Multi-Manager Hedge Funds

It seems like a lot of people don't have a ton of great things to say about MM hedge funds (poor culture, not many exit ops, and essentially making short term guesses). Wondering if anybody can speak to some of the pro's?


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Comments (66)

Most Helpful
Dec 18, 2019 - 2:06pm

Yes there are many challenges of being at a MM that many have outlined previously so I will not do so.

As for the upside...

Comp. The upside (in percent of PNL that you get to keep) is significant and is in writing. There is a reason the risk limits are typically so tight. Do well? They can and will allocate you more capital.

Independence but structure. You essentially get to run your own HF without having to deal with all of the annoyances such as investors, structuring a business, paying rent, registering with authorities/licenses etc. The MM will have already negotiated things like super low execution commissions with banks, leverage, PB stuff etc.

If you do very well at a MM you can also "spin out" and start your own fund. These MMs do seed sometimes and so you will have approval from them and a number of investors may actually take you seriously as a start up which can potentially make capital raising easier. If it doesn't work out and you have a decent track record you can... move to another MM.

MM is not for everyone. I would argue it's not for most people or even most traders, but there is a subset of people for whom it is the ideal structure and everybody wins. The team/PM/trader wins, the MM wins, investors win, and of course, banks win.

I hope this helps.

I used to do Asia-Pacific PE (kind of like FoF). Now I do something else but happy to try and answer questions on that stuff.
  • 9
Dec 20, 2019 - 8:48am

I think the above is true for a PM.

On the other hand, An analyst working at a multi-manager hedge fund is completely dependent on their PM. If the PM does well, there's a good chance that the compensation will be good for the year (likely more than what it would be at single manager funds). If the PMs overall book is down, there's always a chance that the PM and their entire team are let go.

  • Intern in IB - Gen
Dec 25, 2019 - 10:59pm

Can you do well at a MM fundamental hedge fund without knowing any programming?

  • Analyst 1 in HF - EquityHedge
Dec 26, 2019 - 7:56am

You need ZERO programming experience working in most fundamental hedge funds, both at single PM and MM platforms.

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Jan 8, 2020 - 2:01am

$1xx base + $0-$2xxk bonus for a first year banking analyst is a reasonable expectation. It could be higher, there could be guaranteed amoints, those probably have some very restrictive vesting or clawback. That's a range I think for year 1 is reasonable. Your real pay year 1-2 comes in the form of knowledge so that you can be a PnL generator by end of year 2.

Dec 20, 2019 - 3:55pm

Why would you express an opinion based on an uneducated guess? I know many MM analysts, including my own, that have earned seven-digits on good years. Not the norm for sure, but not hugely uncommon. Many guys i know would be dissapointed to earn 500k.

Dec 25, 2019 - 10:11pm

There is no cap on MM analyst comp (at most places at least). Maybe if you're talking about a first or second year analyst on a good but not great team then 500k might be aggressive. I would make the argument that risk-adjusted and stress adjusted, comp is similar for analysts at single manager vs multi managers. That said plenty of analysts after a couple years get a percentage of their PnL and make 7 figures if they crush it. They might fired the next year, but the upside is high. There are also early-mid 30 yr analysts who could be PMs but don't want to run a team and just trade their sector as a sleeve a larger portfolio and can make millions. Uneducated comment.

Dec 26, 2019 - 8:02am

DE Shaw, Baly, Holocene, Exodus, Marshall Wace, Cinctive, and a bunch of others more
family office type like Soros, Bluecrest etc

  • 1
Dec 27, 2019 - 6:28am

Very difficult if the single manager firm is actually long term /value oriented. However, you will find many single manager firms (i would honestly say most) claim to be LT but are actually very ST so for those places it is very easy

  • 1
  • Intern in Other
Dec 27, 2019 - 8:48pm

Appreciate the insight. Do you have any examples of SM that disguise themselves as LT investors that consider MM analysts?

  • Analyst 1 in IB - Gen
Dec 28, 2019 - 9:12pm

Examples of SM long-term oriented firms that aren't tiger cubs?

  • Intern in Other
Jan 8, 2020 - 2:36am
  1. What do you think the average life span of an analyst is?
  2. If a pod gets cut, does the analyst usually get placed on another pod or does the analyst move to another fund/follow the PM?
  • Analyst 2 in HF - EquityHedge
Jan 11, 2020 - 9:20am

IB teaches you absolutely nothing about calling quarters. It takes special type of personality and skillset to consistently grind out an edge calling quarters in liquid US mid/large caps. Most guys don't make it because they can only grind 3 statement models and make sales pitches. Normally that skill set is better fit in PE/longer time horizon funds.

Jan 14, 2020 - 7:22pm

100mm of capital
5mm (5%) drawdown limit (some funds are even tighter...exodus is looser but mostly for rates RV)
target to make 20mm+/year on that 100mm (pays 15% of your P&L)
do well and they allocate more capital

underperform for too long, and you are fired
hit your P&L stop, and you are fired

some funds also increase/decrease your payout based on sharpe ratio

  • Analyst 3+ in HF - EquityHedge
Jan 14, 2020 - 8:16pm

target 20% ? No way, that's way too high. Also 100m is low, you'll need to put to work at least 200m.

Jan 15, 2020 - 9:49am

Can someone who has actually worked in a MM pod shed some light on how many positions are in a typical book? I feel like the dreaded 5% drawdown risk is exaggerated. If you have a book of 40 positions, equally weighted, that's 2.5% per position. You would need 2 stocks to go to 0 before you breach that 5% limit. Given that these guys trade the quarterly numbers, I can't imagine any stock is going to 0, or even halving, on the back of an earnings miss....unless consensus was miles off to begin with.

  • 1
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