Key Takeaways
- • Multistrategy hedge funds, after a decade of rapid growth in hiring and pay, are falling out of favour, with cuts deeper than usual and rates traders returning to banks, according to eFinancialCareers.
- • Senior portfolio managers argue that pod-shop PMs lack experience managing their own risk, because central risk management and cross-pod hedging shield them from the single-trade decision-making that single-manager funds require.
- • Loss tolerances at multistrats are tight: PMs are often cut when down 2.5% to 3%, even though stated drawdown limits are around 5%, which favours short-horizon trades over longer-dated ideas.
- • Paleologo, a former risk manager at Millennium, told Bloomberg that roughly 20% of PMs at multistrats are let go or leave each year, and departures within months are not unusual.
- • Experienced practitioners say many PMs cycle through multiple multistrat funds, with some recycled six or seven times, raising concerns about talent depth across the industry.
Summary
eFinancialCareers reports that multistrategy hedge funds, which grew rapidly over the past decade by recruiting portfolio managers with modest track records and paying them roughly 20% of PnL, are now falling out of favour. Cuts have been deeper than usual, and rates traders have been returning to banks. The article frames the trend as a vindication for older hedge fund managers, several of whom, speaking anonymously, argue that the talent coming through the industry knows little about how portfolio management is actually practised.
Multistrategy funds run independent teams, or "pods," under individual portfolio managers. Their strategies are intended to be market neutral, and in combination they aim to generate alpha. Giuseppe Paleologo, a quant and former risk manager at funds including Millennium, told Bloomberg that multistrats tend to show improving risk-adjusted profiles as the law of large numbers applies across pods. Critics counter that risk is managed centrally and trades are hedged by other pods rather than by the PMs themselves, which, in their view, leaves PMs without experience of managing a position's downside.
The article also describes tight loss constraints. A senior equities portfolio manager quoted in the piece says capital is often withdrawn when a PM is down 2.5% to 3%, even where the formal drawdown limit is 5%. Consequently, trade horizons must be short, and ideas that lose 10% in the short term before gaining 40% over the long term are unlikely to be tolerated. Another veteran says large pod shops expect traders to deploy 65% to 70% of their risk budget daily, even when opportunities are limited.
Paleologo, cited by Bloomberg, said roughly 20% of PMs are let go or leave each year, and the eFinancialCareers piece notes that some depart within months. Many who leave return to banking, while others move between multistrats; one source says some individuals have been recycled six or seven times across different funds. The veterans contrast this with single-manager funds, citing Chris Rokos's performance, down 26% in 2021 and up more than 50% in 2022, as an example of the longer-horizon approach they believe the industry is losing.
Multistrategy funds run independent teams, or "pods," under individual portfolio managers. Their strategies are intended to be market neutral, and in combination they aim to generate alpha. Giuseppe Paleologo, a quant and former risk manager at funds including Millennium, told Bloomberg that multistrats tend to show improving risk-adjusted profiles as the law of large numbers applies across pods. Critics counter that risk is managed centrally and trades are hedged by other pods rather than by the PMs themselves, which, in their view, leaves PMs without experience of managing a position's downside.
The article also describes tight loss constraints. A senior equities portfolio manager quoted in the piece says capital is often withdrawn when a PM is down 2.5% to 3%, even where the formal drawdown limit is 5%. Consequently, trade horizons must be short, and ideas that lose 10% in the short term before gaining 40% over the long term are unlikely to be tolerated. Another veteran says large pod shops expect traders to deploy 65% to 70% of their risk budget daily, even when opportunities are limited.
Paleologo, cited by Bloomberg, said roughly 20% of PMs are let go or leave each year, and the eFinancialCareers piece notes that some depart within months. Many who leave return to banking, while others move between multistrats; one source says some individuals have been recycled six or seven times across different funds. The veterans contrast this with single-manager funds, citing Chris Rokos's performance, down 26% in 2021 and up more than 50% in 2022, as an example of the longer-horizon approach they believe the industry is losing.
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