Long/Short pod shop is a dying business
For those who think I'm just ranting, please take a look at the following post by yet another seasoned PM in the pod shop/L/S equity management biz.
Clowns on WSO who deny this reality expose themselves as newbies who have zero experience.
https://phoenixlearning.substack.com/p/ls-equity-is-a-dying-business-top
Quoting from website:
"I recently caught up with a successful multi-manager PM who spent almost his entire career at one of the large MMs (Citadel, Point72, Millennium).
In his words: “Fundamental long/short equity is a dying business”.
OG readers might remember this, and his stance is still as alive as ever:
- Fundamental investing now represents a smaller share of the market. Passive flows and quantitative strategies drive a large portion of price action, while active management, as a pool of capital, continues to shrink.
- “Many of the billionaires who started these big funds 20-30 years ago would certainly not be billionaires if they started today”.
- Out of the hundreds of PMs at the MMs, maybe 1 in 20 is actually doing really well. Most are just keeping their heads above water. The PM turnover at some of these places is insane. At Millennium, for example, you hear annual numbers as high as 30-40%.
Before you call him a dinosaur or old school for comparing what investing used to be decades ago to today, he hasn’t had a down year in 15+ years and still manages a relatively large portfolio.
He obviously doesn’t mean you can’t make money anymore, but that the risk-adjusted opportunity set for fundamental L/S has compressed massively relative to the past. We explore the reasoning behind this (alpha pool/window, positioning/crowding) and cover his approach to learning and training his team.
Let’s get into it."
You are absolutely right. Thank you
I don't think many people are going to pay for a newsletter that says "the career path you've worked rigorously for is going to disappear / become irrelevant." It is evident to most people what they are getting into when they go work at a pod shop. Maybe copy-paste the article here if you want people to engage.
its just a white collar desk job I really dont care what happens
idk... like anything in the world it too will prove to be cyclical... i think distinguishing between long/short mkt neutral vs. long/short duration is also important... steve mandel of lone pine said the same thing ("if i started lone pine today it wouldn't be nearly as successful as it was")
i think the reality is the business changes and adapts to the ongoing mkt structure. there's an enormous amount of retail flows as a % of trading volume today, up dramatically vs. pre-COVID. mkts still tend to go up in a straight line over a long-enough time horizon, that favors the net long single mgrs... again the same will go for private credit/equity strategies who had a huge run up and great returns, then it slows...
tough to respond to much of the article given the bulk is behind a paywall but like anything, long/short pod equity is cyclical... it goes through many cycles and versions of cycles... you have a dozen more multi-billion $ pod launches that are trying to compete w/ the likes of the big guys and typically that sort of entry marks a cyclical "peak" as far as returns/alpha goes...
i think it is dramatic to suggest it's a "dying" business, though... i think there will be a continued emergence of newer and newer products and an exodus from the over-saturated mkt neutral equity space (see: Eisler/Candlestick.. or even ExodusPoint) until the equilibrium of available alpha justifies the # of players that remain... i.e.: it's a "skill issue"
my point is that people tend to dramatically overreact at both peaks/troughs in the cycle of investment strategies... i personally thought Tiger would shutter after being down >60% in 2022.. fact of the matter is they had the scale to insulate them from the enormous amount of redemptions they likely saw and the ability to pivot to practically operating like a family office... and they've probably put up great numbers in '23/'24/'25... the structural change just being that there's now a cohort of LPs unwilling to allocate to tech single mgrs who charge outrageous fees for excessive beta... so sure, Tiger won't be >$100bn in AUM maybe ever again but do they need to be....?
for mkt-neutral... just feels like you need to wash out some of these launches with average talent and mediocre returns... there's a finite amount of alpha available and there's far too many folks running the exact same strategy across the exact same sectors with similar duration profiles that it's far too competitive a space given the mkt dynamics mentioned in the article for enough of these people to afford what it costs to build a world-class infrastructure required to compete w/ a Citadel/MLP... just my two cents but i don't think it's going away any time soon...
Insightful for me as a college student, thank you! May I ask what's your opinion on macro and commodities (pod/mm hf)?
What's "average talent"?
You'd find that those with "extraordinary" talent in this industry are just those who flipped 10 heads in a row.
May I ask which strategy you think would be better to be in for juniors today?
I don't give career advice for free.
delete duplicate
We get it OP, you suck at this job.
Probably still way better than you.
To kids or anyone reading this aspiring to work in the industry: I encourage you all to put aside “single manager or multi manager or long only”. Just be good and make money. Tune out stuff like this lol
LOL "making money" isn't that easy anymore unless you have good inside information, no drawdown limit, and a big tolerance for volatility and a very long duration.
But only privileged people get these conditions to make such big mistakes. You pretty much need Ken Griffin or Steve Cohen to be your daddy.
Everything the post is saying is true - whether you agree with it or not.
Let’s also not forget that the last 15 years have been an unprecedented monetary experiment in the long-term artificial suppression of interest rates. That suppression has distorted valuations/multiples excessively for 15 years, which has made fundamental investing more difficult (everything looks expensive) and pushed investors in search of yield into higher risk assets that have tended to reward growth investors more. 15 years might sound like a lifetime if you’re 22 (it almost has been for you), but it’s not that long in the grand scheme of markets and I don’t think artificially suppressing interest rates forever is sustainable. The fed has been burned (2022) and will continue to get burned (2026? 27?) with this strategy and once the bubble pops, everyone will be crying bloody murder and growth will lose preference as the value/fundamental managers pick up the pieces and outperform.
What’s popular and profitable today almost certainly won’t be tomorrow because that’s the nature of markets. So if you’re early in your career, I think you should focus your attention on learning things that will give you actual skills (transferable to other jobs) and things that genuinely interest you. If you’re passionate about investing, having a contrarian bent can also be helpful/rewarding, so looking beyond what’s popular today to things that worked in the past may be wise.
Companies and technologies change, but human nature / psychology does not, and that’s what drives a lot of market behavior. I’m sure long/short will be the hot ticket again some time in the future because this business is cyclical.
If you want to base your career decisions on some guy’s opinion, why choose the 15 years / 1 cycle track record guy vs someone like Warren Buffett with 80+ years / many cycles? Just because something is old does not make it irrelevant to the present and future, especially when we’re talking about something related to human behavior / psychology.
Warren Buffett is an outlier. He didn't have his capital cut whenever he was down 5%. That opportunity set that Warren Buffett enjoyed doesn't exist anymore. He didn't have social media and instantaneous information to distort stock prices, he never had MEME squeezes and misinformation on the internet to cause massive swings to the stock prices.
The fact that you're even using Warren Buffett as an example shows you have no fucken clue what you are talking about. We are in a new market paradigm now. Markets may be "cyclical" but they will never revert back to the Warren Buffett style of long term hold, unless you shut down all the internet. The fact that Buffett is old, doesn't understand tech, makes it exactly the reason he (and most dinosaur value investors) is irrelevant.
No, my friend, I think it is you who does not understand markets, or has no fucken clue, as you put it. Maybe read some history and use whatever creativity might be in your brain to come up with answers to these questions, or keep groveling in your own self pity about how hard and unfair the world is.
Investors who don’t redeem over moments of underperformance do still exist, you just need to know where to find them (I won’t bother letting you in on the secret if it’s not obvious to you). We actually don’t know if Buffett’s investors comprised hot money or not. The reality is the guy never had a down year when he managed third party capital from 1957-1969, so he never needed to test his investor base.
Social media did exist in Buffett’s day, albeit in a different form. News and data weren’t as instantaneous but they did move markets and they were at times rife with misinformation. The nifty-fifty was a group of stocks that the public was enamored with in the 1960s and bid up above 50x pe’s, many of which proved to be duds and crashed in the 70s. Buffett simply ignored the popular, misinformed opinions and avoided those stocks, while searching for undervalued situations.
The viability of value investing has nothing to do with the existence of the internet or the speed of information. You can automate a robot to buy low pe’s and sell high pe’s, but that has nothing to do with value investing; it’s much more complicated and nuanced than that, and there are still huge inefficiencies in the market (and there always will be as long as human beings are involved), not to mention the world is no more predictable today than it was in the past. There is certainly a lot of noise and misinformation in the market, but you can parse through it by using your brain.
Do you understand tech? Using your phone to rub yourself doesn’t count.
What’s your take on the right way to invest?
I don't think you know a damn about pod shop investing and controlling factors and avoiding drawdowns. Your post exposes you as someone with zero working experience at pod shops, technical analysis, and controlling daily PnL volatility. What you state about value investing is well known by everyone in the market and has already been arbitraged away. Your definition of "undervalued businesses" exposes that you have zero working understanding of today's market, where NOBODY gives a rat's fuck about valuation if the stocks' chart sucks.
You would likely get fired after 2 weeks at a pod shop. And that's being generous. Go back to being IR.
100% agree. I do not work in a pod shop and never will. I do not believe in technical analysis and don’t care about daily volatility. I don’t consider those things investing. When the market starts caring about valuation again and you’re out of a job, you will have a bright future as an astrologer. Or seeing how negative all of your posts are and how little you can get along with anyone, maybe you’ll grow to be a lonely cat lady, medicated in her studio apartment with only her charts to keep her company. Godspeed Scrooge.
Charts >>> fundies and always have
Feel like it’s hard to say it’s dying with 24 year olds are making more than VPs with Carry and mega funds
Actually I would tend to disagree. The main thing equity PMs at pod shops have going for them - compared to say their SM peers - is that they are proper traders and risk takers. The nature of the job demands you become one, so they are also essentially in the business of training the next generation of risk takers.
I consider the CIOs of the top SM funds and the guys who are heads of business at the pods to be roughly equivalent, with maybe slight edge to SMs (selection bias, better WLB and mandate as SM CIO than pod biz head). But, with very limited exceptions, you will not be trained as a risk taker at a SM as a function of not actually taking risk (just "advising", "making recommendations", or "pitching" none of which are actually trading or taking risk).
It is highly likely those guys (the SM CIO types who are now in their late 30s to early 50s) got to that position through a career pipeline that no longer really exists and/or they were just ridiculously naturally talented and have incredible intuition so never really needed that pipeline in the first place.
Edit: just finished reading some of the debate in this thread. I think both sides have merit. But while it is great to be Warren Buffett, it is even better to be Stan Druckenmiller.
Would love to hear your thoughts on the future of global macro and commodities HFs (discretionary, semi-systematic, or anywhere on the spectrum excluding pure quant).
Curious whether you think the space will become more attractive over time (or remain attractive), or whether it might face pressures similar to what some have argued here about fundamental long/short equity HFs (setting aside whether those arguments hold up).
Asking as a college student who's learned a great deal from your past posts on macro. Grateful for any perspective you're willing to share.
I am obviously biased, but I think macro has a great future next 3-5 years. So many interesting things happening now and on the horizon.
You're not going to be on the right side of every one of these, but it is an exciting time to be in markets.
What Buffett did doesn't work anymore, except:
Buffett has underperformed the S&P 500 in the past 10 years. Moreover, both his investment managers Todd Combs and Ted Weschler underperformed the index, despite having a massive "Buffett" halo (stocks they are in instantly get a 10% boost when disclosed on 13Fs). Do you know how pathetic their actual performance actually is? These guys have the best resources in the world, claim to be "super investors", and can't even o/p the index. That's a big FAIL.
Stop worshipping these people who are just lucky. They flipped 10 heads in a row and you somehow think they are geniuses.
Todd Combs in particular just sucks and BRK doesn't even want him. I'll remind you that when he started at BRK in 2011, that was the beginning of a big bull market, buoyed by extremely low interest rates and stable geopolitics. Basically he got in at the start of a 10 year bull market that favored "growth over value" and that's why he "made money" in the first 5 or so years at BRK. Not because his long MA, long DG, etc... positions were "brilliant" but because the entire market was up. He's been underperforming ever since 2018 or so and he would be creamed at a pod shop.
It's funny that over 90% of the dipshits on WSO who reply and insult me don't even work at pod shops and think licking Buffett's 95 year old ancient balls will get them to be better investors when stocks move 20% up or down every day based on Tweets. Talk about being disrupted. Good luck to the monkeys on this forum who think "investing" is just calculating FCF yield.
Why are you so angry? Did someone touch your little weeny?
Don’t pods have more AUM than ever? Why is it dying? Maybe SM but not MM
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