Lermumu

French expat living in HK 🇭🇰

[Lermumu @Lermumu]

@dieworkwear Pleasantly surprised to see Jean d'Ormesson in your selection! 👍

[Lermumu @Lermumu]

@BillAckman @realDonaldTrump I can't wait for the penguins of Heard Island and Mcdonald Islands to negotiate w/ pumpkin 🤡

[Lermumu @Lermumu]

@dieworkwear Especially when enjoying a well deserved Lagavulin 16 on a Friday evening 🥂

[Lermumu @Lermumu]

@Olly_Tennis_ Pete Sampras vs. Andre Agassi in quarter finals of the 2001 edition. 🍿

Sampras won 6–7(7–9), 7–6(7–2), 7–6(7–2), 7–6(7–5). I was a big @AndreAgassi fan but first and foremost a tennis fan, and this match was beautiful.

[Brett Caughran @FundamentEdge]

5 THINGS I WISH I KNEW AS A FIRST TIME HEDGE FUND PORTFOLIO MANAGER

I've had some DMs / e-mails over the last few months seeking advice on the move from a single manager analyst seat to a multi-manager PM seat, which I thought I would tackle on this fine Friday afternoon

If you follow the industry, you know this transition has been a growing trend. Goldman Sachs data shows that multi-manager (pod) seats were 13% of industry seats in 2015 moving up to 24% of industry seats by 2022. If you want to be a PM running a larger pool of capital (call it >$500m), you are almost by default doing that at a multi-manger these days. HF launches that scale to >$500m do happen, but mostly for those with prior successful PM experience, and it is exceedingly rare for the PM seat to transition at existing single manager funds

This was my situation after 7 years as an analyst at a Tiger-style single manager. I felt I had developed a money-making toolkit, and I developed an ambition to run my own portfolio. That wasn't going to happen for me at the firm I was at, so I left to another fund where I was given the responsibility to manage a $1bn+ market neutral healthcare book

In a way, I'm a weird person to be giving advice on this topic. I was and am proud of my production as an analyst - I played a role in an aggregate of multiple nine-figures of P&L generation. But, my experience in 4 years as a PM at 3 different multi-managers managers was decidedly mixed. In total over those 4 years, my performance was not good. But in that track record, there is an important nuance. The first year and a half I struggled mightily...virtually all of my metrics were ugly. So bad, in fact, that I had to meaningfully re-orient what I was doing. I am proud of that learning process, and over the final 24 months as a PM I was profitable 18/24 (75%) and felt like I finally had "figured out" the pod PM game to some degree. Now listen, I still wasn't a top decile PM, and I learned the incessant grind of being a pod PM wasn't for me - hence why I hung it up.

But hopefully new or aspiring PMs can extract something useful from my experience.

So here it goes, the advice I WISH I could go back in time and give my younger self as a first time PM.

1) THE GAME IS DIFFERENT

While well-meaning, the worst advice I got as a rookie PM was "keep doing what you've been doing".

Well, I was a 3-year IRR seeking time-arbitrage player that ran to situations where the sell-side was saying "cheap but no catalyst". Duration was my advantage and asymmetry was my north star. I scoffed at market participants too focused on the "catalyst path" or the earnings set-up or the "narrative".

That doesn't mean I shouldn't keep some elements of what had made me successful - knowing my industry very well, resourcefulness around identifying insights on the key driver, and maintaining an independent view on key debates and taking a contrarian stance when my work supported it.

But the multi-manager wrapper is just fundamentally different than the Tiger wrapper. The multi-manager wrapper runs with higher leverage and thus cannot afford to allow left tail P&L events, and CIOs don't have the same level of intimacy & trust with the investment team. Because of that approach, risk & the CIOs of pods take a "water your flowers, pick your weeds" approach to PM management that is more coolly robotic, not as humanistic. You can complain about it, but it has worked exceedingly well for those funds.

P&L consistency & Sharpe-ratio maximization is the name of the game at multi-manager world.

2) DON'T FIGHT THE RISK MODEL

Sit on a multi-manager trading floor and it won't take you long to hear a complaint about the risk model. "the risk model has this beta wrong...the risk model won't let me put on this trade...etc).

To me, it's akin to complaining about the weather. Citadel/Millennium/Schonfeld/Balyasny/P72 have all generated 10%+ returns (which is almost pure alpha) since inception and (mostly) avoided large blow-ups because of this tight philosophy around risk - avoiding left tail PM blow-ups and minimizing systematic & crowding risk. It's a genius want to manage LP capital, really, and the GPs of these entities are absolutely incredible businesses (in my opinion).

Risk is mission critical here, and they are damn good at it. Don't fight the risk model, embrace the risk model.

Rather than trying to game or manage risk, learn the advantages of a vol-targeted model. At a single manager, I could have never received the capital to trade LH vs. DGX or PFE vs. MRK or put on interesting merger arb spreads. You can put a LOT of dollars behind a low risk trade which can make a 7% pair mean reversion forecast look pretty interesting.

And these orthogonal trades start to provide risk cover for the 3-year IRR Tiger-style trades that you will also want in your book. The concept of "idea mix" was a really powerful learning for me...rather than simple alpha longs vs. alpha shorts, maybe that is 50% of my risk and the other 50% is pairs, slippage reversal and shorter term catalysts. I maintain a punchy core of alpha generation while giving myself different ways to make money.

So, I would tell myself - don't fight risk. Embrace risk. Seek out mentors who can show you different ways to make money in the risk model.

Learn about risk models. Read Giuseppe Paleologo's great book Advanced Portfolio Management (he was a former risk director at Millennium and Citadel). Read the Barra risk model handbook (happy to send if you DM me) so you know how the sausage is made.

Learn about factors. Understand where the alpha is in factors and understand the risks & opportunities in ST Mo vs. LT Mo. Even in a risk model, 25-30% of your risk will be systematic - what factor overhangs are you ok with? Why might you be ok being long European momentum and short excess beta? These are things I wish I would have learned earlier. I really liked Antti Ilmanen's (Brevan Howard, AQR) Expected Returns book as a grounding on factor harvesting.

3) YOU CAN'T SUCCEED ALONE

Running a highly concentrated portfolio at a pod is, to me, a death wish. I pushed the limits of concentration as a rookie PM, and it bit me in the ass.

I figured I would just pick all the stocks and let my two analysts do tasks to help me here and there. Update this model. Do this call. That's how I had worked with junior analysts at a single manager. Give them discrete tasks as they slowly scale up.

The problem with that is this. I am optimizing for 1) P&L consistency and 2) Sharpe optimization (my risk is fixed so my P&L is simply a function of my Sharpe).

I learned a simple portfolio management truth that orthogonal P&L is additive but that risk is not, it is the sum of square-roots, i.e. there is risk diffusion with different sleeves.

Rather than have my analysts to lots of discrete tasks, I wish I would have given them a very tight coverage so start. Here are your 15-20 stocks. Build models, become an expert, generate estimates & R/R's and catalyst set-ups. If I did this with each analyst I would have had a steadier flow of ideas that I could act upon quickly, helping me achieve the critical diversification in the book.

This also requires a managerial skill-set that I didn't have at 30 as a first time manager. Enforcing a process, being the bad guy when needed, while also balancing feedback, mentoring & culture-building. I was so overwhelmed with picking stocks and learning to manage a portfolio that I neglected this critical vector.

The best pod PMs I know have GREAT teams that they trust, and enforce an incredibly tight, disciplined process such that there is little ambiguity about what the process looks like. I didn't do that, and that's a big part of why I struggled.

4) YOUR PRIMARY JOB SHIFTS. FROM ANALYSIS TO DECISION MAKING.

I LOVED and LOVE the role of analyst. Shut my door. Dig deeply into an idea, sinking my teeth into the company & investment debate. Emerging from my dark, cold office in 5-10 days with my conclusions. To me, this is joy, this is flow. And I was great at it.

The problem was, I kept that up when I became a PM. Which resulted (per point above) in some great ideas, but not enough, and not at a fast enough idea velocity. And, unfortunately, the big ideas I came up with ultimately worked, but didn't work for a period of time.

As I started to learn what the PM seat required, I realized that 95% of my role as a PM could not be as an analyst.

In a later PM seat, my team covered 250 stocks and ran a portfolio of 60-80 ideas with portfolio turnover of 7-10x per year. There is NO WAY I could run my trusty 60 hour deep-dive on all of those ideas.

I had to learn to let go. To let go of owning 100% of the process. To trust my analysts. But to also get incredibly tight on identifying the one thing that matters: what will drive the stock up or down by 15-20%? Less fluff and extraneous work.

Also, the magnitude of decisions I had to make daily started to overwhelm. As an analyst, there actually isn't THAT MUCH decision making. You do your work, you advocate for an idea, and maybe you participate in a few important decisions per month.

As a pod PM, you have 5-10 decisions PER DAY. Biggest long gaps down 7% at the open - what do I do? Lateral to one of my shorts gets taken out and spikes 12% - what do I do? Analyst wants to put a new short on - what do I do?

My day shifted from the joy and flow of sinking my intellectual teeth into an idea to playing an overwhelming game of triage.

Great PMs are decision making machines. Objective, dispassionate, but also bring that special element to the table. The activated intuition, the gut feeling. They might not admit as such, but the best PMs are making decisions though both raw data and intuition-driven feeling.

And this skill-set requires a different level of growth. I went down the rabbit hole of reading Ari Kiev (Steve Cohen's former trading coach) and became a BIG fan of his modalities. I realized I had to learn to show up a 7:30am every morning fresh, and I started exercising & meditating. Some of my best trades were insights that emerged on my meditation cushion, or hiking in the mountains. Moments of inspiration that were then validated with analytics.

5) THE CURVE OF YOUR P&L MATTERS

As a single manager, I have had great ideas that went down 15% for 6 months then went up 50% in the next 6 months. And that was fine. Almost better than fine in the sense that a pull-back could be an opportunity to size up the position.

At multi-managers, the phasing of your P&L matters. Losing money out of the gate is no-bueno. Losing money for 4, 5, 6 straight months can be no-bueno. Hitting a 2-3-4% drawdown, depending on the firm, can result in a capital cut, and all of a sudden you need do do 6% (a 2-Sharpe) on half the capital just to break even. Remember, job #1 at these firms is to avoid left tail events, and the assessment window can be very short (one highly famous multi-manager PM told me direct boss he knows if a PM is good or not after 3 months...)

Given this constraint, a maniacal focus on "what's going to move the stock" becomes important. Great pod PMs understand the life cycle of ideas and how to identify the "steep part of the return curve".

Understanding how observed vol steps up in a market kerfuffle and what that might mean to your risk budget, i.e. do you lose buying power at the very moment you want more, and how you might be able to pre-empt that.

What to do when you've had a great P&L run and the firm wants to give you more capital but your best ideas are cashed - why idea velocity matters in this situation and why "hidden hedge" strategies like pivoting more capital into tight pairs can help lock in that P&L.

All things I've learned along my journey, most of them too late...

But I hope something here might help you.

EXPERIENCED POD PM's: WHERE AM I OFF-BASE HERE? WOULD LOVE TO HEAR FROM YOU IN THE COMMENTS OR DMS!!!!

Fundamental Edge over the last year has really been focused exclusively on the Analyst Process, tools & skills the buy-side analyst needs to know in the first 7 years on the buy-side.

We are in development on tools & skills for the first time PM, hence my lengthy spitball session above.

If you are either 1) in your first 3 years as a market-neutral PM, or 2) expect to be making a move to a market-neutral PM seat in the next 3 years, I'd love to hear from you. We are working on developing programs going more deeply into some of these concepts, based on some of my learnings but also harnessing the wisdom & skillsets of other experts in these dimensions. It will be a slow build as I want to get PM Academy right before I roll it out, but I'd love to hear from anyone who wants to spit-ball on it's development!

[Lermumu @Lermumu]

@gregisenberg Crime and Punishment by Fyodor Dostoevsky

[derek guy @dieworkwear]

Of course that's your contention. You're a first-year menswear forum poster. You just got finished reading a classic menswear book—Alan Flusser probably—and you're convinced that the flattering effects of tailoring rendered in moderate proportions create the most enduring style.

[Lermumu @Lermumu]

@auren Actually, founders are all different.

[Lermumu @Lermumu]

@ParikPatelCFA It's gotta be a consumption-based pricing model #TheFuture

[Lermumu @Lermumu]

@litcapital FTX the police

[Dr. Parik Patel, BA, CFA, ACCA Esq. @ParikPatelCFA]

The Queen died, Federer is retiring, inflation is still crazy high. September is definitely the worst month of 2022.

[Lermumu @Lermumu]

@carlosalcaraz This is what happened: 🧠❤️🥚🥚

[Lermumu @Lermumu]

@Thom_astro Élément de réponse :

[Lermumu @Lermumu]

@liensofnewyork & brags about it on the internet

[Lermumu @Lermumu]

@fabricearfi Avec Pécresse, "l'addition c'est après les élections !"

[Lermumu @Lermumu]

@josemorgado The other teens (Rafa, djoko, Murray & Agassi) that did it all became world number one 💪

[Lermumu @Lermumu]

@BenoitMaylin Le niveau qu'il à montré entre 2-5 et 7-5 2-0 est hallucinant ! Il peut frapper des coups gagnants de n'importe où, à une défense de dingue, casse le rythme avec des amorties bien senties, monte au filet pour finir les points, bref un tennis de rêve ! 🍿

[Lermumu @Lermumu]

@PatriciaPotyka @JustinAHorwitz Wasn't he impeached for trying to bribe Zelensky while inviting him, and thus, by extension a foreign nation, to influence the 2020 presidential election?!

[Steph Smith @stephsmithio]

In 1994, Jeff Bezos famously spotted a stat that made him leave his high-paying PE job to start Amazon:

💡 The Internet was growing 2300% per year.

What are the generation-defining stats of today?

I'll post a few to kick things off...

[Lermumu @Lermumu]

@coingecko A stupid way to lose money