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Work for a multi-strategy hedge fund? Not everyone survives

Natalie Basiratpour is a recruiter with a mission. It's a challenging one that runs contrary to prevailing opinion: Basiratpour wants to warn people against the presumption that jobs in big multi-strategy hedge funds are the pinnacle of financial services careers. They're not, insists Basiratpour. And people who strive to achieve them often come unstuck.

"These places constantly churn staff," Basiratpour tells us. "People are often desperate to move to the buy-side and the multi-strategy firms will make attractive offers. But a lot of people don't last longer than a year. Some of these platforms only retain a small minority of the portfolio managers they hire."

It's an accusation that has been levelled at the multi-strategy platforms before, and that they have assiduously denied. However, it's an accusation worth revisiting in 2023. Following years of strong performance and growth at major multi-strategy platforms like Citadel and to a lesser extent Millennium, Point72, Balyasny and ExodusPoint, many platform firms are big businesses rather than niche players. They employ thousands of people and are expanding fast. And with banks paying disappointing bonuses, plenty of traders on the sell-side are likely to want to move there.

We asked several of the big multi-strategy platforms to provide information on the tenure of their portfolio managers. They declined to comment, but it's notable that not everyone at every multi-strategy platform comes and goes. At Citadel, for example, more than half the 80 portfolio managers in the equities business were promoted from the firm's analyst and associate ranks.

It's not just about training and retaining juniors, though, most big firms are also hiring experienced researchers and traders from investment banks as analysts and portfolio managers. Balyasny, for example, added 150 analysts and 44 portfolio managers last year; Exoduspoint added 35 portfolio managers. Citadel hasn't quantified its recruits, but in a year when it made a record $16bn in returns, multiple new PMS arrived, both from rival funds and investment banks. 

Basiratpour is adamant that across multi-strategy platforms as a whole, many of these new hires don't last and that the platform dream has an abrasive underside. "The big platforms often allocate capital on a monthly or quarterly basis," she says. "If you do badly, you will get less capital in the future. It's very hard to trade your way out of that." 

Basiratpour's warning echoes that made by Brent Donnelly here last summer. Donnelly, a former bank and hedge fund trader told us that people he's known who move to hedge funds have a success rate of around 40%, and that really successful PMs are outliers. In a hedge fund, any loss is a “slowly-tightening straitjacket,” Donnelly told us: “Even if your stop loss is $4m, you are in big trouble trading-wise way before then, because you will need to reduce your position size in order to avoid getting the shoulder tap.” Once a PM in a hedge fund has made a loss, it's therefore self-perpetuating, he argued: “One of the biggest negatives of going to a hedge fund is that you don’t get much runway. If you get lucky in the first year, then you’re good. But if you get into a bad regime, or you’re unlucky, it can be very hard."

Donnelly was commenting on hedge funds of all varieties, but Basiratpour says hedge funds run by individual managers can be a safer bet. "Instead of a multi-strategy platform, the Holy Grail now is working for a smaller fund with AUM between $1bn and $20bn," she claims. This may be because they're her clients, but Basiratpour says that single manager funds don't usually withdraw capital from poorly performing PMs on a quarterly basis and are therefore better places to work over the long term: "It might take a year or two to get to the same level of earnings as at a multi-strategy platform, but your job will be much more secure and your earnings over a ten-year period will often be higher," she insists. 

Not everyone agrees. Another recruiter, working for the multi-strats says the perception of churn and burn has become outdated as funds have focused on nurturing staff who have become increasingly costly to hire: "In the last 18 months multi-strat retention has improved tenfold!," he says.

Basiratpour says sell-side traders who are uncertain about making the leap should ask one crucial question first: "You need to ask what the average tenure of the people across the fund and in the pod you're joining are," she says. Your own longevity may well match.

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AUTHORSarah Butcher Global Editor

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