Where to find seed investors

anonq · Post by **anonq** » Fri Jan 11, 2019 3:13 am

to add a little to prikolno.. payout structure is important but as he's saying more to it than that, how much of employee salaries are top or bottom line, what are the contractual draw down limits and gmv allocation... lots of trade offs

and thanks for the heads up on that, wasn't aware. I have a friend that has some employees invested that I was pretty sure weren't QP's and I guess that's how.

Strange · Post by **Strange** » Fri Jan 11, 2019 3:25 am

> explicit 35/55 waterfall at 5 with a bunch of expense gotchas

Well, realistically, you can either manage a lot of capital or have high Sharpe, it's rare to get both in the same bucket shop. From what I've seen, a place the would let you run a fair amount of capital would have payouts that are fairly low (from 10 to 25 depending on the shop), some places would also give you a separate high Sharpe bucket that has a better payout. This said, 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.

prikolno · Post by **prikolno** » Sat Jan 12, 2019 12:59 am

@anonq

Yes, and no problem, cheers.

@Strange

Yes, I see similar effects regarding size and capacity. To add to my earlier point, these are numbers at prop firms, given OP's background in MM. Obviously will be much lower if we're referring to a PM role at Fidelity. I would also more probably take the PM route if I had to start over in 2019, unless OP places a really strong premium on autonomy. Firms have become more operationally efficient these days.

gaj · Post by **gaj** » Sat Jan 12, 2019 5:06 pm

> There's top tier prop firms that don't have a siloed structure, pay more base/guaranteed, foot more of the infra and development bills. Apply a discount on payout for these perks.

Curious about this kind of firms. Do they also have PMs? What's the payout structure like?

anonq · Post by **anonq** » Sat Jan 12, 2019 9:05 pm

> Curious about this kind of firms. Do they also have PMs? What's the payout structure like?

pretty sure all of the following aren't siloed and don't have PM's in the traditional sense.. HRT, Quantlab, Rentech, Virtu

my understanding is that payout is typically discretionary with a higher base salary, I've known people who have made 8 figures at those places and others who got effectively screwed over.. so i guess as always very situation specific

ronin · Post by **ronin** » Mon Jan 14, 2019 1:23 pm

> 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.

Strange · Post by **Strange** » Mon Jan 14, 2019 2:31 pm

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.

ronin · Post by **ronin** » Mon Jan 14, 2019 4:21 pm

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.

Patrik · Post by **Patrik** » Tue Jan 15, 2019 9:44 am

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.)