largest MM pods
ppl here always talk about the biggest pods being 2-5b (gross). why aren't there any pods larger than that? are pod strategies just not that scalable? even if a pod is running 10b gross, that's only 1-2b of equity which doesn't pose any concentration risk for a 60b manager like c/mlp. or do the ones that get that big always spin out? thanks.
Based on previous WSO threads, here are some insights regarding the size and scalability of MM pods:
Pod Size and Scalability:
Concentration Risk:
Spinning Out:
These points highlight the inherent limitations and dynamics within the multi-manager hedge fund structure.
Sources: Performance of the best PM’s at MM’s?, Are we at peak pod shop?, Credit - Pod Shop/MM vs. Distressed/Special Sits HF, Demystify the LT SM / tiger cub / "PE approach" vs. MMHF / pod shops?, Strategies that will continue to flourish?
There are pods that size. Worked on one with 9bn gross deployed at peak, probably 7bn today
C / M / P have them. There are a few in the $5-7 zip code (maybe not at BAM). But BAM still has a few in the 3 range, but don’t quote me on that as I haven’t worked there.
why doesn't the 7bn PM just spin out? economics would be better standalone, no?
Not obviously so. Remember it’s really a 2bn fund levered 3.5x.
Going on his own means fundraising, getting prime brokerage, research, compliance, admin, corp access, etc. All things that will dilute the PM’s time and energy.
Also needless to say a mediocre year on your own is the end. A mediocre year in a large platform where you have a long track record is not the end.
Economics would decidedly not be better on their own, unless you’re basically just scaling AUM/head without accounting for any of the operating/scale leverage the MMs get for infrastructure/MO/BO/data/sellside costs. These trickle down into PMs’ paycheque as some of these costs are paid out of PnL
Isn’t Passaic like $10b ? There are some
who's the SPM for passaic?
Because it's so damn hard to deploy $10bn in a market-neutral set-up while remaining nimble. Only a couple of verticals (tech, maybe healthcare) with enough liquid names where it's close to doable.
could you please elaborate
Think what this guy is saying - the way the MMs run sector-specific, you need to be deploying all that $XXbn into just healthcare names or just TMT names (for the most part). There really is not enough liquidity in enough names to justify having book sizes that big in many cases. In the cases where there are books that big, I believe that there are multiple sectors being traded by the pod (i.e. ppl focused on TMT and others focused on HC) but I would bet this model has varied results because at the top the Sr. PM probably doesn’t have the same YoE investing in each of the sectors
The main limiting factor is actually alpha rather than organizational scalability. As pod portfolios grow larger, it becomes increasingly difficult to maintain the same ROIC. First, position sizing becomes more challenging at larger scales. When a pod grows too large, they either need to take outsized positions in their highest-conviction names (potentially increasing volatility and position-level risk) or diversify into lower-conviction trades (potentially diluting returns) - you move the needle a lot with each trade - you'll decay ur own alpha. Second, market impact and liquidity constraints become more significant. Larger position sizes require more time to build and unwind, and so a limited coverage universe + sell-side know ur positions so ur transactions get more and more pricey and fundamentally, u become a sell-side sale/trade (good luck positioning again on new information). Regarding your point about concentration risk - while a $10 billion pod might only represent a relatively small portion of a $60 billion manager's capital * whatever, the operational complexity and risk management challenges often outweigh the benefits of allowing individual pods to scale to that size. Many successful multi-manager platforms have found that maintaining smaller pod sizes helps preserve alpha generation while still allowing the overall platform to scale through adding new pods.
As for spin-outs, while they do occur, they're typically not the primary reason for the size limitation. Many successful pod managers actually prefer to remain within the multi-manager structure due to the institutional infrastructure and risk management support it provides.
Every year I get more capital thrown at me and every year it’s fucking hard to scale. It was exciting crossing the 1-2bn mark but for me personally once I started getting to 3-4bn, I’m finding it really tough to support that with enough good ideas.
It makes senses though. You put your best ideas up but once you’re out of your best ideas, you move to your second best ideas and then that just decays alpha
edit: no clue why am getting thrown shit
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