Why has this forum become so pro-MM and anti-SM?
Seems like over the past few months all the HF posts on here are about how single managers have underperformed and how multi managers are the only legitimate way to generate alpha/show skill in the market now? This is the opposite of a few years ago when this forum was all about value investing and finding undiscovered opportunities? I am seeing posts on here about how LT investors are delusional and just got lucky with factors, which makes me a bit concerned about how duration of capital is shortening in the market. In fact I’ll see posts asking questions about value investing and asking “how to predict quarters” get angry responses from MMs trashing long term investing.
How do you think about where talent ends up next few years between MM and SM HFs?
Because that's literally what happened
People are responding to the fact that SM funds have generally done poorly and are losing capital, while MM funds have done well and are expanding.
MM isn't a particularly fun or inherently exciting model, but it works very well. There are definitely some great single managers out there, but I think people are catching on to the fact that swashbuckling geniuses with keen insight are rare (and often just lucky), whereas sector specialists who can grind out small advantages through superior data, trading infrastructure, and corporate access are not.
Whether MM setups are good for analysts/PMs is above my paygrade but for an LP, they offer the most compelling product: completely hedged on a beta/market and factor basis... and you can somewhat reliably juice it up w leverage.
Many SM's returns are largely market or factor driven so they're essentially macro bets but LPs don't want to pay Joe Schmo Value Investor big fees to make macro bets instead of real macro PMs. Obviously the 'single manager' label can cover a variety of strategies but I think people on this forum understand the type I'm talking about.
Super oversimplified example: MM TMT pod will be long/short ATT/Verizon at various points in time so they are realizing the spread between the relative valuation of the two. If they make money, it's because they accurately assessed where each company's valuation stands within their universe (which is essentially every active investor's goal - this is "alpha"). Because they are hedged, it is *impossible* for them to have gotten lucky by a cyclical upswing or the like because they have an equal exposure to both an upswing/downswing.
For a long-biased (close to long-only) SM who says they have a bottom-up DD process, let's say they were long ATT and made money... an LP should be asking if this money was made simply because telcos as a whole did well during that period due to some macro factor and thereby "getting lucky," whether perception or reality. Not saying all SMs have gotten lucky... but the MM model is more digestible for this reason.
Agreed.
I can't wait for the day when relative momentum in credit card data becomes a factor and MMs start being neutral to that too. People rag on SMs for just being factor shops but that was regarded as alpha before those particular factors got popularized/commoditized.
Those guys seized the opportunities readily available at the time and made their money; now they're trying to squeeze out the last puffs, completely understandable. That's irrelevant to someone starting in the business today. How are YOU going to capitalize on the opportunity set available to you and make money - that's the question we should be concerned with. Anyone figure that out, let me know.
100% agreed. Even automated low fee gambling on beta/factors is not doing well (AQR) so paying 2/20 or even 1/15 to a egotistical PM is not just very attractive.
Also people don't see that MMs are doing what hedge funds are supposed to do, it's in the name, hedge! It's hard to give full autonomy to some big shot lone PM who can do whatever he wants based on his day to day mood swings. The risk controls at Millennium and Citadel may be horrible and restrictive for employees, but actually allows LPs to sleep at night.
SMs are great for employees (this includes PMs) - you essentially get paid outsized amounts for getting lucky. If you're good enough at internal sales (what pitching to get positions in the book boils down to), you can get rich off the equivalent of buying Amazon 5 years ago and not doing much else. Or even just this year, for buying Tesla, Zoom, etc. - pick your favorite 3 bagger since March (and there is no shortage of them) - and telling investors you were doing deep fundamental analysis. There will be a lot of very big SM bonus checks this year.
MMs are horrible for employees but great for investors. Alpha is extracted from the market and "alpha" is extracted from the employees. A consistent amount goes to the LPs. An outsized portion goes to the Partners.
Can you explain what you mean by “alpha is extracted from the employees”?
the MM funds have a central book that copies all the best managers positions...but the PM doesn't know about it..nor do they get paid for the performance of the central book.
all the profits of the central book goto the owner of the fund and the LPs...but the PMs get nothing from it (other than some additional momentum buying/selling in the market for their ideas)
The central book might not get the exact same execution prices as the PM...but will get the majority of the same P&L movement from the positions.
Why do you think? Because they are all short term oriented monkeys and scream at the chance they get when a stock opens 5% up in the morning
I think it’s a reaction to people being overly dismissive of MM investing. That said, I think there are SM shops that provide real value, it just might be a different set than in the past.
What I would like to hear is more discussion of how the best SM shops are operating today and especially how the SMs who have spun out of MMs like Woodline have incorporated aspects of the MM model and what they do differently. This would be a lot more helpful than simplistic value SM vs. MM debates.
why has everyone in the world become so pro tech stocks and anti value stocks?
Because this is literally what happened in the real world. Outside of a few single managers, the majority have had bad returns with shrinking AUM bases. The MM's continue to post consistently solid returns with massive AUM inflows.
I have a sort of similar view as others, but maybe more nuanced. There are still great single managers - but they’re increasingly all tiger or tiger look alikes (eg whale rock, altimeter) - long growth and long tech. These seats are hard to get and so you don’t hear too much about them. Almost every other SM strategy has faltered over the last 5 years - value, activism, etc. MMs have continued to perform and hire - so if you want to work at a public equity hf it’s where the jobs are. Also, in general the average person can make more at a MM, and there has been massive comp inflation as guarantees have become the norm. Finally, it’s the least old boys club type of place, so if you’re different in any way it can be very appealing as opposed to playing SM politics. So all in it’s not too surprising that there are fewer SM fans these days.
Serious question - broadly speaking for the industry, have growth/tech oriented HFs performed well because the factor itself has had an incredible run, or because most of these guys are actually generating real alpha? I understand certain of the funds are clearly outperforming on a factor neutral basis, particularly the ones that can also source attractive private early stage deals, but I’m somewhat skeptical otherwise. I suppose maybe you could say being right about the decision to be overweight the tech sector is itself a source of alpha? Im coming from a public distressed credit background, another long biased SM strategy which as a whole has been fairly awful in recent years despite its aim to generate equity like returns.
I think people will debate endlessly. Some of them have really outperformed and some are just averaging the factor returns. And I agree with you, the pre-IPOs have made some real home runs, especially this year when growth has had an out of control run.
But it's kinda irrelevant...the reality is that LPs want that kind of exposure and they have been willing to keep giving assets to these types of investors. Investors have never really minded overpaying for factor exposure as long as returns are good. It's only when returns start underperforming the index that LPs suddenly sharpen their pens and newly rediscover their risk management textbooks.
I also think it's hard to parse your question because factor replication is to some degree backwards looking - ie factor betas will dynamically increase as a company starts outperforming. That being said, I'm pretty sure if you comped most of these long growth/tech funds to the Vanguard Growth Fund instead of the SPX, correlations would shoot up and alpha diminish massively, though likely not entirely. Even more if you overlaid a 120/60 long growth / short value pair.
But at the end of the day, who cares? The point is to win, and these guys are winning.
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I don't think that's right. A net 20% long book would prob run via a 120% long / 100% short or 100 / 80, and would use leverage as well. SMs use leverage, just not as much as neutral guys for obvious reasons.
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WSO generally repeats the groupthink of what has happened in the last few years. Lotta good content but gotta be weary of who is saying it.
Anyone know what approach guys like Woodline and Holocene are taking? Are they running separate books or is it all one book like a single manager – doesn't seem like there separate PMs? Are they applying certain aspects of MM platforms (risk management, other aspects?) to a single manager HF?
There are definitely separate PM’s. They are multimanagers.
How many PM’s do the big MM- citadel, BAM, p72- types have covering l/s equity approximately?
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