Multi-managers and capital lock-in for portfolio managers

For example, Quantbot supposedly has a 10 year contract with Schonfeld.

How common is it for PMs to obtain something like a 5-10 year capital lock-in from an MM platforms. Also, how would this work if the PM under-performs? I know it sounds ridiculous but apparently they do exist.

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Comments (9)

Jul 1, 2020 - 7:56am

I have never heard of something like that before, but I have only been at a MM for around 2 years and was at a large SM for a large number before that so my data points are probably limited.

I would think that type of contract would seriously impair a MM's ability to enforce strict DD limits and therefore degree of leverage.

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  • Quant in HF - Other
Jul 2, 2020 - 6:01am

In general an individual PM at an MM will not get an x year lock in. I could only imagine this in very specific cases. As I understand it Quantbot is an independent firm. They seem to manage Schonfeld capital, but can also manage external capital. So this is more like Schonfeld is seeding Quantbot, in my understanding and in such a case a lock in is quite standard. Similar as Millennium is doing with Worldquant, I would say.

  • Quant in HF - EquityHedge
Jul 3, 2020 - 6:07am

I am guessing that such arrangements might not actually have a capital lock-in. We really have no idea what the contract covers. Perhaps the agreement is to provide for the PM's operational costs only or perhaps there are exit clauses built-in.

Seems foolish that an investor would be willing to get locked in like this given the failure rate.

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