Wall Street Traders Score Giant Paydays at Multi Managers HF

[Andy Nguyen]

The article from NYT is an interesting read. While it's easy to get blinded by the huge amount of compensation mentioned, it's irrelevant to most people here. Instead, there are some key information bits that we can glean and use.
When you go interview for a job at a HF, knowing the type of HF strategies they employ and how they perform on average will greatly impact your lifetime earning.
Here are my takeaways.

• Hedge funds don't always make money. No profits means no or little bonus.

It’s not that the entire hedge fund industry is throwing around such big pay packages. Although the industry has thousands of firms that oversee roughly $4 trillion on behalf of pension funds and other investors, according to data provider Preqin, only a handful stand out for their returns and largess.

The top 20 hedge fund managers made $22.4 billion for their investors in 2022 excluding fees, according to a report from LCH Investments. The entire industry, however, lost $208 billion in 2022.

• Multi strategies/managers HF have a better return on average than the HF industry.

Last year, stocks fell nearly 20 percent, while returns in the hedge fund industry overall fell only 4.2 percent. But firms that use multiple trading strategies went in the opposite direction, generating returns of 9 percent, according to a research report from UBS.
Some hedge funds have a dedicated investment style — say, investing only in stock markets for the long term. But hedge funds like Citadel and Millennium often invest using multiple strategies at the same time — or have multiple money managers direct funds to different assets like stocks, bonds or oil. That allows them to pull money in and out of those investments swiftly based on their read of market movements and economic trends. One right call can sometimes make up for losses elsewhere.

For instance, Citadel told investors that it earned a $16 billion profit because various bets on the direction of stocks, commodities and fixed income paid off at the same time.

• Multi managers HF attract more money and talents and can demand higher fees than average.

Investors in hedge funds, like pension plans, endowments and wealthy individuals, are lining up to put their money into the most successful firms, according to industry experts. That is especially so because firms like Citadel substantially outperformed the broader market in 2022.

Investors as well as the most in-demand traders are gravitating toward the top “multi-manager” hedge funds, said Ilana Weinstein, founder and chief executive of the IDW Group, a New York-based executive search firm focused on recruiting senior talent at hedge funds.

“That’s where capital wants to be,” Ms. Weinstein said. “Talent is recognizing that’s where they want to be.”

Because they have the upper hand, Citadel, Millennium and Balyasny, among other firms, have forced their investors to stay in their funds for years — meaning that even if investment performance dips, they won’t be subject to a run of withdrawals.

They have also been able to stick the bill for high pay packages to those investors.
Typically, hedge funds charge clients annual flat fees of 2 percent on the money invested and an additional 20 percent of profits generated, but the funds offering the biggest pay packages have even steeper fees and take larger cuts of profits. And increasingly, the top funds are requiring investors to pay the salaries of senior managers, on top of fees for technology and other costs.
For a hedge fund’s founders, the “pass through fees” can reduce the cost of big pay packages.
“Some of the bigger funds are now so established and so sought after that they have the luxury of saying — you want in? Be prepared to keep it there for awhile,” said Wendy E. Cohen, a partner at the law firm Katten Muchin Rosenman. “They can do it because they have the returns, and there’s so much demand for them.”

What Layoffs? Top Wall Street Traders Score Giant Paydays

Some large hedge funds that profited off the recent market volatility are wooing traders with tens of millions of dollars in guaranteed payouts.

www.nytimes.com

 

[Andy Nguyen]

According to Bloomberg the top 15 highest earning hedge fund managers in 2022 on average returned +35% (an outperformance of 54% against US stocks).

Bloomberg - Are you a robot?

3 insights:

1. The best performing hedge funds in 2022 had multi-strategy, macro or quantitive investment strategies

These strategies benefitted in 2022 due to the Federal Reserve hiking interest rates at its most aggressive pace since the 1970s.

"Multi-strategy" as the name suggests, is one which employs more than one type of investment strategy, typically across many different asset classes.

The investment objective of multi-strategy is to deliver consistently positive returns regardless of the directional movement in stocks, interest rate or currency markets.

Citadel would be a good example as the world's largest hedge fund (US$62 billion assets) and multi strategy fund was up +38% in 2022.

. BUT some funds also utilised HIGH amounts of leverage

"Leverage" is an investment strategy of using borrowed money to increase your returns.

They borrow money to invest with the intention that their return will EXCEED their borrowing cost.

Haidar Capital a global macro fund did just that to return +193% in 2022.

"Global macro" is a strategy that make investment decisions and aims to profit from massive economic and political changes.

They analyse macroeconomic trends then take focused 'bets' on interest rates, sovereign bonds, and currencies.

Haidar 'only' manages US$1.2 billion but reported assets of US$62 billion which means they were utilising A LOT of borrowed funds.

Haidar bet big that interest rates would rise rapidly and correctly profited from the surge in inflation that led to the most aggressive central bank tightening pace in the last 40 years.

. There were losers as well with Tiger Global's manager Chase Coleman LOSING US$1.7 billion in 2022

According to Bloomberg a big reason Tiger Global’s fund did poorly in 2022 were due its 'bets' on China, tech stocks and private startups that DID NOT pan out.

Tiger Global was DOWN -56% in 2022.

To be fair Tiger Global had massive gains especially in 2020 up +47% and its manager Chase Coleman taking home US$3 BILLION in pay that year
Credit to Ken Shih/LinkedIn.

 

[marcusaurelius]

According to Bloomberg the top 15 highest earning hedge fund managers in 2022 on average returned +35% (an outperformance of 54% against US stocks).

Bloomberg - Are you a robot?

3 insights:

1. The best performing hedge funds in 2022 had multi-strategy, macro or quantitive investment strategies

These strategies benefitted in 2022 due to the Federal Reserve hiking interest rates at its most aggressive pace since the 1970s.

"Multi-strategy" as the name suggests, is one which employs more than one type of investment strategy, typically across many different asset classes.

The investment objective of multi-strategy is to deliver consistently positive returns regardless of the directional movement in stocks, interest rate or currency markets.

Citadel would be a good example as the world's largest hedge fund (US$62 billion assets) and multi strategy fund was up +38% in 2022.

. BUT some funds also utilised HIGH amounts of leverage

"Leverage" is an investment strategy of using borrowed money to increase your returns.

They borrow money to invest with the intention that their return will EXCEED their borrowing cost.

Haidar Capital a global macro fund did just that to return +193% in 2022.

"Global macro" is a strategy that make investment decisions and aims to profit from massive economic and political changes.

They analyse macroeconomic trends then take focused 'bets' on interest rates, sovereign bonds, and currencies.

Haidar 'only' manages US$1.2 billion but reported assets of US$62 billion which means they were utilising A LOT of borrowed funds.

Haidar bet big that interest rates would rise rapidly and correctly profited from the surge in inflation that led to the most aggressive central bank tightening pace in the last 40 years.

. There were losers as well with Tiger Global's manager Chase Coleman LOSING US$1.7 billion in 2022

According to Bloomberg a big reason Tiger Global’s fund did poorly in 2022 were due its 'bets' on China, tech stocks and private startups that DID NOT pan out.

Tiger Global was DOWN -56% in 2022.

To be fair Tiger Global had massive gains especially in 2020 up +47% and its manager Chase Coleman taking home US$3 BILLION in pay that year
Credit to Ken Shih/LinkedIn.

View attachment 46813

No mention of BlueCrest? Their performance has been phenomenal.