Hi, I'm in the process to join a L/S equity market-neutral 5bn-book (1PM, 3 senior analysts, 4 juniors) at a MM HF.
I never heard about this kind of AuM, it sounds crazy to me and I want to sound credible while talking to them.
1) Is it possible to be fully invested with this AuM/person? What would be the average size of the positions?
2) Are bonuses necessarily huge (even in a +LSD% year) due to the size of the book?
Thanks for the info
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Probably a $5bn GMV book (so I'd guess ~$1bn AUM depending on leverage). Yes, books this size, while on the larger end of the spectrum, do exist and, depending on the strategy, utilization can be high most of the time. Like anywhere, bonuses will depend on performance.
what do you mean by utilization?
The part of the book actually invested on positions.
If Citadel gives you a $1bn-book, and you have 900m invested, the rate is 90%.
Some funds will tell you to be invested at a minimum rate all the day of the year, some funds let you manage the book as you want.
Oh, 5bn gross.
Since it's a market neutral book, I assume it's actually 2,5bn of positions vs 2,5bn of hedging
5bn gross is around 100m annual vol at 2% vol. So in a reasonable year you can expect 100m of PnL which is $20ish of bonus pool allocated to the team. In a banner year maybe $200-300m of PnL which would be $40-60m bonus pool. This is a big team at a platform but not unheard of
Generally speaking, the places that give you $5bn gross don’t also pay 20%.
And secondly, running 2 vol with 1 sharpe is reasonable.
in your other example - to generate 200-300mm of pnl, you are either running 4-6% vol (RM isn’t going to let this happen) or be realizing 2-3 sharpe (also extremely unlikely to happen).
So while theoretical / academic possibilities, far from reality imho.
But who knows, maybe I’m wrong/crazy.
Definitely possible to have a Sharpe 2-3 year and return 4-6% on GMV. Hard to do consistently over a career but certainly can have banner years like that.
Thanks for the clarification, I didn't know we had to talk about %vol relative to gross book size.
I'm currently working on a 300m gross book (My PM and me) and we make an average of 8-10m of PNL/year.
I didn't know if the payout maths were the same for way bigger books
So if you’re achieving a sharpe of 1, that would imply a vol of 3% a year roughly.
Chances are, you’re running 2.5-5.0 vol per year is my guess which means a Sharpe of 0.5-1.3.
Very clear, thanks so much
5bn book would put the PM at the top 5-10% of all the pods at branded MM in terms of GMV managed? How's the payout ratio of p&l correspond to the size of GMV managed at Citadel or Millennium? ( lower payout i.e. 15% for 2 bn + books)
The reverse, of course. Bigger book -> better PM -> higher payout.
Yea it’s the inverse.
The bigger the book, the more senior / proven the PM, the more leverage the PM has to negotiate higher take rate.
The “lower payout” another comment mentioned is likely referring to a different firm that on average has bigger books than the big 4 due to the way its structured. Like a certain european fund.
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