PnL distribution between pods at the MMs?
I think most peoples preseption that the reason why investors like MM funds at the moment is that you get the exposure to all the asset classes from a very large number of 'independant' teams which should reduce standard deviation in returns, but you also hear on here that there are supposedly that there are these very established pods that make the vast majoritys of the returns. Does anyone actually know if these 'super pods' really drive the returns of the likes of Citadel and Millennium??
Based on the most helpful WSO content, the perception that certain "super pods" drive the majority of returns at top MMs like Citadel and Millennium is not unfounded. While MM platforms are structured to have a diversified exposure across asset classes and independent teams, the reality is that performance is not evenly distributed.
There are indeed highly established pods with exceptional PMs that generate a significant portion of the overall returns. These pods often have more favorable terms, such as looser risk constraints and higher payouts, because of their proven ability to deliver uncorrelated streams of P&L. Platforms recognize the value of retaining these top-performing pods, as they are critical to the firm's success.
However, the structure of MMs also ensures that the overall risk is mitigated by having a large number of independent teams, which helps reduce the standard deviation in returns. This balance between diversification and reliance on high-performing pods is a key reason why investors are drawn to MM funds.
80 20 rule as in most things
Yeah, the top 5-10 teams at each of the big MMs are probably a majority of their L/S equity returns.
Large teams are looking to put up anywhere from $100-$500MM+ in PnL per year vs starting PMs looking to make $10MM in PnL.
That's too few. 80-20 rule would mean 40-60 pods really moving the needle at each of MLP/Citadel.
Related question: at an MM, how much color do you get into the performance/happenings of the broader firm and other pods? I assume this differs widely, so let's say you're a LS equities analyst of 2 years. Do you know what's going on at the biggest yen rates pod in your firm, for example? Or is it all just word of mouth
80/20 is just the concept it can be 70/30 or 95/5 or in VC and tech its 99/1
Top two teams at M are doing ~1-2B of P&L for an "average" year for them. Assuming 10B in P&L at M total, each would be a roughly 10% contributor / weight.
SRBL and who
WorldQuant
I don't think SRBL is posting those numbers anymore. At all.
What does an analyst get paid on a $1-2B PnL team?
Strictly less than $1-2B, hope that helps
Forgetting about the alpha capture teams which put up 1-2bn+ at the major platforms
Which places have alpha capture teams? Citadel has, mlp does not. What about Baly/P72/Verition/Exodus ?
p72 does
Just because a fund doesn't make it public, it doesn't mean they dont have an alpha capture system. IYKYK.
I mean if you go off the rumours about how much the european natural gas team at citadel has made in the last 5 years then the distribution is going to be extremely top heavy. There is a reason all these MM are now building out commodity trading units to try and copy this
something like a gamma(2) distribution seems realistic for returns of individual pods
Gamma distribution has 2 parameters if memory serves
We were ~25% of our unit’s PnL last year
What's a unit?
asset class / department ie ls equities, macro, systematic/quant, commods, etc
Simple example - $50bn fund, 200 teams, net 10% returns is $10bn PnL. Likely breakdown is 3bn alpha capture, top 10 teams 5bn, next 25 teams 2bn, rest 175 teams 1bn
How do you get these numbers? More extreme than I assumed.
175 pods making only $6M on average? Assuming 20% payout and $1.5-2M expenses that's around $0 bonuses (depending on what expenses are above / below the line) for >80% of investment professionals at your example fund.
EDIT: Based on the below comments, the payout would be 40%, not 20%. Still not great.
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