Just wondering how much a PM at a MM/platform de-grosses their book by when they have a drawdown.
For example, how much would a PM de-gross by if he was drawing down by say 1.5% from the high water mark ? What about at 2.5% etc...
Thanks.
| +23 | % of pods making 9 figures consistently? | 29 | 23h |
| +13 | Fastest Way to MMHF? | 6 | 8h |
| +6 | Bad PM | 3 | 5h |
| +6 | Average single manager slope | 4 | 2h |
| +4 | Amakor Capital - Who are these guys? | 2 | 4d |
| +3 | 4 YOE in ER & 30 years old | 5 | 2d |
| +2 | Walleye SA 2027 | 4 | 6h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Based on the most helpful WSO content, here are some insights regarding how much a PM at a multi-manager (MM) platform might de-gross their book during a drawdown:
Drawdown Limits and De-grossing:
Risk Management Practices:
General Guidelines:
These practices ensure that the risk of loss is managed effectively, and the volatility of outcomes remains within acceptable limits.
Sources: Performance of the best PM’s at MM’s?, Leaving a single manager to start a book at a platform, Leaving a single manager to start a book at a platform, DE Shaw L/S equity, HF PM Q&A
First question is whether he is even allowed to gross down, as certain MMs force PMs to run fully invested all the time.
Most Risk desks in MMs insist that, when you are drawing down, you take clear actions (including cutting deployment) to reduce chance of hitting soft or hard stop levels.
You'll have a tiered drawdown grid. Platform and occasionally PM / strategy dependent. Nuances between platforms like P72 will give you flexible net and higher vol budgets if you're well proven. More strict at say C.
Usually goes along the lines of being structured in drawdown from peak and drawdown from zero / Jan 1 GMV.
Illustrative example:
From Peak (say +/- 100 bps captures 1 StDev of what's "market" atm):
From zero / Jan 1 (For first yr PMs / new hires you could see some max dollar loss limits as overlays)
All BS numbers but to give you an idea of structure. Different firms have different grids. Different asset classes have different limits (depends on firm appetite for vol in a given space). Seasoned money makers given more benefit of the doubt to turn things around etc etc...
Curious if others seen different or largely similar setups...
Your numbers are too lose. At some of the main MMs, your capital is cut in half after a 250bps drawdown.. so you don't even have a choice to cut 50% at that point.
In light of that, even a 150bps drawdown is more serious than you seem to suggest.
Incorrect... #'s are fine. You've confused yourself. 150 rolling from peak PNL. If you're up 7% and DD 150 bps do you get slapped on the hand formally? Doesn't make much sense now does it?
Also, can't be 'too lose' since it's what I operated with. When one caveats 'illustrative' and 'nuances between platforms' in an attempt to avoid daft debates where someone's personal experiences is being telegraphed to others as the one and only truth. The commercial realities are that we have varieties in risk limits, which - and you might wanna sit down for this one - could be different to what you' may have experienced.
Read it again & focus. +/- 100 bps differences (i.e. me: 350 vs. you: 250 = 100) → should broadly cover what we see in ~70% of the market (= guesstimate, ≠ entire market, ≠ all platforms).
MMPM gets off on telling WSO interns theyre wrong about [random mmhf thing]
hes very proud of being the only one who can pull back the curtain on the mysterious elite world of mm hfs
"If you're up 7%"?
Dude many of us haven't had a 7% year in our entire careers. If that is your starting point, sure, you can be more cavalier about a drawdown. But if you're operating in a way where being up 7% is a common thing, you're going to hit your stops before too soon, because vol cuts both ways.
How much vol are you running in these scenarios? 100bps annual vol?
don’t really understand what you mean when you say 100bps captures 1sd of what’s in the market atm.. does that mean 100bps = 1 annual vol so +200bps is a Sharpe 2 year?
Veniam architecto ipsam voluptas earum delectus in. Earum numquam quia in est deleniti et et. Quam odio suscipit autem corporis. Sit ullam eveniet iusto tempore. Vitae illum laborum facere labore ut iure et.
Cupiditate sapiente perspiciatis eaque corporis provident maxime sunt. Vel ut ullam voluptatem aut nobis. Inventore necessitatibus nostrum nihil. Sit excepturi quae eos. Quod dolor odio voluptas pariatur rerum a.
Reprehenderit occaecati est ad qui sint minus minus. Officia omnis dolor sunt. Aliquam totam nisi impedit temporibus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...