Drunk Thought: Shouldnt PM's at MM inverse their Portfolio's?
This may be completely idiotic excuse me for wasting everyones time. But if your a PM at a MM and using high turns of leverage shouldnt you be inversing your trades on your book in your personal account (Granted your firm lets you). Example: Your book at work is super levered, you inverse it with no leverage in your PA account. If your book blows up at work, your PA is golden. The only cost of the leverage was your job lol worst outcome is you get fired. Flip Side: Your book is up alot from the leverage, you make it rain that year and your PA barely down and its not levered and you have a great time. Basically: The leverage isnt yours, max worse outcome is you get fired and the leverage is free and can skew your total return (work comp + pa p/l) positively. This is definitely dumb lol but someone disprove this please.
Ummm… basically any firm has a restricted trading compliance policy.
WSO should have a separate forum for actual verified employees in each of these alternatives classes
Ummm ackshually… compliance won’t like that 🤓
The leverage is really a problem for central management. Risk limits are tight so it’s going to be pretty hard to “blow up” your portfolio. Pretty much impossible to be down more than 10% and by the time you get there, they’ll have cut your capital a ton already.
Doing it in your PA will be difficult given holding period requirements. I’m also not exactly sure it’s going to achieve what you think it might achieve. Let’s say you’re an average PM running ~1bn and have a 3% year. Your take home depending on how generous you are with the team is probably going to be in the ~4m range. If you fully inverse your book you’re just going to eat into your pay.. And to protect yourself in a down year in -2 to -3% range (anything more you probably have something else to worry about) you’d have to be running a pretty massive PA account
Interning at MM and contract places pretty strict limits on PA activity (# of trades, anything in the same sector requires approval from compliance) so I'm sure the requirements are more stringent for PMs making this impossible.
I worked for someone who worked for a large bank in securitized products and owned a very large amount of stock thru compensation. He was deeply concerned about the securitized products space and the broader economy in 2007 and he sold a ton of stock short on competitors via bespoke products he had his wealth manager construct to hedge his exposure.
it ended up working out for him as he appropriately hedged himself but I doubt it would fly today - and even less so at funds where they are super on top of compliance and others have said.
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