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Hedge Funds 101: What is a Multimanager Hedge Fund?

This installment of Hedge Funds 101 dives into strategies, team structure at multimanager hedge funds, and how to position yourself best to land a fast-paced and exciting investing position.

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If you are anything like me, I knew next to nothing about the hedge fund industry before diving head first into the wild world of a top multimanager hedge fund. Talking to my various connections at Tiger Cubs and analysts at a prominent multimanager, I still felt unprepared for this industry until I stepped into it.


In this post, I will walk you through some of the basics of working at a multimanager and how to get recruited.


 

What is a Multimanager Hedge Fund?


Multimanager hedge funds refer to hedge funds or investment funds that employ a multi-manager structure. Some of the most prominent multimanagers are probably some funds you have heard of: Citadel, Point72, Millennium Management, and Balyasny Asset Management (BAM).


In a multi-manager hedge fund, the fund manages a large pool of capital that it allocates among multiple portfolio managers or investment teams (typically referred to as “pods”), each responsible for managing a portion of the fund's assets. The size of these pods (called a “book”) can be as small as a couple hundred millions dollars to multiple billions. Some of the largest books can be upwards of $7-8 billion, but this is certainly not the norm. Most famously, Candlestick founder Jack Woodruff had one of these massive books at Citadel, where he had a team of upwards of 20 investment professionals working for him.


While it depends on the fund, these individual managers are typically given a significant degree of autonomy in their investment decisions, and they may employ different investment strategies, styles, and approaches within their book. Further, individual managers compete with other managers at the fund to generate the best returns. These managers have so much discretion with their own books that two different managers at the same fund can be long and short the same stocks.


What is the Team Structure of a Typical Multimanager Pod?


Team structures within pods are generally very similar across funds. The head of a pod is the portfolio manager (PM). The PM is in charge of managing his book provided to him by the fund. The PM will decide which investment strategies to employ and which stock to invest in. The buck stops with the PM and he is generally responsible for the performance of the team and relationships with the fund’s management team.


Each PM has a team of analysts and senior analysts that help find new ideas and strategies to invest in. Analysts are typically segmented by the sector they cover (Industrials, Technology, Software, Energy, etc.) The analysts’ job is to research stocks and companies that could make for good long and short positions. Once a position is pitched and gets into the book, the analysts will monitor each position by updating models, tracking news, and meeting with management teams to refine their forecasts. At some of the larger funds and teams, analysts may have an associate or two that works with them to help research and model companies.

Depending on the fund and team, analysts may be granted discretion over a small pool of capital that they can manage themselves, called sleeves. Sleeves are typically granted to analysts that have proved they are both capable of pitching good investment ideas, able to manage the risk of portfolio of stocks, and can mentor and train associates. Sleeves are a great way for analysts to practice portfolio management and make extra bonus as the payout on an analyst’s sleeve is typically higher than the payout on the central PM’s book.


A management team oversees all of the pods at the fund. For example at Citadel, there are multiple business units (Surveyor, Global Equities, Ashler) who each have their own management team. The management teams typically consist of a business head and a Director of Research. Additionally, each business unit will have various training and operations professionals who help with the management of the various pods.


How do I get Recruited for a Multimanager Hedge Fund?


Multimanagers recruit from a wide range of applicants given they are always growing, adding new PMs, and trying to grow AUM. Multimanagers will target candidates who are analysts in investment banking, equity research analysts, associates in private equity, and other analysts at hedge funds and long-only funds. While applicants with more experience (private equity associates, equity research analysts) may do better in the recruiting process, investment banking analysts still have a good chance of landing a multimanager analyst position.


To get recruited by one of these multimanagers, you can reach out to recruiting firms. Nearly every recruiting firm works with the large multimanagers given the large flow of candidates. Another avenue is to reach out to business development, who basically serve as internal recruiters for these funds. More experience candidates will likely have more success with business development than less experienced candidates. Investment banking analysts may be best served targeting multimanagers via recruiters.


Over the past few years, these funds have even started recruiting out of undergraduate programs. Point72 was the first to do this with their Academy program. The Academy recruits juniors in college starting for a summer internship before senior year. In the Academy, interns learn the basics of accounting, finance, and markets necessary for succeeding on a long-short equity team. Strong interns are invited to return for the full-time Academy program after graduation. After the full-time academy, analysts can recruit to join teams looking for new analysts. Citadel has a similar program called the Citadel Associate Program and Millennium has a partnership with UBS equity research, where equity research analysts are trained for 2 years at UBS with the opportunity to join a Millennium team.


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