need a separate IT guy from my neighbor?) and free exchange of ideas (my neighbor trades delta-one rates, I trade equity vol - we should talk, but we really aren't allowed to). In the end, the shops that manage to build a academia-like environment are the ones that manage to retain employees for the long term and the ones where good PMs what to work. IMHO, of course.

PS. For f*ck sake, I can't even find anyone to ask a programming question, which is rather silly.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-06-26 07:54
3 answers pointing out to highly open environment.

@deeds
Sure, but second order doesn't mean that it has negligible impact in the long run (if we manage to survive Big Smile). Regardless, I do understand the needs for and the potential resultant of intellectually inclined individuals collaborating with very minimum barrier.

@goldorak
My paranoid didn't come from just a vivid imagination, but rather some real experiences from dealing with the IT professionals in our city (in a developing country, as a mentioned before). I had several colleagues in both financial industry working, in some top local MMs and banks, and also in the biggest tech firms in our country, gosh.... 0 loyalty, I mean it, literally 0. I won't mention any name, but when we are hanging out together on several occasions, it always occurred to me that they were being fairly proud wheb bragging about how they deceived their employers by selling company secret to competitor, taking huge undisclosed side payments from customers that otherwise should've been paid to the respective enployers, conflict of interests (with the employers, rarely customers), and the list goes on. There are few of them that can be trustworthy, but really difficult to screen it from the talent pool.

I have watched The Godfather trilogy for the 7th time in my life yet still unable to gain the ferociously charismatic managerial performance of the Corleones.

@Strange
Our idea is to get employees innovate both locally (intra team specific implementations) and globally (solutions to the problems that all teams uniformly face) while still retaining the competition between teams. For example, there is a firm-wide risk management policy enforced by the risk management division, but each team can have their own risk models, but in our case we were planning to do it in every part of the whole process, from research to execution and evaluation.

You mean Programming questions here in NP? What sort of questions?

Strange


Total Posts: 1436
Joined: Jun 2004
 
Posted: 2018-06-26 08:27
It seems like you've already made up your mind regarding going the multi-manager route, so here is some harsh truth. If you are hiring mercenaries, they will behave as such. The attraction of your shop will be the risk metrics (primarily, because that's what really determines ones stability as a PM) and payout (secondary, since you need to survive long enough to get paid). Nobody gives a shit about the charming management (i.e. yourself), the cookies in the kitchen. Nobody really gives a shit about that data - you gonna be charging for that stuff anyways (except for very specific cases where this data is hard to come by). Your PMs will be guys, like myself, who will be ALWAYS looking for a better deal and will GLADLY fuck you over whenever it suits them.

You have to have IP restrictions and non-competes, otherwise you can't stop someone who is any good from migrating to a better shop across the street. Imagine you have some redemptions and all of your good PMs walk out? That's the expected result - multi-manager PMs have no loyalty to the shop, only to themselves (and maybe their team, if they are decent human beings). Look at what happened with the fixed income business at Millennium.

From my perspective, the business model of a multi-manager shop is to take a guy that has alpha and squeeze him until there is no alpha left. Some (one in a hundred) guys get lucky and manage to develop some economy of scale, add strategies or hire new guys. The vast majority, however, have no resources to diversify (because they are busy producing and they get charged for every little thing) and run out of alpha. The really diverse places like Millennium could be thought of as "trading people". It is, obviously, a great model for the manager but only a fool (e.g. yours truly, for various reasons) would elect to work for such a place and only a bigger fool would say that it's a preferable solution for a PM.

PS. If you are building an HFT outfit, it's also a matter of systems, but I can't speak for that.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

goldorak


Total Posts: 1046
Joined: Nov 2004
 
Posted: 2018-06-26 09:09
> For f*ck sake, I can't even find anyone to ask a programming question, which is rather silly.

Did they shut stack overflow down too?

If you are not living on the edge you are taking up too much space.

Strange


Total Posts: 1436
Joined: Jun 2004
 
Posted: 2018-06-26 14:55
Silly as it sounds, sort of. I can read it but I cannot post questions. I can also access google search but I cannot login to my account etc. Same as they do in banks, except here it’s combined with a social isolation.

Truth is, i am having a reasonable year and got nothing to complain about. At the same time, if I had to imagine what a perfect find is, multi-manager setup is not it.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

ronin


Total Posts: 341
Joined: May 2006
 
Posted: 2018-06-26 17:52
> 2. Or, just a company where no team or individual has direct access to complete view of the model

@semut, questions about working environment aside. Would you trust your money to such an environment?

"We had a bunch of trainees make various cuts in your abdomen, but we believe in silos. There is nobody who actually knows how to do the entire operation from start to end. The trainees' bonuses will closely depend on what their individual cuts look like."

Seriously?


"There is a SIX am?" -- Arthur

semut


Total Posts: 7
Joined: Jun 2018
 
Posted: 2018-07-13 19:16
Thank you guys for contributing answers to this thread.

We've decided to divide the firm into 2 divisions; Market making and arbitrage operations in which we encourage our employees to collaborate very openly, and the risk taking/directional part that we put silos upon several different teams running different set of models and strategies.

Another somewhat related question:

Suppose you've hired a new technical recruit (either trader, technologist, or data scientist) whose resume is really shining, topping off your standards. After a year or so working with his/her team, you find out from the head of division that the same person actually underperforms his/her peers in term of producing effective solutions to many of the problems the team was facing. What are your measures to decide whether to terminate his/her employment?

Maggette


Total Posts: 1054
Joined: Jun 2007
 
Posted: 2018-07-14 13:57
You really are a manager, are you :).

I think this extremly depends on the role. IMHO there is no single way that applies to all roles: "(either trader, technologist, or data scientist)".

1) You should be really confident about if you measure "underperformance" the right way. You have one data point, the resume, and another, your division leader. Maybe he is part of the problem?

2) How do you measure performance of a developer? A good devOps guy/girl?
Jira story points? Commits? Bugs? Breaks of the daily build? Maybe he takes longer, but his/her solutions are better tested and are better designed? There are team player types that help a lot (and enjoy helping)..does your division head sees the guy in question in front of screens with other members of the team?

3) Even a worse problem for data science/ML. Machine learning is a creative task. As much as coding...and then some. Are you sure he does not get assigned the hard problems because of his competence? It may be hard to accept (since you are paying the bills) that failure is PART OF THE PROCCESS. Finding out that something does not work is an insight. The word "science" in data science is not only for the fancy effect on power point presentation. Falsification is key! This is not a web service. There are no guarantees.

4) Are you sure you can replace him with someone more promising?

5) Even if the answer to 4) is positive and even though it is kind of a cliche....a team is more than the sum of its parts. There are synergies.

We had a quite senior guy, who was assigned to our ML project and couldn't add much value. But he took some, no he took ALL the painfull stuff nobody wanted to do. And we loved him for it. They let him go and added a high potential junior who doesn't want to do only the ugly stuff (and shouldn't). We lost story points per sprints, even though on paper we should have gained some!

Simple tip: feel out if your division head has an idea how the team feels about the person in question.

At the end of the day if you have enough data points that he doesn't add enough value, let him go.

If you have a proven track record, that you and your team lead are very much aligned almost always, then of course you should trust his judgement and follow his suggestions.

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

ronin


Total Posts: 341
Joined: May 2006
 
Posted: 2018-07-14 16:14
@semut, did you never manage a team in a bigger organisation?

Put your problem employee on performance improvement.

Talk to your employee, and discuss why the performance is lagging. Agree on some clear, identifiable targets, and fix dates for delivery of each target. Explain clearly that missing the targets may lead to dismissal for performance reasons. Make sure that everything is written down, and if possible witnessed by HR. If you don't have HR, pay an HR freelancer to come in for an hour.

When each of those fixed dates arrives, sit down with the employee and go through what they did and didn't do with their targets.

Some of things that may happen:
1. The performance improves
2. You realise that the employee is doing fine, and that your expectations are unrealistic
3. The employee finds another job
4. You have to fire the employee, and you have the objective data to justify it if there are any problems.

"There is a SIX am?" -- Arthur

loltrading


Total Posts: 5
Joined: Feb 2018
 
Posted: 2018-07-25 07:41
.

TSWP


Total Posts: 404
Joined: May 2012
 
Posted: 2018-07-27 14:20
Jim Simons said the reason for his success was mostly picking the right people and putting them in an open environment where everybody had access to everything.

They were also NDA-ed for life, which is easy to do when you are a Multi-B fund but I am not so sure you can effectively get that respected if you are a small firm, LAWYERS COST!

So, in conclusion, what everybody said in this thread is part true, part "depends on"... of course it's great and very productive to have an open environment, but you have to be able to implement that in reality.

A small firm standing on shaky ground with uncertain future ahead, may have great honest people working inside of it, but some of them may be tempted to take a copy of the code and data and fly away elsewhere, undetected (and then it's hard to sue and prosecute them, even if detected replicating the same business elsewhere, especially if from nationalities from certain countries where the laws aren't exactly crystal clear like in the US or UK or Switzerland).

An American published scientist working at RenTec is going to have a difficult time running away with the firm's staff and replicate it at another US fund, but maybe some unknown quant working at a firm in Singapore can move himself to another country and do the same business and nobody will ever be able to do a thing about it, it has happened and will happen again, so the OP concerns are very legitimate in my view...



promoocodes


Total Posts: 2
Joined: Sep 2018
 
Posted: 2018-09-20 14:56
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nikol


Total Posts: 520
Joined: Jun 2005
 
Posted: 2018-09-20 16:33
@TWSP

Do you quote the story between Aleynikov (nationality from certain country) and GS (US resident)?

The first motivation of the manager is to have the team of collaborators, rather than employees. That's what goldorak aims to achieve. People of course are different and some are more jealous than the others. Those have to be identified and trained.

The main challenge for the manager I see here is to motivate people to perform in order to collaborate, but not to compete and, therefore, perform.

Thought aside:
Is this problem similar to "tragedy of commons" solved by Ostrom's law:
wiki


"Design principles for Common Pool Resource (CPR) institution
Ostrom identified eight "design principles" of stable local common pool resource management:[31] She also discussed the eight "design principles" on Big Think. [32]

1. Clearly defined (clear definition of the contents of the common pool resource and effective exclusion of external un-entitled parties);
2. The appropriation and provision of common resources that are adapted to local conditions;
3. Collective-choice arrangements that allow most resource appropriators to participate in the decision-making process;
4. Effective monitoring by monitors who are part of or accountable to the appropriators;
5. A scale of graduated sanctions for resource appropriators who violate community rules;
6. Mechanisms of conflict resolution that are cheap and of easy access;
7. Self-determination of the community recognized by higher-level authorities; and
8. In the case of larger common-pool resources, organization in the form of multiple layers of nested enterprises, with small local CPRs at the base level."
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