Bloomberg HF News: Commentary RE: Multistrats & Spinouts

Posting for the benefit of all the kids recruiting that don't have a terminal and are too cheap for a subscription to Bloomberg news (like I was).  Headline is a bit dramatic, but reasonably good color within the article.  Would love to hear real anecdotes from the community to supplement this in the comments.

Traders Are Ditching Giant Hedge Funds to Set Their Own Terms
2026-03-17

By Nishant Kumar, Liza Tetley and Katherine Burton

Michael Alfaro was about to become a father
and launch his own hedge fund when he got the kind of call
that’s familiar to high-performing traders: A recruiter at a
large multistrategy fund wanted him to give up his dream of
independence and join them.

Soon, the recruiter took a different approach, finding
Alfaro a night nurse so the expectant parent could focus on
making his decision.

Alfaro, now 37, ended up rejecting the overtures from that
fund and another one. But he kept the nurse.

Such resistance is becoming more common. A growing number
of traders are leaving or eschewing the mercenary life of
working for so-called pod shops despite vigorous efforts to lure
or retain their talent, with pay packages in the millions of
dollars mere table stakes. Some traders say they’re finding more
fulfillment by cultivating their own clients, gaining wider
latitude and more time to see bets through, even if that means
leaving behind easy access to billions of dollars of investing
firepower.

“The offers were undoubtedly compelling, the kind that make
you pause,” Alfaro said of his decision. “But launching Gallo
Partners was personal to me.”
 
Departees from multistrategy giants, which typically build
vast stables of teams that specialize in certain markets or
other niches, begat 17% of hedge fund startups last year, almost
double the rate two years earlier, according to data compiled by
fund backer Borealis Strategic Capital Partners. While Citadel
and Millennium Management accounted for more than a third of
platform-linked launches, the 2025 cohort expanded to emanate
from the next tier of managers, too, including the likes of
Walleye Capital and Balyasny Asset Management.

“This represents a clear, multiyear step change rather than
noise,” Borealis wrote in a report. “If we broadened the lens to
include launches in which the team has any prior experience at a
multimanager platform, the share would be meaningfully higher.”

Across the multistrat landscape, people running strong-
performing teams are examining their options after the best
industrywide gains in 16 years and the most inflows since 2007.
More of them are deciding the time is right to set out on their
own.
 
Their departures aren’t enough to cripple major
multistrats, but it’s undermining the industry’s ability to keep
growing after a decade in which they rose to the top of the
hedge fund pecking order. Armed with “passthrough fee” models,
the firms wield near-bottomless expense accounts from their
investors, allowing them to corner the market for talent by
becoming what one industry executive calls “apex predators.”

But even then, executives concede there’s a natural limit
to how big they can get. As Citadel co-Chief Investment Officer
Pablo Salame put it in 2024: “One of the most significant
binding constraints in the industry is the availability of
talent.” Giants such as his firm, Millennium, Balyasny and
Point72 Asset Management, which collectively run more than $230
billion, are now so flush with cash that some have stopped
actively raising more for their main funds. Citadel has returned
$32 billion of profits to investors since 2017.

Many potential clients realize there’s little room left to
get in, so they look elsewhere. In January, a survey published
by Goldman Sachs Group Inc. showed fewer allocators are planning
to pump cash into multistrats this year, and more are expecting
to reduce it.

Already, multistrats have industrialized recruitment,
building units whose sole purpose is to hunt talent and acquire
independent firms to absorb their best teams. Perks dangled
include multimillion-dollar signing bonuses, guarantees as high
as $120 million to poach or retain star traders and promises of
future paid sabbaticals.

Those tactics work. But over the years, they’ve amassed a
vast pool of veteran managers who are successful enough to spin
off, keen to set their own culture and in some cases burning
out.

After all, pod life is intense. Executives ruthlessly cull
underperforming teams, sometimes including those facing what
they believe are temporary downturns.

And competition between pods is stiff. At these large
shops, with scores of managers, the biggest payouts only go to a
tiny number of traders, those who can successfully run
multibillion-dollar books, according to interviews with more
than a half-dozen people involved in hiring at hedge funds.
In a typical curve, most of the profits might come from the
top 10% of managers, while about 30% make little or lose money.
The bottom 15% may get canned.

In dollar terms that means the portfolio managers at the
very top may pocket $50 million or more a year, while the median
income looks more like $2 million, said the people, asking not
to be identified citing confidential compensation packages.
 
Sean Gambino, a veteran stock-picker who coined the term
“pod exhaustion,” ran his own fund that earned an annualized
return of 18.6% before trying out a stint at now shuttered
Eisler Capital. He left to run his own shop again in 2024, where
the focus is on long-term fundamental calls, rather than quick
punts.

“I ran my own fund, tried a pod and left again. That tells
you everything,” said Gambino, who runs Stamford, Connecticut-
based Baypointe Partners. “Pod exhaustion is real — if your edge
isn’t short-term and repeatable, the model grinds it down.”
Baypointe manages about $245 million and is in talks to
raise hundreds of millions more.

For Nico Dil, who launched hedge fund NovaCore Capital this
month with $250 million, going independent is a chance to create
his own thing after years trading at Bear Stearns, JPMorgan
Chase & Co. and Citadel, where he soaked up lessons on
entrepreneurship and building teams. “Now we have the
opportunity to build a firm with our own culture and vision,” he
said.

Founders like to note that many of the firms dominating the
$5 trillion hedge fund landscape also started as scrappy
independent risk-takers, sometimes in dorm rooms and improvised
office spaces.

Citadel founder Ken Griffin began in 1987 by trading
convertible bonds as a sophomore at Harvard University with
$265,000 from his mother, grandmother and two other investors.
Ray Dalio founded Bridgewater Associates in a spare room of his
New York apartment. Point72’s Steve Cohen began by following the
stocks listed in his father’s copies of the New York Post and
later taught himself to anticipate swings by becoming a “tape
reader,” examining the prices and volumes of trades.
All three ended up overseeing some of the most lucrative
hedge funds ever.

Yet when Alfonso Peccatiello was trying to start his own
macro hedge fund last year, a pair of multistrat giants
approached with disparagement. “The first pitch is always, ‘What
are you doing with this Mickey Mouse little fund?’” recalled
Peccatiello, who once ran a $20 billion investment portfolio
within ING Groep NV.

They offered him $300 million to invest, as well as a pot
of money to build his team. The catch: a tight stop-loss,
potentially forcing him to abandon bets that go negative in the
short term. He also would’ve been required to wind down his
presence on social media and shut Macro Compass, a research firm
he has nurtured since 2022.
 
“I said no,” Peccatiello said. “I want my own shop with my
own investors, my own strategy, my own time horizons and my own
team sitting wherever I want.” He’s still handling well under
$300 million, but he’s in talks with a few multistrats to run
money for them in separately managed accounts.

Big-ticket allocations from multistrats are increasingly
viewed as a fast way for emerging managers to reach critical
scale, providing instant credibility and operational momentum
that might otherwise take years to build. Yet the same capital
that accelerates growth can also lead to fragility, particularly
when a young firm relies heavily on a small number of large
allocators whose commitment may prove less sticky.

It’s like “rocket fuel” for a new business, Marc Gilly, a
partner at Canepa Global Managers, told the annual gathering of
hedge fund managers and investors at the iConnections conference
in Miami in February. But that can also prove too flammable if
not balanced with stable, long-term capital.

Separately managed accounts “can be fair-weather friends,”
Gilly said, but “having a ton of money from two or three flighty
SMAs is not really going to attract other long-term capital.”

J. Dennis Jean-Jacques, a veteran portfolio manager who
oversaw money at firms including Verition Fund Management, had a
different concern in mind when he spurned a multistrat’s offer
to bankroll an account at his shop, Ocean Park Investments. He
worried it might study his trades and use artificial
intelligence to mimic the strategy.

“This is not simply a transfer of wealth or economics,” he
said. “It is a transfer of intellectual capital.”

Resisting the pull of multistrats can be difficult. Their
hunger for talent is so insatiable that if they can’t scoop up a
smaller firm or an entire team, they will try to peel away
individual stars.
 
The courtship of Gallo’s Alfaro was polite at first but the
outreach gradually became more insistent. One frustrated
recruiter vented that “we are getting nowhere,” then turned to
Alfaro’s analyst, offering him $1 million to persuade Alfaro to
join. If Alfaro kept refusing, the recruiter suggested he would
identify Alfaro’s best people and make them offers to defect.
Alfaro and his analyst stuck together, and the nurse stuck
around, too.

“Wonderful lady,” Alfaro said. “We are using her again for
our second.”