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Modern Trader
Why are Hedge Funds Hiring Poker Pros?

Modern Trader
Why are Hedge Funds Hiring Poker Pros?

Garrett Baldwin



[Editor's note: This is part five of a five-part series of stories on the intersection between gaming and trading. To return to Part 1, visit here]

 

In July, Brevan Howard hired former professional poker player Alexios Zervos, kicking off a fresh round of media focus about Wall Street’s fascination with the card game and hedge fund managers’ big money buy-ins at the latest live tournament.

The usual round of poker and Wall Street names received attention: David Einhorn of Greenlight Capital, Pine River Investments’ Steve Kuhn, Ariel Investments’ John Rogers and Jim Chanos of Kynikos Associates. Blogs focused on former Fortress Investment Group CIO Thomas Paul’s run at the World Series of Poker, while others discussed Steve Cohen’s quote about how poker taught him “how to take risks.”

It’s no coincidence that many traders love the game of poker because, by definition, it is a fast-paced game of risk management, unknown variables and potential big payoffs that can compare to day-to-day opportunities in the global markets.

But the attitude that success in poker can translate to success in the markets has evolved in the last decade, particularly as former professional players make the leap into finance.

“In the past, poker was something that people left off their resume,” says Aaron Brown, a former professional poker player and current head of risk management at AQR Capital. But today, growth of the game’s popularity and increased focus on Wall Street’s affinity for it have made it a viable qualification, as traditional game theory remains an educational requirement for traders and poker players alike.

The intersection between poker and Wall Street is a hot topic. Just a few years ago, the Los Angeles Times highlighted that all new employees at the Susquehanna International Group were required to read the books The Theory of Poker and Hold ‘Em Poker and spend one day each week playing poker.

In recent years, Business Insider has profiled dozens of hedge fund managers, stocks traders and investment analysts who have direct ties to the poker world. Some are good at the game, others not so good, but a select few have successfully transitioned to the financial sector after lucrative careers as professional players.

Brown is a former professional player and author of “The Poker Face of Wall Street,” a book that explores how poker can provide individuals with an education on how to understand and embrace financial risk. He currently heads risk management at AQR Capital after a lengthy career that includes portfolio management at Prudential Financial and risk management roles at JPMorgan Chase and Citigroup.

Meanwhile, Jason Strasser, who earned more than $1.3 million as a professional poker player, made the transition from online and Vegas poker star to Morgan Stanley book runner to chief investment officer of hedge fund Caption Partners.

So, can Zervos, currently 20th on the All-Time Money list in Greece, and 3,2034th in the Global Poker Index Ranking, follow in their footsteps as he joins Brevan Howard’s office? And what traits might translate from the poker table to the world of finance? It turns out the world of poker and Wall Street are even closer than previously thought.

                                                   TIPS FROM THE PROS

Sept cover tips (1)

 

The school of poker

Theory remains a critical intersection between the markets and the gaming world.

“Poker illustrates game theory in great detail,” says Ed Thorp. “So, I would imagine that financial companies are hiring individuals well versed in game theory, who understand risk and how to make business decisions.”

Thorp cites the work of John Van Neumann and his book Theory of Gaming and Economic Behavior as a launching point for the broader understanding of how participants in politics, finance and gaming operate. He also touts the work of former Massachusetts Institute of Technology (MIT) and Princeton University professor and Nobel Prize winner John Nash, whose theories have advanced modern understandings of economics, robotics, computing and accounting, among other disciplines.

One of those other disciplines is now poker.

Today, MIT’s business school is blurring the lines between poker and finance. The Sloane School of Management now offers Poker Theory and Analytics as a graduate level course. Its professor Kevin Desmond recently taught 150 students over 11 lectures on matters ranging from basic poker strategy and odds to tournament play, game theory and decision-making. Guest speakers included poker experts like Bill Chen, Aaron Brown, and World Series of Poker bracelet winner Matt Hawrilenko.

The course has been billed as a way to build skills for future management and leadership positions in finance, trade and global markets, all careers with high-pressure decision-making. Students were expected to spend roughly 20 hours per week studying the game, and each played roughly 5,000 hands of poker — which would be roughly one year of in-game experience.

So how do these skills translate to Wall Street?

Brandon Adams, a Harvard professor in behavioral science and poker player, sees a strong connection between the education of a poker player and the skill set of someone breaking into finance.

“In theory, poker should be a qualifying skill set because successful poker players have survived a ferociously competitive ecosystem that requires intense study, analytical skill, risk control and clear thinking under pressure,” says Adams.

Adams isn’t the only person to find common links between poker and investing.

“You make lots of bets with incomplete information,” says Strasser. “There is a big difference between trading/poker and a game like chess, where you know where all the pieces are.”

In addition, an inquisitive mind can be a valued asset shared by poker players and successful traders.

“Traders and poker players both ask a lot of questions,” says Adams. “They don’t take the world as it is presented to them.  They are constantly tearing things apart and analyzing problems in new ways. They both tend to be a bit eccentric and individualistic. They are both extremely confident in their own decision-making.”

A mental game first

One of the most important attributes that a successful poker player can bring to Wall Street and become a successful trader is the ability to move on from the past.

“In trading and in poker, it’s important to have no memory,” says Brown, whose book was ranked among the top 10 in business in 2006 by Business Week.

The abilities to forget a lost hand or position without emotion and maintain a forward-looking perspective are critical mental skills in both disciplines. But these attributes are perhaps the hardest to develop.

“The sharpest differences [between poker players and traders] are emotional,” says Adams. “Whereas poker players are willing to go down to the mat emotionally, to experience truly bad runs and bad times, traders more often have a built-in conservatism that makes this less likely. At the end of the day, this conservatism and ego-protectiveness is also what prevents most finance pros from being truly elite poker players. The finance pros fear loss and it shows physiologically.”

Knowing poker theory and maintaining experience as a professional player are distinctly different things. Both Brown and Strasser say that having significant experience – meaning millions of hands playing poker – can produce an emotional toughness required to handle Wall Street pressures.

Still, making the leap between poker and Wall Street has consequences. Adams highlights another big hurdle for poker players to be successful in trading, and vice versa: Time.

“In practice, many poker players also often have some disqualifying traits. For one thing, they are rarely willing to mostly give up poker, which might be necessary for trading success. They frequently are a bit overconfident in new domains, and they rarely have the attention span to learn a new discipline,” says Adams.

Strasser suggests that the transition from finance to poker may be even more difficult due to the time constraints.

“Poker is hard. When I was competing at a high level in poker, I played more than 40 hours of poker each week. Then I spent another 10 to 15 hours analyzing my hands by using software and discussing individual hands with other top players. I did this for almost four years of my life.”

When Strasser stepped away from the game for even a brief period, other professionals left him behind.

“One year after I took a full-time job in finance, I probably went from being one of the best 200 players in the world to the 20,000th best player,” he says.

Who you got?

While card players like Brown, Strasser, and Thorp may be able to translate into successful Wall Street traders, it’s not a two way street, even though the media loves to highlight their performance.

“Finance professionals are almost always terrible at poker,” says Strasser. “The financial press loves to make a big deal when a finance guy makes a deep run in a poker tournament... but luck is by far the biggest factor to winning a single poker tournament, not skill.”

Perhaps the most high profile finance name to compete at the highest levels of poker has been David Einhorn, founder of Greenlight Capital. Einhorn has earned more than $5 million playing in live tournaments, including a massive $4.3 million purse for his third place finish in 2012’s event, “Big One for One Drop.”

Adams had a front-row seat for Einhorn’s success, coaching him before the event.

“David’s strengths are pure smarts, discipline, and emotional control. That tournament was remarkable because, with a million dollar entry fee, you would have expected pros to play their best, but most of them had notably spewy performances,” he says. “David definitely played his way to that final table.  He didn’t get lucky.  He played well at the final table, but he didn’t have a ton of experience with mid- and short-stack short-handed play, and that was second nature to the other guys.”

So, who on Wall Street does Adams think are the best players today?

“The Wall Street people who play regularly are very strong. They include Neil Chriss, Boaz Weinstein, Marc Lasry, Pete Muller, Aaron Brown, Reid Walker and Scott Wyler,” Adams says. “The ones playing the bigger tournaments regularly are a little stronger: David Einhorn, Philip Sternheimer, Bob Bright, Talal Shakerchi. But If I could pick one guy to back with my money if he made a full-time go of it, it would be Omar Saeed.”

 

About Garrett Baldwin

Camden 2  medium

Garrett Baldwin is the Managing Editor of the Alpha Pages and the Features Editor of Modern Trader. He has covered the financial markets since the onset of the RBS collapse in 2007. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University. He holds an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University and will finish an MBA in finance from Indiana University in 2015.

Twitter: @garrettbaldwin, @alphaeditors, @TheAlphaPages

Sound Off: Editorial@alphapages.com








































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