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Total Posts: 435
Joined: May 2006
Posted: 2019-01-14 13:23
> my prior is that expected value in the medium term is still higher as a PM but I might be missing some important bits of the picture.

Well, diversification of investor base.

As pm, it's basically the delta function. Your AUM is a pretty steep step function of your last quarter pnl, and your expected stopping time is 1-3 years. 5 years is already in the wings.

With a diversified investor base, at least the response curve is smoother. It's still there, but it's smooth and you can dig yourself out - if you can still produce alpha.

"There is a SIX am?" -- Arthur


Total Posts: 1532
Joined: Jun 2004
Posted: 2019-01-14 14:31
Good point. I would recon that some of the low PM half-life has to do with the lack of experience (a lot of PMs should have spent more time working for another successful PM and learned the ropes a little) and with the mismatch of strategy vs the risk metrics (e.g. a guy with a Sharpe of 1 going to a place that effectively wants Sharpe of 2).

It's possible that the best risk/reward is being a PM for a multi-strat (as opposed to a multi-manager) where you can have a bad quarter but still stick around yet you don't have to deal with investors etc.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'


Total Posts: 435
Joined: May 2006
Posted: 2019-01-14 16:21
First one is pretty much the same thing. If we are not talking seriously constrained stuff, Sharpe 2s are only Sharpe 2s for a couple of years max.

Best reward/risk ratio is probaly back office in some quiet commercial bank, preferably in mainland Europe, with fixed pay, generous pension and zero risk of getting fired. But that's probably not what you meant.

In my experience, people look at stories and machines look at numbers. So if you are in a shop that is small enough or you are important enough that people listen to (and buy) your story, that is one thing. If the shop is big enough that you are just a number for a machine to look at, you are only as good as your last number.

"There is a SIX am?" -- Arthur

Founding Member

Total Posts: 1358
Joined: Mar 2004
Posted: 2019-01-15 09:44
My experience so far is that a multi-strat place where your contract defines your "box to play in" - e.g. risk metrics, drawdown triggers, when you're fired etc - can be both more stable and less stable than an independent operation with a more diversified investor base.

I have little experience of HNW type investors, only institutional type investors - and my impression there is that it's a bit of a lemming migration. If your niche/sector is popular and overall doing ok capital sticks around, if it's less so capital may move even for managers with decent results. So that diversification function may not be as smooth as one may think to me - allocators for institutions prefer to stick with a similar portfolio to everyone else. Which to me is also one factor for why the multi-strats have had such inflows post 2008. However, at some level of sufficiently diversified investor base it's obviously bound to work out and clearly be superior.

In a multi-strat seat you are seldom out of your seat unless you actually hit the sides of your box. As @Strange alluded to I've seen many people in multi-strats with contracts not fitting what they do very well at all, where the expected time to hit some limit of contract is less than 1y, or less than 2y for sure.
(These reflections are more from discretionary more than purely systematic strategy world.)

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