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Comments (6)

Nov 1, 2018 - 5:06pm

I've only been in the industry a couple years so hopefully someone with some more experience chimes in here, but in case they don't:

From my limited experience, and from talking to various PMs, I would say it really depends on the strategy. For a lot of more exotic strategies (vol arb, distressed debt etc) mark-to-market Sharpe is not a great indicator of quality as it doesn't usually capture the risks you are taking, and for a beta driven fund, sharpe will be more driven by market dynamics than by manager performance so alpha is generally used instead.

In the absolute return space, a scaleable (i.e. over $1b and uncorrelated) with a sharpe over 2 is phenomenal, over 1.5 is good, over 1 is okay. As the capacity drops sharpe is expected to rise. The same strategy run on a quarter of the money will have far less slippage costs. The PM I work for has a sharpe well over 3, but has significantly lower capacity than discussed above.

Some Multi-managers have enormous books for each manager, but for non-mega firms that have their PM's run smaller books(200-500mm) I would guess that they are looking for sharpes >2. I know there are some PM's on here that work at multi-strat places so hopefully one of them chimes in and let you know how far off I am.

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Nov 1, 2018 - 5:56pm

Interesting, thanks for the correction. Do you know if I'm just off on my capacity numbers, and most multi-manager PMs are just running more money than I assumed, or are is it really the sharpe number that is off base?

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Nov 2, 2018 - 10:38am

A PM will only make it to 200-400m if they have already have a pretty successful track record. The PM turnover at multimanagers is pretty high and most do not end up succeeding so only looking at the successful PMs is going to cause a skew in sharpe ratios. There's obviously not very much data on this but from my understanding, consistently generating a sharpe of ~1 or over is considered pretty successful. I can really only speak about equity L/S though. As you mentioned other strategies, sharpe is not as meaningful. The multi manager PMs that have been running strategies for 8+ years you will find tend to have a sharpe closer to 1 on an average basis. Some years a sharpe over 2 is certainly possible if you're lucky but it is truly exceptional to generate a sharpe in excess of 1 on a consistent basis.

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