Is anyone aware of how multi-strategy hedge fund PMs who focus on equity capital markets are systematically generating P&L?
1) Block trades - is this just pricing at a discount to market and taking liquidity risk? Does anyone have perspective on the skillset / analysis involved?
2) IPOs - I have noticed this referred to as another strategy, but I scratch my head, how does a hedge fund profit systematically by investing in IPOs? Is this perhaps just leveraging relationships with banks to obtain allocation to IPOs that are oversubscribed? What is the skillset / analysis involved?
3) Are there any other strategies associated with "equity capital markets" portfolio managers?
Based on the most helpful WSO content, here are insights into how multi-strategy hedge fund PMs focusing on equity capital markets systematically generate P&L:
1. Block Trades
2. IPOs
3. Other Strategies Associated with Equity Capital Markets PMs
These strategies require a combination of market knowledge, analytical skills, and strong relationships within the financial industry to systematically generate profits.
Sources: Real Estate focused hedge funds, Do I have a good strategy?, Q&A: Portfolio Strategist in a PWM Chief Investment Office, Q&A: Fundraising for Private Equity, Cap Intro & Investor Relations Career Paths, Can you explain me market making strategies?
Surprising the AI gave a good response here. I would still be grateful to hear a human response.
Also on the topic of event driven and M&A arb, I have seen ECM analysts sitting within event driven pods.
Is it ever true that ECM PMs are investing in M&A arb?
Yes you are generally correct. These are typically considered "primary strategies." Similar strategies exist on the Leveraged Finance side as well. You pretty much "flip" the issue/allocation you get and make a profit. Some pods may do more detailed analysis but a lot of it is sentiment-driven (is it high demand / oversubscribed trade etc). Google search Pawan Passi - he's now at CaaS Capital working for the "king of block trades." Most MM funds have a pod or two that does this.
Lol.. “king of block trades” doesn’t often end well, based on my Google search results.
How would anyone prepare for an interview for a fund that focuses on an ECM strategy?
LOL. Very true.
But to OPs point, ECM teams act as liquidity provisioners (or 3rd step market makers). No delta view but buyer is always lined up. Buyers are typically internal pod allocations but sometimes can be external too. Need to have very strong relationships across buy side (PMs that want to buy). Typically exists in markets (or securities) where sell side is limited or constrained.
Are there any case studies of hedge funds with very strong ECM strategies?
Liquidity provisioning is the ECM strategy...
I was the guy that posted earlier. These are pretty much very small 1-2 person teams that leverage their senior relationships with ECM Syndicate professionals to source deals. Every major MM has a variation of this strategy housed into their equity strategy that’s usually one senior person and one very junior person that typically does database work to track new issues / run some analysis. I don’t think these are great seats because during market lulls, they probably blow out the team and keep the senior guy. If you are an ECM person and want to go to a HF/buyside, you should see if you can move internally to product/coverage and snag a traditional L/S equity seat or what not.
I was reading about Segantii, which appears to have developed a very large block trading business. I still scratch my head about how block trading could be such a core strategy. Perhaps if you are involved with a 2-3 block trades every month, and if you hedge those exposures by selling peer companies, you could perhaps generate market neutral alpha.
So would block trading be considered a relative value strategy or an event driven strategy? Seems like more of a relative value strategy.
https://www.bnnbloomberg.ca/block-trade-king-sadler-built-360-million-f…
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