Questions about Single Manager vs Multi Manager HFs

crazi4ib's picture
Rank: Orangutan | banana points 317

I plan to recruit for Equity L/S in the future, and am trying to figure out if I should aim for multi manager or single manager funds. I find that my investing style is mid-long term, and I don't try to predict the next quarter's earnings for a company. I have the following questions that I was hoping to ask people in the industry:

1) On Performance - In general, long-term investing is often touted as the "best" way to invest, with Warren Buffett's investing style often held as the gold standard of value investing. However, MM platforms have a tendency to trade short term, around quarters and catalysts. Does the fact that platforms like Millennium, Citadel, Point72 are still going strong mean that such short term investing strategies potentially work just as well as the Warren Buffett style even over the long run?

2) On Compensation - Assuming similar performance and AUM of the SM fund vs the MM pod, how does compensation at a SM compare to that of a MM platform across all levels of seniority?

3) On becoming a fund manager - An advantage of working at a MM platform is that, assuming you do well, you may rise internally to become a PM. Given that it's arguably getting increasingly difficult to attract capital for a new fund, would working at a MM platform be better if you want to run your own fund as soon as you can?

4) On Overall Stress - (Maybe this will be answered by the answer to question 2) I have no idea about the average performance of MM vs SM funds. But assuming the performance is similar, wouldn't most people prefer to work at a SM platform, given the fewer hours and stress? If you end up with the same performance, I would rather take a few weeks to analyze a company to invest in for a 1 year horizon, as opposed to frantically predicting results for every quarter for each company and having my neck on the line if they don't shape out in my favor.

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Comments (11)

Apr 5, 2018

1) Uhh can't speak to this... I think there are many ways to make money. From shorter term to longer term strategies

2) This is a good Q. I would love to hear what people who have worked at both think. My friends in MM get paid well, so I'm thinking MM>SM

3)This is 100% true. MM platforms definitely make it easier to become PM. Raising new money is crazy hard and it's great when you can just run a pad even if its just $50M (levered to $200M)

4) THIS CANNOT BE UNDERSTATED. MM is like 3x more stress... its insane. I get to structure my own day, pick my own conferences/meetings, decide what I want to work on... just a lot of freedom. Everyone I know at MM is hyper-stressed all the time and modeling BS minor variables that barely even matter. And stock prices move for 100s of different reasons, so I have huge respect for anyone that can do it consistently at a MM shop

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Apr 6, 2018

A big question you need to ask yourself is how committed you are to long-term fundamentally focused investing. You may find that you actually enjoy more short-term catalyst focused investing or you may not. Generally I find that it's quite binary with people either really enjoying the quarter to quarter trading approach vs. those who get sick at the idea of trying to predict next quarters EPS. The reason I say this is you won't survive at a MM platform if you don't like the shorter-term investment horizon.

The advantage of the MM platform is that you have better internal promotion prospects if you perform well, the comp tends to be better if your pod does well, and generally the MMs are good names to have on ones CV. The downside is that there is little room for error and you can be forced out pretty quickly if you don't perform well or if your PM gets pushed out. MMs have very high turnover with many aspiring analysts giving it a shot and getting the boot. In the SM approach, firms generally want to develop you into a good analyst and tend to be more forgiving of mistakes. The SM platform allows you to develop your risk/reward skills without taking too much risk as early on you will just be doing analyst work and won't be held accountable for the returns of the fund. Obviously comp tends to be a bit lower and promotion, if at all, tends be take a lot longer.

Best Response
Apr 6, 2018
Ovechkin08:

A big question you need to ask yourself is how committed you are to long-term fundamentally focused investing. You may find that you actually enjoy more short-term catalyst focused investing or you may not. Generally I find that it's quite binary with people either really enjoying the quarter to quarter trading approach vs. those who get sick at the idea of trying to predict next quarters EPS. The reason I say this is you won't survive at a MM platform if you don't like the shorter-term investment horizon.

The advantage of the MM platform is that you have better internal promotion prospects if you perform well, the comp tends to be better if your pod does well, and generally the MMs are good names to have on ones CV. The downside is that there is little room for error and you can be forced out pretty quickly if you don't perform well or if your PM gets pushed out. MMs have very high turnover with many aspiring analysts giving it a shot and getting the boot. In the SM approach, firms generally want to develop you into a good analyst and tend to be more forgiving of mistakes. The SM platform allows you to develop your risk/reward skills without taking too much risk as early on you will just be doing analyst work and won't be held accountable for the returns of the fund. Obviously comp tends to be a bit lower and promotion, if at all, tends be take a lot longer.

Most of the people I know on the fundamental side who went to top banking or private equity groups who then moved into the HF world seem to all work at single managers not multi managers. People at MMs seem to often have less pedigreed backgrounds relatively speaking based off my observation.

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May 5, 2018

The less pedigree is likely a feature not a bug.

In trading being too smart can be a problem. For one highly pedigree can mean someone who followed the rules too much and planned a path of credentials and not an interesting thinker. Second in markets it can be best to be the guy who figures something out a day before the rest of the market. If you figure it out too early you can be run over by the market before a thesis plays out. Some very good traders are just a little bit more intelligent than the average market participant.

It might also have something to do with the big debate on boys and girls in school. Education has moved in a direction that a lot of high intelligent males underperform in high school. Those types can be great traders.

Array
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May 5, 2018

Sampling bias I think, everyone in my top banking group that went direct to HF went to MM. People that go PE->HF are more attractive candidates for the single manager model whereas ER folks and people from the industries in which they'll specialize are better suited for MM

May 3, 2018

Bump. Anyone else able to answer my questions?

May 3, 2018
crazi4ib:

I plan to recruit for Equity L/S in the future, and am trying to figure out if I should aim for multi manager or single manager funds. I find that my investing style is mid-long term, and I don't try to predict the next quarter's earnings for a company. I have the following questions that I was hoping to ask people in the industry:

1) On Performance - In general, long-term investing is often touted as the "best" way to invest, with Warren Buffett's investing style often held as the gold standard of value investing. However, MM platforms have a tendency to trade short term, around quarters and catalysts. Does the fact that platforms like Millennium, Citadel, Point72 are still going strong mean that such short term investing strategies potentially work just as well as the Warren Buffett style even over the long run?

2) On Compensation - Assuming similar performance and AUM of the SM fund vs the MM pod, how does compensation at a SM compare to that of a MM platform across all levels of seniority?

3) On becoming a fund manager - An advantage of working at a MM platform is that, assuming you do well, you may rise internally to become a PM. Given that it's arguably getting increasingly difficult to attract capital for a new fund, would working at a MM platform be better if you want to run your own fund as soon as you can?

4) On Overall Stress - (Maybe this will be answered by the answer to question 2) I have no idea about the average performance of MM vs SM funds. But assuming the performance is similar, wouldn't most people prefer to work at a SM platform, given the fewer hours and stress? If you end up with the same performance, I would rather take a few weeks to analyze a company to invest in for a 1 year horizon, as opposed to frantically predicting results for every quarter for each company and having my neck on the line if they don't shape out in my favor.

Overall, you clearly have not found your strength and investment philosophy. Otherwise, you would have a clear answer to MM vs SM. The questions are all of organizational nature only.

1 - many ways and asset classes to make money. It's more what are you good at. MM vs SM very different biz models, cultures, investment strategies and comp structure.

2 - MM higher comp in ST, but also tighter risk limits and more internal stress vs peers.

3 - I think you mean having discretion, clearly MM over SM. You will not have your own fund at a MM, but a pot.

4 - MM by miles - but generally depends on you PM.

May 5, 2018

You can get your own fund in every sense of the word at MMs. Both Millennium and Schonfeld let top performing PMs have their own fund, with its own LP, office and the ability to raise outside capital. This is your own fund, not just a pod.

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May 5, 2018

Is that true for millenium?

Is schonfield starting to be a top dog? I think this is the first time I've heard them mentioned in the grouping with top MM.

I know they've done some impressive things of late and taken risks on teams others wouldn't. Ex-Galleon guys; taking on a lot of folger hill.

Are they emerging into the bottom of the MM.

Array
May 5, 2018

I have experience at both. I was hesitant on the shorter-term investment style at MMs going in, but I find, while it is more stressful, it's worth the extra responsibility and faster ladder. I had direct PnL linkage on a 200mm+ portfolio after 1.5yrs.

I don't think anyone prefers trading quarters until they do it (and by no means is that all we do, rather we have long term views but try to exit/size for quarters/catalysts. I used to think "who can possibly be better on quarterly earnings for Apple or P&G". But access to management and data resources are very good at MMs and in plenty of subsectors I've met people with true process advantage and edge.

More importantly, ask yourself if you could be comfortable being a sector specialist. This is the real biggest difference between MM/SM that has no clear offset. If you love tech or healthcare that could be great. If you need that variety you'll feel more like busy work.

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