Platforms with long term, long biased PMs

Acidophilus's picture
Rank: Orangutan | 257

There was a similar thread a while back asking about which platforms have teams that do long term fundamental investing. Consensus seemed to be Marshall Wace and Point72 did, while Citadel and Millennium didn't.

I'm also wondering, does there exist a Citadel-type place for investors who employ a long term, long biased GARP style? That is, for investors that can outperform the market, but aren't good at fundraising or don't want to deal with all the operational stuff that comes with starting your own shop?

I don't know if there's even any sense in aggregating a bunch of GARP guys and taking away the market neutral and tight risk constraints (unless the platform raised only long term/permanent capital), but if such a place exists, I'd be interested to know.

Comments (16)

Jul 27, 2019

Hi Acidophilus, any of these threads helpful:

  • Transitioning from Multi-Manager Platform Fund to Long-Term Focused Value Shops? anyone had experience with the process of transitioning to a single-PM/long-term value shop from ... take it and end the process, I've always considered myself a long-term, value guy. Since it'd ... know if I accept it I will try transitioning to a long-term value fund down the road. Any input would ...
  • Long term, concentrated, deep fundamental investing I often hear this combination of terms bandied about. Is there anyone at a shop who has a mandate ...
  • Long Term Career in Hedge Funds positioned for a long term career? And what do those who get laid off do afterwards? I imagine the resume gap ... I work in private equity and have gotten an offer to move over to a prominent long/short equity ... Robertson recently lamented that "It's been a long time since I thought I was in the right ...
  • Very Tough Decision- Short-term Comp vs. Long-term job everyone's thoughts on what I should do. It basically boils down to massive short-term comp vs a long term ... situation but not dramatically so. I'm supposed to begin mid-April. It would (hopefully) be a long-term ... job, rebuild my resume, enhance my PE skills, and set my career path for the long-term in PE or ...
  • Personal Finance Framework and Long-Term Wealth ideally invested into the long-term investment fund (step 4 beneath) All firm-based co-investment (or ... principal investing) would fall under this category. 4. Contributing to illiquid, long-term investment fund ... construction). What should I be looking at when evaluating long-term index investing when income is the primary ...
  • Offer on Table and Unsure if Consistent with Long Term Goals own successful PA for ~2 years (don't worry- in touch with reality, understand I'm not ... a wunderkund for short-term success) and passed L1 of the CFA in Dec 17. Just graduated Economics from ... I saw an investigation was launched into the company and I shared my research with the head of the ...
  • How do you plan long term with all this happening? street, I am struggling to plan my long term career. I am not 30, but due to personal life have a few ... dependents. It scares me a bit to see what is happening on the street? How should I secure my long term ... Given new regulations concerning fee disclosures and all the turmoil with ER departments on the ...
  • More suggestions...

Hope that helps.

Aug 2, 2019

Each manager at the multi-manager runs different strategies and time horizons. These questions you've asked are very dependent on style and it varies too much from pod to pod. Platforms offer a plug and play setup for PMs to run a book, they tend to be market neutral but underlying portfolios may be net-long, net-short at any given time depending on the style of investing for that specific pod.

I know millennium has a healthcare pod that has owned positions for 2-3 years on the long-side, while adopting market neutral portfolio and risk management.

Aug 3, 2019

Second this comment. As a sell-side associate, I interact with some of these guys and gals and strategy tends to differ from PM to PM. All in all, everyone is trying to make money, lots of it and as fast as possible, but if they pick a winner that has room to run, why sell? Maybe they'll take some money off the table to reduce exposure but in the end it's all about opportunity cost. On the flip-side, if the thesis doesn't play out immediately but still holds and the PM/Analyst has strong conviction, then they'll also stay in the position.

"The ceiling is the roof"

    • 1
Aug 3, 2019

Sorry, I should clarify. I know pods can end up holding multi year positions, but that's more a happy coincidence of the name continuing to have strong expected performance quarter after quarter. And if it's a long term thesis but there's doubts around the quarter, they might use options to smooth out the short term volatility. But the fact remains that they still have to care about short term volatility, and manage the book within those parameters (or get fired).

I'm asking whether there are non market neutral platforms that put together Buffet-style managers with the appropriately wider drawdown/exposure limits, knowing that the stocks may go down a lot and for a while before turning into multi baggers over the long run. Typically, if a Buffet-style manager wants to run his own capital (instead of being one voice on an investment committee), he'd have to go raise money, set up his own shop, deal with operations etc. Why not a platform for these types of managers that takes care of the back end and fund raising more efficiently with scale?

Aug 5, 2019

I think your main question is: Is there a MM that will not care about short-term volatility at the individual manager level and if so, which one?

  • I think it's unlikely, unless they deleverage. I would like to know as well if anyone can chime in. It's possible also if it's a spin-out with MM money along with outside LPs.
  • As far as I know, whether there are pods running a non-market neutral platform, I do not know of any and they are likely to be in the minority. The style you're looking for is most prevalent in single managers.

Stock outperformance as a happy coincidence.

  • On a name being a happy coincidence with continuing strong expected performance quarter after quarter, I bet to differ. How is it happy coincidence when the analyst's whole livelihood is pinned on looking for these types of stocks? Sure the batting average will vary depending on research methodology and process but overall for these teams to have a book, I can assure most of these winners are definitely NOT "happy coincidences" but rather a result of discipline and hard work.

I'm also wondering, does there exist a Citadel-type place for investors who employ a long term, long biased GARP style? That is, for investors that can outperform the market, but aren't good at fundraising or don't want to deal with all the operational stuff that comes with starting your own shop?

  • If the track record is legit and sustainable across all market conditions, I don't see why not? If the fund was long-biased, likely they would have been out on the streets in 2018 at a MM.
Aug 5, 2019

All great points. I thought it was likely the best known MMs would not, so maybe a less known one (or family office?) would run such a platform.

Happy coincidence - what I mean is names that stay in the book for multiple years are ones that survived and did not have a disastrous quarter in the interim (would probably have been cut at that point).

The best long investors can generate more alpha on rolling 5y horizons by wider margins than the best MMs, but cannot provide the volatility smoothing. They explicitly need to be in a structure where they would not be put out on the street in a 2018.

Aug 6, 2019

I don't know of any platform that offers what you ask about. Among other things, if you were running that platform, how would you assess a PM that has lost money for 3yrs that claims the turn is around the corner and we should be long-term oriented? In my opinion, there are too many con artists in this industry that underperform the market over 1, 3, 5 and 7 yrs, but they keep promising it's over a 10yr period that they will finally prevail.

Aug 6, 2019

The primary reason that the MM firms don't have long biased L/S PMs is that there isn't very much evidence that they really work. If your net beta is positive, it's often difficult to figure out how much much real alpha you're generating. Maybe you just invested in small high beta stocks in a bull market and so you outperformed. Maybe you just loaded up on momentum stocks during a period when momentum is performing well.

The MM shops like Citadel/P72/etc. are not only market neutral but also factor neutral. MM PMs can't take large risk factor bets (beta, momentum, value, etc.) and so any PM who has a return above 0 is going to be either skill or luck.

If you're running a L/S hedge fund honestly you are doing so because you believe you can maintain a consistent information advantage. Given the poor performance of long-biased L/S equity funds, it's unclear if it is even possible to have such an information advantage with such a long investment horizon. With the MM firms sucking up every relevant data set relating to every liquid stock in the globe constantly and having smart quants and fundamental analysts working that data 60+ hours a week, it doesn't make a whole lot of sense that a long biased L/S fund running a pretty low tech operation would have any kind of advantage.

    • 2
    • 2
Aug 7, 2019

I take your general point. Would add that the definition of what is factor versus what is pure alpha is an evolving line. Years ago before any of this was known, momo and value would have been considered alpha, now they are factors. Quality is defined as a quant factor today but plenty of practitioners use it as an alpha style and get away with it because of the huge subjective component. Years from now when data sets are more widely proliferated/commoditized there will be a "credit card data" and "satellite data" factor.

Speaking of factors, I remember you having a Quant approach based on some of your posts. Any insights you can share on what appears to be a quality bubble right now?

Most Helpful
Aug 7, 2019

The point of a platform is to be able to use leverage to generate absolute returns. But the use of leverage requires a high degree of risk control that you not be able to achieve with a bunch l/s managers doing their own thing. Can you imagine? If you don't use leverage, then what is the point of a platform? You could just seed or invest in a portfolio of third-party managers without having to be the one to provide operational support and shared infrastructure. The reality is that I have heard of seeding platforms that offered to do this for their managers. But they never got off the ground and the programs are now defunct.

    • 2
Aug 7, 2019

Thanks for the color, wasn't aware of the defunct ones. I still think it could make sense for a patient capital source to do this (a multi-PM model) in house, without leverage. The payout contracts to internal PMs would almost certainly be lower than the fees paid to fund of funds or external managers, with greater visibility into process.

FWIW, here's what I said in my original post, so I agree with your general point:


I don't know if there's even any sense in aggregating a bunch of GARP guys and taking away the market neutral and tight risk constraints (unless the platform raised only long term/permanent capital), but if such a place exists, I'd be interested to know.

Aug 7, 2019

I dont think the payout would necessarily have to be lower. But just as market neutral PMs get paid on alpha, the model you suggest should also only pay PMs on alpha. Say, a % of excess returns over the market, adjusted for net exposure.

The issue would be, 90% of PMs would earn zero because they're incapable of beating the market.

Aug 7, 2019

Yes the whole issue with a strategy like this on a platform would seem to be fees.

Net fees on the platforms can run 6-8% of assets under management. How would a growth at a reasonable price overcome a 7% expense rate and make sense.

There probably is room in the mutual fund space for something like that. But at a 1% fee level taking real risks. The big issue with most mutual fund fees even if they do have alpha a 1% fee is too much because non of them are taking a high level of risks. 80% market risks with maybe 20% of the fund being "focused". Then you are actually paying 5% on managers actual investment picks and getting 80% of spy..

Aug 8, 2019

None of the platforms have PMs who hold positions for the long-run. Almost all of these places hold positions for 2-9 months max and will gross up or down a position before quarters depending on the analsts' view of where earnings are relative to the street.

I was at a large multi-manager (ie. Citadel, Millennium, Point72) for over a year and did not identify with the investment style at all. I grew up reading about value investing and am geared more towards the mindset of buying dollars for 50 cents.

I quit once I realized working at a multi-manager was not for me. I wrote about what my life was like there here if interested.

Sure I was on the path to make a ton of money (probably upwards of 7 figures in a few years if our team did well), but the work just go so repetitive and I quit after just a year. You either like it or you don't, and if you think you identify with the Buffet/Graham style of investing, then I would advise you to stay away from the multi-managers because it is the complete opposite.

Aug 11, 2019
    • 1