I’m an analyst at a large tiger cub fund and finally admit that the model is broken (I’m leaving). TLDR: bankers, PE guys, and college kids should stop the craze for tiger cubs and switch to 1. Platforms, 2. Mid-sized and tactical single managers, 3. Big Multi-Strategy Funds. You’ve been told a huge lie about the economics and dreams of 7 figure paydays. This is a turning point (10 years ago, someone in college would've said "the best funds are York, Greenlight etc", where are those funds today?" Think of this as one of those turning points).
Most of these views are relevant for TMT (I don't have strong views on other sectors). Full disclaimer: maybe 1-2 years ago I was the kind of guy that would make fun of the platforms. I was so wrong. I basically set up my entire pre-HF career around getting a spot at a large SM/tiger cub, and I’ve been here for >4 yrs now. After Q3, I officially have zero conviction that any large (over $5bn) single manager can compete with the big platforms, not a single one. Please name one if you think they can produce more rel alpha $s than a big 4 platform. There aren't any. Any excuse that SM analysts give is just that, an excuse. Let's start with why I chose my fund/this SMHF path: I really loved stock picking, wanted to learn from a famous/successful pm and (probably more importantly at the time of decision) I wanted to make a ton of money, so I chose a fund with "great economics" (incorrectly measured by aum per person) as many of you think about funds around here. There is a severe misunderstanding of SM analyst comp on this site. I should've picked a platform.
I think most of you know that the 2-3 year/LT SM theses don’t cut it so let's not talk about that, so ok, most SMs have adapted to this so-called medium term 12-24 month thing right? That should work, right, that can be my sweet spot and I can pretend the medium term is my new edge! Yeah no. I thought that was maybe the one distinction point for a SM over platform (SM able to play in the "medium term" space). Nope. If your PM tells you this he's just lying to you. Every single pod has these same theses and just overlays them with tactical, NT trades. Pods and quants dictate NT flows. You need to shrink your horizon to compete today (and have ability to flip) otherwise this medium term golden IRR will be bid down to peanuts. It's that simple. Big SMs structurally (having ICs, too much $ under mgmt, need to deploy massive amounts of $ in every sector) can't flip and can't trade. More on size later. Good analysts are aware of the NT narrative, which always changes. And if you understand that, you can turn a bunch of small moves into a big IRR and still make money on the medium term trade. Bottom line is in reality, you just can't be tactical in a large SM. At all. Which is a massive issue (on top of all the other structural problems with SMs) and a huge frustration point for SM analysts.
You’ll never be the real PM at a SM. You'll never have the same infrastructure, data access, newsflow, and yes, edge, as the pods. No SM is speaking to mgmt 6x a quarter. Edge is everything and it's what creates o/p, big bonuses follow that. That coupled with the large SM model being completely inferior to platforms from LP POV (why would I give big tiger cub 2 & 20 to be net long and not factor-neutral yet still u/p platforms? I can buy any ETF and recreate that, or, I can just buy easy stories, hold them for 2 yrs, and recreate 85% of the rel perf).
"Haha the pods only care about Yip and trade it” (yet they make money on it…meanwhile I pray the name comes around in 15 months?)
"Haha the pods only cares about beating #s” (yet they make money on it…meanwhile I pray for a beat and say "we'll get em next time" if they miss?)
"Aw man my names are down big, a pod must have blown up. I’ll never know why they’re down today, but that’s okay, I have duration”
These are all coping mechanisms. The truth is this is what markets have become. I'm not saying it's a good thing, it's probably not, but time horizons need to shrink to compete and adapt.
And the money? You guys have been told a huge lie with regards to analyst comp at these funds. I'll leave it at that. It’s not “oh I work for XYZ tiger cub, and since the AUM/person ratio is so good, I deserve to be paid millions regardless of my performance”. The economics are controlled by 1-3 people. If you want to make lots of money at a young age work for the platforms and get a big sleeve. There are TONS of misperceptions about seat stability at pods (news flash, seat stability is pretty much the exact same for pod vs single manger)
I posted this on another thread:
What are the best HF seats (assuming better is defined by: performance, comp, promotion potential/ability to be in risk taking seat, and culture/training)?
1. Good MM seats (maybe there are 30-50 great L/S pods across the top platforms)
2. More tactical $2-5bn single managers (maybe there are 10-15 of em’)
3. Large multi-strategy vehicles with near permanent capital and true duration (maybe there are 5 of these. I’m NOT talking mega-size SMs or tiger cubs). The ones that have been around for decades and will never die
Those 3 groups are way better than any mega size SM, today. This has changed in the last few years. I wouldn’t take a single large SM tiger cub over these. And anyone that’s not coping and is a real analyst would agree. Also, ex-HFs, the private LOs are among the best seats one can get, it’s up there.
Where could I be wrong? I am wrong if you think there is risk that the platforms will cease to exist. If that happens, sure, giant SMs can exist and LPs can give up a dream of having a pure alpha uncorrelated return stream. But that's not going to happen...
Sentiment per my friends at similar funds is the same across the board. Many are in late stages with platforms and will be leaving soon. Or hop to LO. The SM trade no longer makes sense and if long (unless you want to have less edge and make less money), you should exit. Take your chips while you can and try to get to one of the above (or exit the industry), it just doesn't make sense and the promised tiger mafia bonus $s are no more. To the young people obsessed with tiger cubs, it's just not it. Don't be the guy at insert top PE that exits to some tiger cub like me.
There's a lot of ranting in this post but as someone with a similar background (top PE -> tiger cub), I actually sort of agree. It feels increasingly so that alpha has compressed to the tail (e.g., all NT alpha is being increasingly scooped up by the pods, LT alpha remains but you need duration which very little funds actually truly have) - so you either play the pod's game (and it's possible if you have looser risk controls and know how they think) or you need to go through the pain of a hazy / unclear catalyst or play in smaller companies or etc. where duration or smaller AUM is key... I've certainly soured on the opportunity and agree with a lot of what they say, even if I think it's a bit superfluous at times.
no you're right, a lot of ranting. i am very frustrated and feel like i've wasted a lot of time. I was told a big lie and was painted a very rosy SM picture back when I was recruiting. Just trying to guide people.
This is actually pretty damn depressing... really solidifies that sense of missed opportunity. I guess rumors sometimes get out of hand.
2 things. 1. the pod game is not just some month to month strategy. Like OP alluded to (and sure every pod is different), pods aren't all short term. I have a mix of NT and MT longs in my book. Plenty of pod PMs (like myself) come from single manager backgrounds. 2. I don't think a SM can beat pods at the NT game if they simply think like pods. Part of this is news-flow and resources, which the SMs can't compete with platforms. We live and die for these NT set-ups, know them inside out. If you're a SM analyst at a medium sized fund, good luck convincing your old PM to get out of your $100M long and flip short. And if we're being honest, we know the numbers better than any SM. A few of my analysts also came from single managers and I have plenty of friends at those funds...the models you see at SMs are sad compared to the typical model you'll see at a pod. Does that mean we don't have the right read on mgmt or something qualitative like that? No, we do, because we have way better corp access than any SM and have covered our names for years. Does that mean our read on the medium or LT story is worse than someone at a SM? No...
In other words, the SM cannot beat the pod at the NT game. However, the pod can do just as good if not better at the MT game than the SM: another reason why SMs are disadvantaged.
Why can't the SMs compete in terms of resources and news flow - I see this said often, and instinctively it makes sense, but can you elaborate?
Presumably the SM sell side research and data budgets could be just as big? Most pods don't have significantly bigger headcounts - but maybe its that you only cover 50 stocks instead of all stocks over $10bn? Or is it more the data-science teams that are cleaning and scraping data for you all to throw into models quickly? (even so, really only meaningful at like the largest 3-4 MMs?) Anything else?
Don't disagree that pod game isn't month to month, but largely platforms/pods run ST in nature. My argument below is more around that good SMs aren't or shouldn't be trying to beat pods at their own game. There is money to be made over a longer time horizon just by getting the direction of estimates right, or narrative shift ahead of time, or thesis-breaking shorts where LO $ flows out more meaningfully. That's not a game most platforms are willing to play, nor is it something they have the duration to play. Not saying they don't pay attention to all that stuff but it's not how they're designed to make $. If I have a bunch of med-term longs but my short book gets blown up I have to cut gross exposure on my longs, end of story. I can't even see out those longer theses.
And also, I don't think the SM analyst is going to get their PM to flip an entire position because that's not why they own it. At a maximum I'd argue that SMs (the good ones) probably just toggle the sizing up and down. Unless you think you're going to get absolutely blown up by a 10% position, you probably shouldn't be there in the first place (see Melvin).
Yes the MMs know the numbers better than any SMs - won't argue you there. The SMs I think focus on a smaller subset of those numbers and try to understand which matter more rather than know every possible data point available. This response is primarily in contrast to the idea that platform/pods can play the med-term game any better than SMs can, not due to skill or lack thereof but simply because of the risk model they exist in.
I'm currently at a SM that's closing at the end of the year. How do I shift to a MM mid-career as a generalist?
Finally someone said it
What’s your view on LOs, more specifically? Does active LOs model make sense compared to passive ETFs/market neutral pods?
I love them and think they're amazing seats. Private LOs are great careers (get to call the shots eventually, actually participate in economcis since the private ones have partnership models, make huge money, and it's not as stressful as HF life. A lot of them have great culture. Pretty difficult to get fired from one of the big ones).
I like shorting so will not be going to LO, but if I didn't, I'd probably be heading to one. Can't compare active LO and mkt neutral HF/not the right question.
Appreciate you sharing your thoughts but, with the context that I’m at an LO and to lvl the convo, is LO really that much better? Suffer from many of the same issues - can’t be tactical, need to shorten duration to compete but really can’t compete against pods etc. comp ceiling is fairly limited and progression is seniority based. Yes greater chance of becoming PM than SM HF due to having multiple funds but the economics are pretty heavily skewed towards the top/original founders/ super senior partners and you have to wait a LONG time. overall AUMs and bonus pools are compressing from shift to passive and fee compression. On positive side, yes it is more stable and have better work/life balance. Just want to test your thesis/rant a bit- do you truly have the perspective to say the grass is greener
Would love to hear some of the shops you’re thinking of here. Thanks!
...
Great insight
What are your views on large activist funds that actually hold for a very long time? I.e your valueacts, TCI and pershing squares of the world?would these make more great seats considering they have real duration?
See below/someone asked similar.
What are some examples of the tactical 5bn hf in ur opinion. Also would you consider funds like Holocene to be a top pod since it’s just a MM spin out.
I would love to see a game of dodgeball between a team of pod shop haters and a team of SM/ Tiger Cub haters
what is meant by NT?
Near term
Personally disagree with the take that all mega SM not great seats now. There are a still a few mega SM funds (TCI, Pershing, and a couple others) paying their analysts a ton of money and low staff turnover. Unfortunately the Tiger complex (ex Coatue) had awful performance the past two years and lost 20-50% of AUM in some cases.
Yes (“Analyst in PE” asked similar question above, answering here) I like the activist guys (ValueAct, Elliott, Icahn, Sachem head, Pershing, TCI) but they’re not fair comps vs L/S. It’s a fundamentally different product. I’m not an activist analyst and never recruited for any of those, so I don’t have great info on A. Their edge/differentiation and B. Their future
But excluding Elliott, from a comp and promotion potential POV, those funds have similar issues to your classic SMs, where all of the economics are controlled by the founder or CIO. Would appreciate thoughts from an activist analyst. Sure, of the ones you quote Pershing pays great (I have no friends there to confirm). If you can get a job and work for ackman sure take it, they hire what once every 3 years?
Wouldn’t even say Coatue is special. Pretty unimpressed with their analysts and they got caught in a few stupid trades recently
I'm an analyst at one of the funds mentioned in your comment. I'd say that comp at the analyst level is capped at the low and high-ends - you're not going to have a blow-out 7 figure comp year you might as an SM / pod analyst, but you're also not going to get below a decent threshold.
I (and other analysts at my shop) like the job because you're creating your own uncorrelated catalyst and can take somewhat of a longer-term view as the market 'adjusts' to what you've done. I'll readily admit that comp is probably worse than MF PE, especially at the analyst level. But you trade that off for a far better lifestyle and more interesting work.
Very little insight into promotion potential. Feels top heavy in the same way most funds do.
In your opinion, what do you think would make SM/tiger cubs competitive against mmhf pods? Is it a change in investment culture with more NT trades, better infrastructure, access to more and cleaner accurate data, shrinking coverage, etc? I wonder if the SM/tiger cub shops need to adapt to the changing landscape to stay competitive and if it is even possible to adapt.
Attrition and/or quantitative easing
Despite being at a large MM and overwhelmingly agreeing on the value prop for LPs, the decision making process for the employee isn't as straightforward.
One aspect of SM economics for the employee (not the LP) that does make it more like the "promised land" is the amount of risk capital you can get allocated at a young age with wide stops while still benefiting from firm economics.
You can flip a pretty big coin personally - in 2022 there were a lot of guys in their late 20s/early 30s who lost 9 or even 10 figs within their coverage universe. Even if you only get paid ~2-4% on the upside from 2017-2021, a stock up 100% that you convinced your boss to put a yard in gives you life changing money. And if you lose 200mm you probably don't get fired and can be "rehabilitated", especially if the fund is doing well. If you get it "right" you also can quickly get partnership economics that help you diversify your personal risk and get upside in the company. Good luck convincing Izzy or Ken to make you a partner at 32 after a couple big years.
At an MM there are very few guys who get allocated the risk capital to ever lose 100mm, and none of them are 28 with no meaningful track record. If you firmly believe in your own skill then a pod is the best way to monetize it. If you don't know/don't have that certainty, a SM is a good setup.
I see what you're saying, but going back to what wrote in the post, much of this is A. part of the big lie everyone has been told with regards to SM comp, and B. the word "allocation" is actually far from that. This worked in 2017-2021 but the point is these days are over, which is why I made this post.
Starting with the 2-4% of pnl. Yes this sounds like a small amount, but it never ends up being this much. Midpoint implies CIO saying in his head "should I really pay this person 15% (3% / total 20% incentive fee) of the economics that accrue to the firm that are attributable to this person?". The answer is always no. Remember greed. Ok, so lower number. Then CIO asks "who should I actually pay for performance? Sector head or analyst?". The answer is usually "a mix, they can share the upside, but I'll skew upside to SH" even if you did all the work. The problem is with the word allocation: at a SM, you don't get a sleeve or allocation with comp terms set in a contract. It's not contractual. And your so-called "allocation" is simply the GMV of your positions, which are attributable to you and your PM/sector head. It's not like you manage those positions or run a book with just those (what 3-5 MAX?) positions, trade around them manage factor exp etc. No, you simply advise your PM on whether your 5 theses are in-tact or not; he manages the positions with positions from other analysts to create a book and run his allocation, not yours. So a better way to say this is "the average good SM analyst might have sourced/oversee a few hundred M of positions".
Then the other issue is around alpha, which, in light of MM o/p and LP scrutiny on return quality, CIO approach to comp has evolved. "Should I pay this person some % of their TOTAL pnl $s, or some % of their alpha $s". Answer is always alpha $s. All of the beta pnl accrues to those who control the GP. Why should I pay you 3% of your pnl if half of it is covar? So mathematically, this ends up looking like: you oversee $500M of positions. If you have a good year, the GMV of your 5 positions is up 20%. Maybe half of that (at best. Probably more like a quarter...) is alpha. So $25-$50M of pnl. OK analyst, I'll pay you 2-4% on that. There is your $1-2M of upside SM comp...not HSD millions or 8 figures simply because WE as a firm had a great year. Most have the mindset "I set up this fund such that I control the economics. You work for me and the majority of your performance accrues to me. I will pay you on your contribution, not my/senior people contribution on gross exp/macro/calls on your sector & positions"
What's the flipside at the top platforms? I get an actual sleeve of $400-600M+ (there are analysts who have >$1B books), I call the shots, basically every $ of pnl I generate is alpha (yes, it's harder, but you're paid like this anyway at a SM) so there is no debate around beta, and then per my contract/agreement with PM, I get 5-10% of my pnl, not 2-4%, because MMs have a different fee structure.
This is how the value prop for LPs --> ability to pass everything through --> analyst comp comes full circle.
Thanks for the clarification around approaches to comp in the current cycle. I'm not in L/S equities so my biases come from my wealthiest friends being tiger cub partners as opposed to MM analysts/PMs.
Extremely well written. Totally the mindset, this is why all the SMs you naming are becoming a more “multi-strat” or whatever word we using now. CIO sees the world very differently now.
How did you come out from 1B book to 400-600m sleeve? Curious about math
How did u get 400-600m number for analyst running sleeves at MM?
This is a good comment, there is some variation is alpha vs beta comp and analyst attribution at SM and this is the most meaningful and easiest-to-address required evolution
It is downright silly to pay on PnL in an LS fund - it punishes short ideas which are already higher labor intensity and short exposure enables long pnl. Punishing bets on short positions and rewarding it on chunky long hail Mary’s is how everyone forgot how to do alpha shorts and started just doing ‘bull market shorts’ and ‘funding shorts’ creating the giant direction factor bets that imploded. The short book usually loses pnl and then once every few years it justifies the fees and ensures survival of the fund into the next cycle
Funds that don’t crash when everyone gets caught swimming naked get a halo effect that offsets weaker returns in the upcycle (it supports the value prop of risk-adj/uncorrelated returns). People don’t mention often, but despite millennium generally trailing citadel in returns, the fact millennium never imploded like Baly/citadel is very important to LPs
What's an example of "Large multi-strategy vehicles with near permanent capital and true duration (maybe there are 5 of these)"?
Appaloosa the only one I can think of... but not sure that's what you meant
Elliott Davidson K Farallon Baupost etc.
Think he mentioned it in another thread and it was basically just DK Farallon Baupost and Elliott
Could throw in the “quanty” guys like Marshall Wace and DE Shaw that are not pods but multi strategy still
There are a bunch of others that are similarly sized: goldentree, king street, etc. No insights into how they pay though.
I'd just warn that if comp maximization is your goal vs. Tiger cubs, the credit-heavy specialists (GoldenTree, Brigade, etc) are not what you are looking for. Of course the few that are actually real players in both L/S equity and credit (Elliott, DK, etc) are different. You do credit for different reasons, but MAXIMIZING comp is not one of them.
What's your comp progression been for the 4+ years at your large cub?
Won't get into specifics, but range has been $300k - $2.2M (in a year where one could argue it should've been 3-4x that, and had I been at a platform, would have been way higher). Many lessons learned about comp and founder/CIO psychology in this business.
2.2 million? How many years of experience do you have?
Absolutely forget about becoming a PM let alone partner at an SM. That was literally 10-15y ago.
Does your view hold for someone more early in their career (eg coming out of undergrad)
No I'd say similar view if not stronger. Your goal as an undergrad should be to "how can I be the best analyst I can?". The answer is reps and training, which you won't get at a tiger cub! I'll promise you that! Ping me when Tiger creates an analyst academy like the platforms have. I think the platforms have done an excellent job attracting and developing young HF talent vs throwing bankers in the SM analyst rat race to generate ideas and create their own process. On stability, I think it's pretty difficult to get fired at a top platform (again, making assumptions here: you have to be good otherwise you'll get fired), and I'd say (in some cases) some SMs are actually worse from stability POV than platforms...if you're good they keep you. Simple as that.
In my experience, (please take with grain of salt as there is massive spectrum of MM analysts) but the MM analysts that I know (I'd say they're good) are better than the good SM analysts. They're more in the know, know the numbers better, have better processes, know their sectors better than SM analysts, and then on top of that, they're forced to think in a factor/market neutral env, position sizing, so they're developing PM skills too. Maybe SM analyst is better at making long writeups or decks. But take this lightly please, there are definitely plenty of good SM analysts, and in many cases "it's the pod/PM that makes the analyst", not the other way around, but still, I'd say IN GENERAL, MM analysts seem to get things right more than SM analysts
Super fair points. I'm at an SM, albeit a slightly smaller one than you the ones you've mentioned and it's not TMT only. I'll take the other side of the argument for parts of this debate but really just open to hearing the pushback.
I think everything you've said about edge and speed + access/news flow & information is very correct. There is no one better in the industry at collecting, harvesting, analyzing, and then trading these sorts of data points or pieces of information than the platforms. I don't think anyone would argue that. Where I would push back on slightly is that given the flow of capital to quants/platforms, it creates an unnecessary amount of volatility around these sorts of NT data points, not withstanding leverage (which I'll address later). I'm writing this today with the entire market up > 200 bps on a CPI print that we've all known was going to be squishy and inflation that's been decelerating for nearly 6 months now (or more). Platforms and quants have completely turned the market into a market of extremes on either side where you're playing the same FOMO style trading game where you have to quickly flip to catch the momentum or chase trades of your peers. People then forget that LO/passive $ still exists in a large way and that the broad market and single securities in the longer term do not move solely as a function of compounding NT moves. Eventually earnings do matter, but the noise in between quarters is obviously what you're referring to and what drives the alpha $ to be made in the NT. Totally fair but this mkt isn't just quants/platforms vs. L/S SM hedge funds. It's a ton of passively parked or sleepy active LO $ where guys are managing $bn at BlackRock and will maneuver those positions around according to their own strategies and mandates, largely which ignore the NT anyways.
Another just brief point. This forum seems to switch back and forth on a semi-annual basis to which strategy is better. If rates stayed at 0% forever and the SM was continuously up > 30% per year no one would have any clue it was all just levered beta and that'd be the strategy that everyone fawned over. So yes you saw a large normalization as a result of rates and factors but I don't think that structurally equips platforms. And here's why:
1) Leverage, I don't totally understand how levering portfolios 4-6x cannot be succumb to some interest rate impact. Negative carry isn't perfectly convex either, and frankly you've seen some platforms really struggle with their ability to scale in what should've been their best environment in 10-15 years (Schonfeld, ExodusPoint). I don't know enough about the mechanics of this I'm just shocked we haven't seen a larger blow-up.
2) Function of LPs. If all this LP AUM realizes the trend you've described and flocks to platforms, that edge too will evaporate.. much like it did for the L/S TMT SM. If every single market participant or NT flow "dictator" has access to the same data, then the entire edge becomes in understanding/analyzing it. The data then only informs your view of what, the next month or two? So then what happens is the market gets VERY efficient in pricing in the NT but far LESS efficient in pricing in the medium or long-term. You have to remember these companies exist in the context of broad capital markets with hundreds of $bns flowing in and out for a multitude of different reasons. To my earlier point the Wellington PM isn't selling a stock because the data was bad for 2 months and he frankly doesn't care. He is accepting that he's playing a different game and just because the SM TMT guys got absolutely smoked in 2022 doesn't mean that they necessarily should've capitulated on their strategy. They just need to realize that 1) they are just beta clippers and 2) they need to manage risk a whole lot better.
What you're largely describing is just the phenomenon of markets becoming more efficient in a compressed duration horizon where real alpha has revealed itself versus a cohort of the L/S industry who didn't actually generate any alpha at all. My argument then becomes that IF YOU CAN WITHSTAND THE DAY TO DAY/MONTH TO MONTH VOLATILITY, YOU CAN STILL DRAMATICALLY OUTPERFORM. It's all about knowing where you're exposed / where the risk lies in your portfolio. Tiger didn't know. Melvin didn't know. But there are tons of other L/S guys who know and actively manage the portfolio risk. Could you imagine if Tiger was running a 20-30% net once rates started going higher but was also short a handful of tech names? Probably wouldn't have been down 2x the QQQ in 2022. How do you explain Viking who barely underperformed Balyasny then in 2022 which was meant to be the platforms' best year?
I share your frustration that the market has essentially conceded to the strategy of the platform. I would also just highlight that the increase in passive investing/indexing has probably more to do with the broader difficulties in SM outperformance than does the pod trading Yipit data. I'd also argue that beyond a 2 month scope the Yipit data doesn't matter and in due time if all the $ has Yipit data then it isn't really an edge at all. Call me dated or old-fashioned or cliche but I think the true alpha exists in finding opportunities where the existing shareholders have a major thesis shift (either good or bad), very akin to credit investing or distressed where there are maybe 8-10 total holders that you're adjacent to and have to play against.
All of this sort of depends on 1) what game you're playing and 2) your view on what or why stocks do what they do over a timeframe. #1 just means what I said before: the LO $ do not care what your Citadel monkey heard in a meeting about gross margins being 7 bps lower on a seasonally-adjusted 4-year stack basis. It may move the stock for a day but anyone who's LPs aren't going to pull their $ on a month of underperformance are fine. I think the market is constantly pricing in a much longer horizon than where the pods exist. So it's just a different game being played. I think far too often you have SMs who are at risk of capital cuts or redemptions conforming to the idea that they even needed an explanation for violent moves against them intraday, and then allowing that to morph into thesis creep. I also don't think that the pods care about the MT/LT as much as they say they do - I'd argue the consensus pod view (contrary to another response you saw above) is that all the alpha is made in the first few weeks of a trade.
Open to any thoughts and I don't think we're vehemently disagreeing but just offering another view. Boils down to the notion that everyone has FOMO and price now drives narrative vs. other way around, but doesn't mean that well-run SMs don't have a place in the mkt. But I'm also not at a Tiger cub.
Just curious, what's your mental framework of existing shareholders having a thesis shift? Are you at the level of "LOs will be sellers if this happens", "growth investors will punt if this happens", "value won't step in to buy until stock plummets to this multiple"?
Or do you get more granular, like "TCI is a major holder in this name, I know how they model/think about theses and if this happens, they will punt this"? Or something like "I know TCI also owns this other very similar name, and if something bad industry-wide happens, they'll be more likely to punt the first name than the second so let me short the first to position around that"
Just wondering at what "level" you try to mentally frame other participants' reaction functions, if that makes sense
Crappy answer but both. It's not ignoring the NT setup or what may/may not move the stock but it's saying tangentially that you're more focused on the trajectory/direction of earnings estimates rather than the accuracy. To the OP and one of the respondents' above points, SMs will undoubtedly know the numbers better so I think it boils down to understanding those major inflection points well ahead of the pods.
To the TCI part of that question probably never THAT granular in terms of trying to sort out what it is drives their ownership, more around saying "hey, this company's model or PnL is hyper sensitive to mix, how can we get really good at figuring out what drives that over the next 1-3 years?" Then you figure out OK, this mix shift is massive and drives numbers well below what the street is expecting, all these guys that own it have owned it because growth was X and now it's X - 10%. When does this start to show up in numbers? If it's within 12 months, our assumption would be that the stock to some degree should or has started pricing this in and so it'd be our job to figure out to what extent and how much more downside is available.
good points. have some "pushback". i will try to respond eod. many centered around fact that you (probably?) are at mid sized or smaller tactical SM that I was alluding to. don't think your points are that relevant to the large SMs which are too rigid and (in my opinion) are well into sec decline.
For sure. Be curious also to hear if you believe that the larger SMs you're referring to would've been better off just actually hedging their portfolios (the easy answer is yes, but perhaps this would cost them AUM growth?)
the perspectives being offered on this thread are super helpful. i've spent my career jumping around small (sub $2bn) SM shops and while i haven't been at an MM i have to think i've gotten some solid experience. every shop i've been at has been quite nimble and solid alpha generation has been (knock on wood) the norm. LP relationships are aligned with a longer term view, the endowments and foundations know that they aren't getting insane short term alpha like at an MM but they are happy paying a lower fee for our approach. i'm sure the LPs have plenty of their capital in MMs as well. additionally, being small means your PM is likely still in grind mode...i have to think that at the Cubs, along with being too big and literally unable to get out of losing trades, there was a lot of complacency given everyone making a decision on the portfolio has already "made it". risk management is a big focus at a smaller shop that is still familiar with the fear of being wiped out at any moment. yea, my comp is very capped as an analyst in this space, but i love the work and learn a ton. the pipe dream is to feel good enough to go to an MM someday and successfully take on a sleeve, or start my own SM. in the all too likely case that neither ever happens, oh well, at least i spent my HF career excited to go to work every day and made, all things considered, decent money. i guess my point is everyone is also solving for their own risk/reward function, which is why the honest takes on this thread are so helpful for young folks in the space.
Well yeah look at any public PE firm.. what drives their stocks and PnL is AUM growth and the accompanying fees, not returns. Scale at that level matters & pays the bills (and some), so all the big shops then optimize for AUM/scale as opposed to returns. At some point the pendulum will flip back to caring about returns.
I'll address the rates point that I addressed on another thread but will be purposely thin on details. High rates do not hurt the platforms and I would discard this negative carry theory. Also the reason things haven't blown up is because platforms have gotten better at managing risk over time. You prob would not believe how good the most sophisticated platform - at least in my eyes - is at eliminating factor risk at the enterprise level. Factors that would've ended your business before pods got smart post-2018 Factorgeddon are now non-issues.
I don't want to defend the pod business model too much because there are a lot of T2 firms that arguably shouldn't exist. I dislike the flooding of capital into market neutral as much as the next guy because it competes away returns. That is the singular biggest risk to the model but outside of that I have strong reason to believe this model will gain share into perpetuity.
How does it not make net returns worse though? That's really my question... the strategies are predicated on leveraging alpha 4-6x, and leverage costs have increased substantially.
To your knowledge (doesn’t have to be you specifically) - are the MMs still throwing large first year guarantees to people from top SMs with track record of positive pnl? What are the sort of number ranges that you are seeing for ~5 year buyside experience? Would think LSD million. How did you go about showing your track record given you don’t exactly have a book?
What do you think is the misconception around stability of jobs at MMs? Seems pretty clear to me you get fired for losing money if you’re in a “risk taking” seat (Analyst as they call it at Citadel)
This is a good thread. (Former HF Analyst, now in LO here).
There is no free lunch in investing. Timing always matters. It's going up in the next 12-24 months, okay, when? Let's buy it right before that catalyst rather than sit on it the whole time. If you're not sure when, it's not that good of a thesis as a different catalyst (like earnings) in the interim can come along and drive you into negative territory, out of your trade (and god forbid, possibly out of your seat).
Are strict drawdown limits in MMs a negative? Yes. But you have to look at the whole picture (nimble book size, POTENTIALLY more clarity on comp & progression, DEPENDING on your PM).
There are great investment teams and unimpressive teams in each of these market specialties (PE, LO AM, SM HF, MM HF, in equity, credit or macro/misc. contexts). Finding a good team is a priceless opportunity. Being fortunate enough to pick between which one of these styles you personally like best is even more rare. But don't let hype or message boards convince you that one is strictly better than the others.
It's very difficult to get truly rich working for somebody else. Especially to get rich quickly.
You generally need to take the risk to start your own business to do that (or at a MM get your own sleeve). That is a real risk. It comes with real upside. It's not for everybody. You can also be in position to take over a PM seat at a different type of shop that someone else built. But that probably won't happen until you're at least close to 40. And it will be hyper competitive internally to get that promotion. There are great careers in this business that get built slowly. Julian Robertson started Tiger Management at age 48, after a highly successful ~25 years at Kidder Peabody where his run culminated as Head of Asset Management (IB owned LO AM).
Pay attention to the people who poke their heads in around here who have been doing this longer than 1-4 years. This is a great place to learn how to get a banking job, or to vent about your first tough two years in IB. There is also good information about buyside jobs. But the group of authors on the former is not the same people who have the real knowledge about the latter (yet). You don't know what you don't know (yet).
Now that you have the perspective of having worked at both a SM and a LO- are you happy with your decision to have gone with the LO path? perhaps dependent on whether you like your team or not, as you highlighted
Yes I'm happy in my current seat. Spent a lot of time kicking tires. Didn't take the first thing that came up.
MM HF: Your PM has his own book, he never has to do marketing/client management. Often times, he has to trade himself (perhaps more relevant in credit), because it doesn't makes sense to hire a dedicated execution trader. Sometimes shared resource w/ other PMs. Small team. One to a handful of analysts. Opportunity for close relationship, great mentorship. Analysts are closer to the action (execution). Also opportunity for Scrooge/Bob Cratchit relationship. They immediately notice when you are off the desk. Culture is like S&T (if prop trading left the bank and moved to unregulated entity). "Desk analyst". Don't have to cover the whole market because this is an absolute return strategy / market-neutral. Can stay focused on niche or be opportunistic. Depends on PM/mandate. Books typically smaller. More liquid. Rotate positions more aggressively.
LO AM: Two, sometimes three PMs per portfolio. PMs are VERY involved in marketing/client management, but probably have to trade less / not at all. Large team. 10-20 research analysts, coverage by industry & blanket the entire market because this is a relative-to-benchmark strategy. More important to put pen to paper on your thesis (inevitably some PM will miss it due to conflicts and ask for it later). Not quite SS research, but in between that and MM HF. Easier to blend in (take a lunch), harder to stand out (lots of you analysts around here). Culture is... somewhere between banking & Fortune 500. More buttoned up/bureaucratic than HFs, fewer blue jeans (pre-COVID), not blow off hours, but not 80-100hr weeks either. Institutional clients expect 'professional' managers, so professional you are boring. Billions or tens of billions to deploy. If a pod is a jet ski, this is an oil tanker. Both need a capable captain. Lot of value in not sinking this ship.
One of the most critical defining factors for people in my experience is if you have children and if your spouse works. This (on average) changes a person's utility functions pretty dramatically, where you suddenly have a really good reason to optimize for more WLB and less comp risk.
Coming out of undergrad, many have the mindset "well, all of these jobs suck compared to school, so I'll just pick the one where I can get rich & retire as quickly as possible and go back to hanging out with the boys". That generally doesn't work. It still takes 10-15 years if you're extremely lucky, and more like 20-35 for many finance paths. The boys move on and get married and/or leave NYC. You need to find a way to be reasonably happy during your day job. Make new friends. Enjoy new things in life.
Get a job, folks.
Having been on both sides, I don’t necessarily 100% agree, but there’s alot of good points here that people would be wise to consider
I think I have a unique perspective given my background: PE > MBA > MMHF for a very short time > Concentrated LO with activist tendencies (sort of a slightly smaller ValueAct, Jana, Pershing, etc.; there are probably 20-30 funds with that sort of model so if I add any more detail, I think I'd dox myself.)
I think pods can have MT and LT theses but I think they are actively encouraged not to, with certain platforms having such tight risk models that it's essentially impossible to express a MT to LT view. For instance, if you have a thesis around a homebuilding volume recovery in 2024 ("medium term" for Citadel...) based on declining construction costs which will benefit these two homebuilding related companies in particular, good look expressing that view while staying within the parameters of the factor-based risk model you're graded on. You'd probably have to long one of those stocks while shorting the other so ta da, guess what, you're back to being a quarter caller.
Now if I expressed such a thesis to my current boss and therefore pitched buying one or both of those two companies he'd tell me he doesn't like expressing a macro view and to come back with a company-specific pitch. If I pitched one of those two companies, we'd spend maybe 5% of the time on that thesis and 95% of the time on the usual Qs we focus on (management track record, governance, competitive dynamics, value capture within the industry, long term growth algo and unit economics by segment, intrinsic valuation, etc.). I think (I honestly don't know as I skipped over funds that focus on this duration) this is the sandbox that the (relatively) concentrated long short funds can do well in (whether they're "tiger cubs" (such a dumb concept...) or not). They can spend as much time on MT catalyst as they do on LT fundamental business analysis and therefore offer something slightly different from a) pod shops, b) concentrated LOs, and c) index-like LOs.
Besides pods not being able to express such sector and/or factor tilts explicitly, they also simply don't have the time or skillset to analyze companies through a long term perspective. The current fund I'm at, a "private equity in the public markets" fund (a model that WSO loves to shit on these days...) is every bit as capable of analyzing companies through the an ownership lens as a PE fund with two key differences: 1) we don't have data room level information and therefore have to get creative and/or act on less than perfect information and 2) even as an activist fund, we're not able to directly change management's decisions and instead have to use the tools available (emails / phone calls, proxy filings, public letters, and once in a blue moon actual proxy fights) to influence change on the margins. Usually, because of our level of data access, the decisions are more broad than what we'd do in PE. E.g. in PE we might direct management to make specific changes to sales comp plans going into a fiscal year whereas at an activist long only, we might instead direct management to cut back on sales investments given the sales efficiency we can glean from filings. The people I worked with at a pod shop simply don't have the backgrounds to do that kind of work (most come from S&T or equity research backgrounds, have never been through the processes (budgeting, executive hiring, executive comp plan, financing, sale, etc.) that provide some degree of operational knowledge) nor do they have the time to do this type of work on top of the quarter calling / factor balancing / management call back work which already takes them 60-80 hours a week.
Finally, OP intimated that SM don't pay well relative to MM because they're structured as dictatorships. This may or may not be true and is entirely idiosyncratic to any given fund. I think some SMs are realizing that they can get a second bite of the apple over their 50's, 60's and 70's even if they create a succession plan. It's not easy but a few funds have been somewhat successful. One way to do so is to stay relatively lean (I think a single PM can manage up to but no more than 4 maybe 5 analysts) and to give GP points and/or profit shares to analysts after a few years. There are a handful of funds, including mine, where even just 1-2% of the fee pool is $1mm+ of mean-not-median compensation, which is plenty in my opinion especially when the first $400k or so of comp has annuity like predictability and given I'm making this money in my late 20's early 30's i.e. young enough that if I just live within my means for 5 years I'll compound to $5-10mm net worth pretty easily. This structure also creates better stability which helps with fundraising / minimizing redemption and also incentivizes analysts to think of themselves as partial partners and therefore contribute beyond their day job. I think the historical opposition to this model was a) lack of precedent (which is changing) and b) good analysts having a better incentive to go out and start something on their own (but in this current fundraising environment, that seems impossible even for people with 3-4 years at exceptional funds).
Anyway this is an unedited, poorly arranged rant but I need to get back to earnings related work...
How does the "long-term oriented" value prop go over when fundraising? Is there a lot of pushback from potential LPs or do they roll with it?
I can't speak to it, I'm not usually in the room. I think they focus on a) the concentration & activism as reasons to pay promote and b) the 10+ year track record as a reason to invest at all. One could argue there's a virtuous cycle (strong track record => LP trust => ability to think long term / eat short term dislocations => track record) but idk, seems specious.
UGH. I just wrote up a huge response to this and then it went away. Sorry.
Basically was saying: 1. What's wrong with calling Qs? Something like 50% of true idio alpha is captured around eps. Why would you not want to monetize that?
2. The LT diligence items are things that pod analysts also look at...not just SMs. Those items are table stakes. And then pod analyst knows the NT and MT narrative and how the stock trades better than the SM analyst
3. I agree re: activism. Yes activism is great, has it's place in the mkt, I love activists. But this thread/my points were MM L/S vs SM L/S and why MM L/S wins in basically every single catgegory. Activism is separate and I don't have a great read here. BUT...LOL at the "pod analysts can't tell a mgmt team simple improvements". I think pod and SM analysts are more than capable of making suggestions to mgmt teams, but they don't, simply because activism is not their mandate. It's yours :). Also majority of pod analysts have IB, ER, PE, or SMHF backgrounds -- have never seen S&T, have you?
4. You will make the most if you have formulaic pay, which only the pods can offer. I've seen it first hand, if you make $50M for your SM, your cut will be greater at pod than SM that's a fact. Economics / GP ownership is not really a feature of most large SMs. It is a feature of large multi-startegy funds -- see a comment I wrote on another post.
I think MM L/S beats large SM L/S in every single category I don't really see how LARGE SM L/S would make sense. I'm a fan of the mid-sized $2-4bn SMs with smaller teams.
If willing - please PM - interested in activism.
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This is the most interesting post about hedge funds I’ve seen on this site. Reading it made me realize I think about investing in such a different way only looking at private names and doing secondaries. I never heard anyone say otherwise about SM large tiger cubs so very interesting to read.
Could you repeat that? It’s still not clear what you’re getting at.
He's in PE secondaries, he invests in a rlly diff way from HFs so he finds it interesting. That's all
Hey, I'm a senior at a HYP school, deciding between going full time at a pod shop or a SM tiger cub--have interned at both, and as expected the SM has taken a beating. Thoughts
pm me
pmed--thanks
Go with SM
You can head to MM anytime not easy the other way around
Guys I’m sorry my comment duplicated
I've gotten a lot of great feedback and I'm glad I was able to help guide some of you on the right path/prevent you from making the same decision I made. If you have any questions feel free to PM me. You guys know where I stand on most topics.
I'm someone who has thought very carefully about each of the aspects of SM vs MM debate and genuinely think there is 0 upside in going to a top SM vs MM anymore. Zero. I still challenge any of you to name one "elite" tiger cub that would disprove my thoughts. 90% of my HF friends would agree. The remaining 10% are a little slow.
A little late to the party here but my $0.02 having been on both sides of the fence:
Want to clarify that I agree with 90-95p of what has been said here but thought it’d be more helpful to play Devil’s advocate in areas where I have some first-hand expertise.
Yeah those are good pts. I said this before (think I posted somewhere here I forget) but I know little about dyanmics at non-C M P pods, but about blowups: If we take C for example, when you say blowups, yeah these make great headlines and good things to write about on WSO, but people grossly overstate how common (and frankly how hard) it is to blow up. It actually rarely happens (having a good scaled pod blowup). I've been told maybe 1-2 a year at C, if that. And in the blue moon that your top 30-50 pod blows up (which I've been told given tactical nature + risk model is basically close to 0 odds), since you're probably a good analyst, they will keep you. It's not an ultra cut-throat world. But it is eat what you kill. Sure, PMs leave or get pregnant or retire. That's different and doesn't mean you're pushed out haha. Blowup risk (even given tight risk limits) is severely overstated and misunderstood.
Of course this is dependent on you being a solid analyst and working for a good PM. What I've learned in the past few months (I'm leaving current seat/joining a platform so just went through recruiting): if you're a good analyst with good talent the top pod seats will find you. Platform cultures are changing. Analyst --> PM promote #s at all platforms have inflected quite significantly in the last few years.
Point is, if you want to be a career HF guy (and assuming you're a good analyst), today, I don't think it's crazy to say you could spend you're entire career at one platform. Though said career would be quite short given how much $ you'd make in such a short period of time/therefore be ready to go off on your own or retire. I still strongly stand by my quote: the top HF seats are the top 50 pods, the mid-sized $2-4bn tactical SMs, and the large multi-strategy HFs that are 30+ years old. Would rather work at any of those than any large L/S SM.
Deleted
Talk about first world problems…
A few questions for clarification:
What are "Platforms"?
What is "NT"?
What is "Yip"?
Platforms = the big MM HFs (Citadel, P72, Millennium)
NT = Near-term
Yip = Yipit (alternative data platform that lots of pods use)
You have successfully converted me and my friends from team tiger cub/SM to team MM. Thank u sir ❤️
A little ironic, since I think one could take away from this thread that it is important to think for yourself and not just follow a path because of prestige or what group think has determined is the best path (which, funnily enough, is also important for working at a hedge fund).
"Sentiment per my friends at similar funds is the same across the board. Many are in late stages with platforms and will be leaving soon. Or hop to LO. The SM trade no longer makes sense and if long (unless you want to have less edge and make less money), you should exit." Disillusioned SM analyst who has probably spent his career chasing crowded trades (like most SM analysts) now chasing the crowded trade of getting out of SMs.
If you're leaving an SM on this mentality and you think grass is greener at a multi, you're kidding yourself. There's nowhere to hide at MMs and if you blow up on the risk framework you're out, there's no convo with LPs or massaging of numbers to make your performance look better, you're just done. You can't ride beta up, you need to be tight on positioning, and 70% of teams are just breakeven or worse.
Active investing is a field that changes rapidly and frequently. 10-15 years ago cross-cap event funds were in vogue, then for a long stretch it was Tiger cubs, now it's increasingly multi-managers. No model is durable. MMs work today from a pure alpha perspective, and as they continue to work, more will show up, people at the best ones will leave and take knowledge with them, and the alpha will be diluted away over time. The most durable source of alpha is often being contrarian when a consensus view is being propagated (look at the number of SBs on this post for example).
The best SMs are the ones with the capability to be nimble in the face of markets shifting, often that's the midsize ones the OP highlights. Those funds with the DNA and ability to shift strategies are probably some of the best places in the market to be today.
Which funds are some of the nimble ones you’re referring to?
Judging by how passthrumonster has completely ignored this thread, I would venture to guess op is him!!!!!!
I already shared thoughts above
rich_toad as someone who tracked the lineage and grouped every hf in north america, thoughts?
Too busy doing deep dives on another single manager to care. I will just make two points
Hah, well said man did not notice your username change. You returning to the game?
How would you compare your spot to MF PE? Understand they’re very different but wanted to get your thoughts on which has more expected upside
Interested
Looks like at alot of the big tiger funds there are partners/MDs only a few years out of college. So why are ppl negative on the ability to get promoted/paid at these places?
I think that's actually where part of the criticism comes from. Finance is a pretty old-school biz and when you see college kids getting promoted all the way up, especially DURING a tech craze like 2020/2021, alarm bells ring.
But that isn't to say that juniors in MMs have to pay their dues for 10 years before becoming PMs. Both sides have room for upward mobility, it's just that a pod shop that mobility comes with risk, if you lose the pod money, it's a hard hole to climb out of.
Because you don’t see the 10 other people that weren’t promoted
Knowing the Cubs, this doesn’t seem to be true. At least not in my former neck of the woods. Are you sure you’re not mistakenly looking at people who work in the crossover funds / VC arms since literally everyone at a VC is a “partner.”
Edit: MD is also a somewhat meaningless title, you are an analyst if not a PM or sector head. Some of these funds introduced title hierarchy because it feels bad to be called an analyst into perpetuity
Ok WSO user. Go join one of them and see if you can replicate that. All you, no one’s stopping you. Best of luck. Just ignore everything said in this thread. Because a college kid is obviously way more talented than 99% of the analysts that are actually in the SM seat right now and aren’t partners. Definitely.
Sorry not trying to pick a fight and your points are well taken. But look on LinkedIn for any of the top cubs. Seem like 50% of the results arr partners and MD. Seems like more partners than non partners there and lots of young ppl, which makes me question the difficulty of making “partner” at these places once you are in
Pmed if you have a chance
Part of must be true to some extent I would think just from cursory research of the role
Part of it convinces some people to remove themselves from competition, so there's minor positive saying it however you want to interpret it
I'm also sure there are people in the role who genuinely feel this way and just want to share this
I am not implying they are wrong or not, I have no frame of reference and would never be on the Tiger/major SM path from any traditional sense in the first place so pointless for me to weigh in on accuracy
Rude awakening for leverred beta apes.
Decades of money printing inflating long duration / growth equities, coupled with FED puts occasionally coming into the scene preventing sharp drawdowns, have come to an end.
SM apes returns is a function of systemic liquidity, NOT their intelligence.
The holocaust on non-quant apes has just started.
OMG this post got featured on LinkedIn
Where?
As a pod boi, this is probably a bottom indicator in SM HF returns IMO
think you've mistaken cyclical vs secular. and from analyst/employee POV, returns aren't all that matters now
It's possible I could be, but I would disagree atm. All of OPs arguments of drivers against SM HFs have been true for years before the recent underperformance. The only thing that has changed recently is returns. I would argue that people are narrativizing recent underperformance as indicative of longer-term issues.
It could certainly be true that there is a restructuring of winners and losers within the SM HF game. You might see returns gravitate to away from TMT into another sector which has not yet become clear. You might even see the rise of SM HFs in different strategies (eg. Soros running the Quantum Fund, Dwight Anderson at Ospraie, etc.).
In reality, SM HFs provide value to the marketplace in a way that pod shops and prop trading firms cannot IMO. The former price in the fundamental value of assets, whereas the latter are much better at providing liquidity. Even if pod shops try to have a longer term view, they will be challenged in doing so given funds' tight risk management and constant evaluation of traders and PMs.
It would be difficult for them to be a one-stop shop for all kinds of investment management services. You would also not want that for the sake of efficient and competitive markets. I would assume that regulators would step in at some point to avoid corporatism taking over financial markets.
How did you come up with the $2-5 bn range? Do you just mean medium-sized funds as a whole or was there some actual science behind the numbers.
Interesting Shleifer is out.
I see alot of people calling bottoms/tops in MM vs SM models - while the growth/tech SMs definitely had a monster cycle, I think the general trend toward MMs is secular. It is a natural evolution of the model.
A good analogy would be low cost airlines like southwest or Ryanair. While these airlines cant really serve many connecting trips and if you want to pay up for a particular cabin experience there will always be a place, but for some types of traffic - point to point direct travel, LCCs utilize a focused and optimized model to deliver a lower cost by unbundling the ticket (alpha) from incidentals that people may not want (beta snd factor/industry bets). By charging only on alpha, the EFFECTIVE cost to an LP per unit of security selection alpha delivered is greatly cheaper vs a traditional L/S.
LP receives unbundled alpha, provided they just simply want security selection alpha. The product looks ideally like a bond-ish coupon at 2-3x risk-free and the investor can lever that on the backside if they desire
the investment team receives: more capital & resources than they would otherwise have access to, scale benefits that apply more directly to shorter term selection (because LT bets mostly have a large sector/factor component and that is not the product you’re providing)
What cost is being cut/transferred from investment team to LP? That would be the collective fees on the difference between security selection alpha and PnL; as well as a billion ‘soft’ comp components like stability, investment flexibility etc.
Why do investment professionals not realize that these economics are being transferred to the LP? Because every PM thinks all their PnL is alpha and underweights downside probability for ‘big headline number’. Always quoting GMV book size vs LMV/NAV for SM distorts this. This focus don’t how much dollar exposure do you have, how much risk can you take. That’s what determines the basis for payouts
This is the most accurate take on this thread, bravo
If pods are the most cost-effective providers of idio (agree), doesn't it make sense for all non-pods to give up their chase of idio and lean into the above (directional sector/thematic exposure + rotations) as their value prop? The unlevered dollar pnl potential for a manager who is good at calling and riding 12mo themes within industries seems far greater than trying to chase idio.
Someone who can say homebuilders look stupid cheap here I'm going to buy a basket and when this is done maybe rotate into offshore oil services basket if that becomes the play. Feels like that skill set should be valuable and worth paying for as LPs, but maybe that's already something within the purview of directional macro.
As an analyst however maybe that's not where you want to go. You could be stuck forever as the research guy for a directional macro/equity PM, but if you work for a pod covering even a financials sub-sector there's always going to be a PM seat for you elsewhere eventually.
And they wouldn’t be able to put ‘deep fundamental bottom-up private equity approach to the public markets’ on their website!
This post hits home and is absolutely correct, in my opinion. Large cap stocks have become extremely high competition securities where fundamental research rarely converts to idiosyncratic returns. Themes and sector trades are low sharpe. As a result, a huge amount of SM portfolios are essentially dead risk. Analysts should be spending time identifying low competition securities where fundamental analysis converts to idio. That's probably ex-U.S. and <$5bn market cap for the most part - can't really be done by large SM.
idk if that's fair - hard to trade <$5bn or illiquid stocks in the MM model. need large and liquid.
Agree, does not make sense for MM. But is the range where most idio capture seems to occur for SM.
Agreed. There are non-index-hugging international small cap funds out there doing well with this as their core philosophy.
How old r u and how much money do you make?
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Ex delectus quam voluptates inventore autem. Aut aliquid sed quam ducimus ipsum corrupti magnam. Ab id ex aut. Nam neque amet est id cum quo omnis voluptatum.
Neque deleniti cumque repudiandae neque id. Quam sit et eos a aut.