Sometimes you have to explain things to other people before you truly understand them yourself. I was talking on the phone to a friend just now, telling him about the new job. He asked me why the former trader quit before I started, rather than stay on a few months to train me, as we had originally planned.

My initial explanation was that he had just become fed up with the fund manager, and decided that he couldn't take it anymore and wanted out. Certainly plausible, given what I've had to deal with over the past 2 weeks, but not likely. The trader had been there for 15 months - if you don't quit on this place after 6 weeks, you're probably in for the long haul.

My second thought was that he felt he got too small of a bonus relative to his returns. The trader had mentioned to me that I would have to fight for my bonus, so this seemed pretty plausible. However, a bit of sleuthing on my part turned up a significant withdrawal of cash from the main trading account right around when the trader left. The figure, at around 10% of the fund's profits for the year, was hefty, to say the least.

Other speculation on my part included an unwillingness of the fund manager to seek additional capital, desire for more stability, or any number of other things which, while theoretically possible, didn't seem like quite a good enough explanation on their own. Even the combination of all these factors just didn't seem like quite enough of a reason, especially since the trader is now starting a new job as a sell-side analyst. Not a likely career move for a successful buy-side trader.

Then, while on the phone just now, it hit me. The fund manager isn't making the effort to find a new PM!

Now, I've said in passing to other people that the Portfolio Manager quit a few months ago, and that I'd be trying to fill in for that role as well as trading until a new PM could be found. Howver, it's pretty tough to do both those jobs at once, even if you have a lot of experience. The old trader, while very smart, still never worked as a true researcher, and probably didn't have time to manage both jobs at once. In fact, trying to be head trader and PM at the same probably was cutting into his returns! I've seen the numbers for the past few months, and there definitely was a drop-off over the past few months. I attributed that mainly to shut-down costs and a decaying market conditions, but what if it's simply the lack of a PM that's causing the problems?

This also explains another thing - why did the trader decide to become an analyst instead of pursue opening his own shop, like he had mentioned to me in the past? Again - the answer becomes apparent. To open your own fund, you need to be able to manage the portfolio as well as trade. By doing research for a year or so, he'll get the experience he needs on someone else's payroll, and keep his performance numbers from the old shop intact! It's such a simple plan, yet it should work remarkably well.

So, now that the reasons for the old trader leaving so soon have become apparent, so too does my dilemma. Without a PM, will I have the ability to both be head trader and generate ideas? It's daunting, to say the least. However, it also provides me with a backdoor out of the firm earlier than I may have planned. Leaving a firm after 6 months or less doesn't look particularly good on a resume. However, leaving a hedge fund because the manager isn't serious about finding a PM is the logical thing to do. Not to mention, poor returns at a fund that has no PM are quite easily explained. While I may not be thrilled about resorting to a quick exit, I feel it's a lot less damaging than it could otherwise be.

And if we get a PM after all, most of my problems will rapidly disappear...