I'm curious about how risk factor constraints are implemented for discretionary L/S equity teams at multi-manager hedge funds (e.g. Citadel or Millenium). In particular:
1. What factors is the portfolio required to be neutral to? Where is the line drawn (e.g. I'm assuming value/size exposure is not okay, but what about quality, low vol, etc.)?
2. What does the constraint look like? Are there daily/weekly/monthly exposure limits, and if so of what size? Are these hard constraints, or is there some penalty charged for exposure?
3. Are the constraints ex-ante or ex-post? Are you penalized if you meet the platform's defined neutrality constraints at the time of the trade, but the actual portfolio ends up having correlation to the factor?
Thanks in advance.