Navigating Proprietary Trading and Hedge Funds

Noel Smith, founder of Convex Asset Management has spent most of his career outside of the world of managing other people’s money. Instead, he traded his own capital as a proprietary trader. Prop traders are famed for generating staggering rates of return, but because they have no interest in raising money, their secrets and strategies generally remain behind closed doors. However, he has decided to bring these strategies to the hedge fund world at Convex Asset Management and while they don’t scale to produce the same level of returns their lack of availability outside the prop world gives him differentiation in the product marketplace. In this interview, Smith explains why props can make so much more money, how much harder capital raising is than he anticipated, and why he ranks relationships and likability higher than performance when it comes to hedge fund success.

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Timestamps:

00:00 Intro

01:16 What is Prop Trading?

10:51 Moving to the Hedge Fund World

16:36 The Hedge Fund Popularity Contest

23:04 Volatility Trading Strategies

27:27 Extracting Information From The Options Market

32:09 Scaling Prop Strategies

34:44 Alpha Degradation

39:31 Being Good Is Not Enough

48:03 Dealing With Extreme Performance

53:28 Long-term Vision For Convex Asset Management