Hi,
I thought it would make sense to compile payout terms and drawdown limits for the major multistrats in one place, rather than scattering through different posts. If you know (directly) of terms for PM's in different asset classes, post below and I will keep a list up here. Everyone's deal is a bit different, but figure having some samples should help us all in terms of targeting/navigating opportunties and negotiating.
I'll start:
Millennium macro - 18% payout; 2.5 / 5 / 7% risk thresholds
For the noobs among us: what does this mean? Payout as a % of what? Are thresholds related to losses that trigger drawdowns for PMs?
Payout as a % of PnL. So generate $10M on a $100M book, get ~$1.6M bonus (base is covered by ~$1M or so provided for expenses). Maximum daily var is 1%, 5% drawdown gets half your capital pooled, 10% and its game over.
Don't do macro so I have no idea, but risk limits seem harsh. Don't think you can put up great numbers under those conditions, but your numbers don't need to be incredible for you to get paid well.
There is a ton of variance around the deal you get depending on your situation and perceived ability. For Senior PM the structure is usually as follows: note that sub PM is totally different and you have limited to no leverage
1) Payout: Most relevant thing, but clearly not all that matters. Can be 15-25 %. Depending on factors. 20% is a really good deal, getting over 25% is usually for some limited period of time and has a Sharpe hurdle of 2. Only really attainable if a firm wants to move you and you're already getting 20% or something like that.
2) AUM: Can be relevant but risk capital is fake and they can change the terms on you anytime. But keep in mind that if you succeed they will push capital on you, so really your payout is more important as it is a lot harder to make $s in a MM context than % contrary to the totally uninformed people on this forum. You will never understand this until you manage a portfolio.
3) Fees: can be gross or net. This is really where you need to be careful and places can and do screw you. Citadel is famous for it and really how they make most of their money. They take 15% gross payouts down to 8% net after nickel and diming you on everything. A good deal and that same 15% can be 14% net. Also really important for if you want a team. Places like bluecrest don't have investors and only do net fees
4) non-compete period. Self explanatory but a good deal is 6 months. Also bonus structure, it is possible to get 100% cash payouts no claw back. If a place is deferring your comp, you never made the money. Pretty self explanatory unless you work forever.
5) Drawdown. Usually structured as % loss, capital cut in half, % loss again and you're out. How contractual this is varies tremendously, so I'm not even going to mention it. The difference with firms is how they credit you for pnl in setting subsequent drawdowns. Some firms it is from 0, most is not with a partial credit like 25-50%.so yes, you can theoretically stop out with positive pnl, but I have never seen it.
6) do you want to start a fund? What did you sign away on capacity and equity?
I'm not sure how much to post on individual firms, but I can tell you what is a good deal and a bad deal.
Correct, It is my view that Citadel is best as a "last stop" in your career, since they will let you take massive amounts of less idiosyncratic types of risk even recklessly. You can extract maximum value from the traders option that other places will not let you do - nickle and diming you is definitely a thing though.
For equity guys, the other thing you need to watch out for is "Hedge Fund 2.0", which basically means that instead of increasing your AUM, they will run a shadow book behind you and not pay you for it. If it is a centralized execution type place, they will even execute ahead of you.
All multistrats do this - they call it internal alpha capture, center book, best ideas book etc. They like to market it as sophisticated but they usually just take your positions and add size in their own book.
There's nothing you can really do. This is why MMs can offer 20% payouts - if you think about it, if they didn't systematically gross up your ideas a 20% payout with no netting risk with other PMs would make no sense (given performance fees are 20%). This would be strictly a negative PL trade for the MM management if there wasn't any center book. They don't have to pay 20% carry to the "quants" that run the center book, so the management pockets the performance fees there.
I would guess of most MM platforms 50% of risk is being managed by PM teams and another 50% is managed by the center book. It's what you sign up for.
It's HIGHLY unlikely that the MM funds are actually frontrunning or executing before you are. This would be an absolute nightmare for the funds if the word got out and no one would want to work there. I've heard this rumor before, but I think it mostly comes from people who blew up and are rationalizing why they got fired