September 27, 2021

What managing a $2bn hedge fund taught me about running a fintech

There are similarities between running a hedge fund and a fintech, but the latter requires a unique approach to risk.

Stephen Holliday, CEO of Level

As the manager of a $2bn hedge fund covering Europe and the US, I thought I knew a thing or two about risk. Starting a fintech showed me there was still so much I didn’t know.  

Fintech is becoming a choice for more and more ex-bankers and fund managers like myself looking for a way to indulge their appetite for risk while affecting real change. 

I started my career as a stockbroker at Deutsche Bank, before becoming a hedge fund manager at GLG Partners, now part of Man Group. I know a bull market when I see one — and took the plunge too. I founded a fintech, Level, in 2018. 


I’ve brought a few lessons from my hedge fund career into fintech. Both are exhilarating, both are scary, but leading a fintech requires a unique approach to considering risk.

1/ Hedge fund managers are pessimists, founders are optimists

To be blunt, being cynical and pessimistic can make you a good hedge fund manager. However, as a fintech CEO, you need to be optimistic, selling a vision about the impact you’re going to have. 

In hedge fund management, a bad bet means you lose a few percent and move on to the next trade, but there is much more at stake here. And being optimistic is key to convincing potential customers — whose business can make or break your company. Being optimistic is also key towards motivating your team to work towards a shared goal, no matter how far off that goal might be. 

2/ The nature of the risk is different

In simple terms, the job of a hedge fund manager is three things — buying, selling and sizing risk. I was right 54% of the time. The rest of the time I was completely wrong. But as long as you’re right the majority of the time, you’ll keep making money. (I should note that being right 54% of the time made me a good hedge fund manager; the industry average is lower.)

When you’re a startup CEO, this approach to risk is similar, but there is one clear difference: you take only one large bet. This ‘bet’ can be broken down — whether to hire a person or pursue a market strategy — but they’re ultimately part of one big (calculated) gamble on your company. The decisions can’t be compartmentalised like a hedge fund. 

The job of a hedge fund manager is three things – buying, selling, and sizing risk...When you’re a startup CEO, this approach to risk is similar, but there is one clear difference: you take only one large bet.

3/ Going against the grain is key

As a hedge fund manager, you have to be deliberately contrarian. Your views and research have to be different to the share prices on the screen, otherwise, there’s little point in your involvement.

This is exactly the same as building a startup where going against the status quo is integral to success. My fintech is challenging the idea that 80% of the UK population are paid 12 times a year.

You have to be comfortable with a belief that’s different to everyone else’s. It’s audacious, but my background tells me that the status quo changes a lot. 

4/ The emotional investment is greater for startup founders

Hedge fund management is more akin to a sport than an occupation. There is no sense of 'mission' or the impact your decisions have on society. I don't mean this in a negative sense — it's just a simpler, singular aim.

On the other hand, as a startup CEO, there’s not just a ‘mission’ but a personal element. You have to do right by your investment and the people who have joined you. It’s even bigger than that. With a startup, you see the feedback from users on a daily basis showing the positive impact your service is having. That provides a purposeful, emotional element. 


5/ Adaptability is crucial in both contexts

Appraising and filtering the range of external factors that can impact your portfolio is key in hedge fund management. You have to be decisive, thinking through every implication and recalculating the odds. This thought process is vital to success, and it’s necessary for startup growth too.

Decisions and external factors can have serious knock-on effects. It’s a fast-moving environment where rules are being rewritten all of the time. The only real difference is that the implications are greater. In our case, the price for being right is a change in the way people manage their personal finances globally.

New innovators will come from finance

I enjoyed my time in hedge funds. But regulations and politics have neutered the sector as it’s matured. On the other hand, building a company in an emerging area where rules are being worked out is exciting. Early-stage fintech organisations are in a space where you become an expert quickly.

I believe that the next generation of disrupters will come from the financial services industry. In both hedge fund management and startup scaling, you’re making decisions that can be framed in uncertainty. Those who thrive on the buzz of making decisions and taking risks in finance will thrive just as well in tech if they decide to make the move.

Stephen Holliday is CEO of Level.