Multi-Manager Hedge Fund 101

A multi-manager ("MM") hedge fund is an investment firm consisting of many portfolio managers (PMs) managing portfolios autonomously. Each portfolio is referred to as a "pod", where PMs have complete discretion on how to construct their portfolio and have minimal interaction with the other pods, which is why MMs are also known as “pod shops.”

What problem does the pod model solve?

• Removal of market risk: The fund is designed to make money regardless of whether the market was facing a dot-com bubble, the 2008 financial crisis, or the COVID-19-type drawdown.

• Centralized back office and marketing: Pod shops accelerate the paths for talented stock pickers to manage money without worrying about business startup costs and the need to fundraise.

• Bargain power for the best resources for PMs: This includes management access, alternative data, access to expert networks, and sell-side research.

Features of a pod shop

• Market neutrality: For example, for a technology portfolio, if implemented correctly, the portfolio shouldn’t move in value regardless of how the tech index moves during the day. If the tech index is up 10%, the long positions would increase by 10% while the shorts would decrease by 10%, resulting in zero change in portfolio value. Value creation, or alpha, solely rests on finding longs that outperform and shorts that underperform.

  Market neutrality also results in lower portfolio volatility. One of MM PMs’ track record metrics is the Sharpe Ratio: which measures the PM’s excess return against risk-free rate, per unit of risk, measured by volatility.

  The alpha is then magnified by leverage. For example, at 6x leverage, a 2-3% alpha yields a 12-18% return on the client’s investment.

  For example, for $100 million of client capital, with 6x leverage1, GMV2 would be $600 million.

  To achieve zero net exposure3, the GMV is evenly distributed into long and short exposures of $300 million each.

  If you can achieve a 3% return on the longs and a 3% return on the shorts, you will realize a total profit / loss (P&L) of $18 million. This equates to a 3% return on the GMV, a concept akin to ROIC.

  However, on client money, this translates to an 18% return due to leverage, a concept akin to ROE.

  Conversely, losses on the GMV would be magnified.

• Because of leverage and market neutrality, risk management is paramount. Each PM is treated like a stock in a portfolio. The higher the number of PMs, the more stable theoretically the portfolio (the risk pool) is, which is also how insurance works4. At the firm level, MMs conduct correlation analysis between PMs and aggregate portfolio positions to ensure market neutrality. Therefore, MMs need to invest in robust tech to monitor and manage risk effectively in real time to stay viable.

• Risk limits: At a pod level, drawdown limits are contractually set with the PMs. For example, a 1.5% portfolio value drawdown triggers halving allocated GMV, and a 3.0% drawdown results in termination. Because of pod blow-ups, MMs always have more job openings than other investment styles.

• MMs don’t have as much operating leverage as single-manager hedge funds (“SM HFs”) or mutual funds (or long only, “LOs”.) The model is personnel intensive: as AUM grows, MMs need to hire more PMs. Technology also needs upgrading because risk calculation becomes exponentially more complex as more PMs join (e.g., 2 PMs have one pair of correlations, 3 PMs have 3, 4 PMs have 6, and 5 PMs have 10 pairs, for those wondering how I came up with the number, refer to this).

• A finite supply of competent MM-style PMs creates costs for new entrants who need to overpay for talents and face adverse selection (to be discussed later).

Compensation

Continuing with the example, a pod made $18 million P&L for the year.

The pod needs to pay for fixed expenses out of pocket, such as alternative data subscriptions, Bloomberg terminals, and travel/meals for conferences. Let’s assume that’s $1 million for a team of 3, consisting of the PM and two junior analysts.

The bonus pool, as a percentage of the P&L, ranges from 15-30%. Let’s assume it’s 15%.

The net P&L would then be $17 million. 15% of the net P&L would amount to $2.55 million. Each of the two juniors would receive a $125,000 base and a $150,000 bonus, resulting in a total pay of $550,000. Finally, the PM keeps the remaining $2 million.

If there is no P&L for the year, everyone receives a base salary of $125,000, but the stress and mental exhaustion are the same for the year. Not fun.

Moat

Why are Citadel, Millennium, and Point72 (making up the term “Big 3”) so great? Scale and cornered resources.

• Scale: The Big 3 can afford to invest a bigger amount in technology and centralized personnel and leverage that fixed investment across a larger fee base. A better tech stack facilitates better risk management, thus driving better performance (evident in the annual return chart above), which attracts more assets.

  More assets attract more talented PMs who are looking for outsized GMV allocation and generous % P&L share. A larger number of PMs also makes the Big 3 a more stable risk pool - the law of large numbers.

• Cornered resources: Because of the best incentives, the Big 3 houses the industry’s finite number of proven MM PMs. As a result, the other MMs face adverse selection, having to settle for PMs who can't make it in the Big 3 and end up bouncing around Tier 2 firms until being forced to leave the industry.

Pros of working in MMs

• MMs have delivered performance in rapidly changing market regimes in the last 4-5 years while shielding clients from volatility. Consequently, assets have been flowing into MMs.

• MM is as meritocratic as it can be: Payouts are formulaic and contractually agreed upon joining based on the P&L generated on allocated GMV.

• MM investment teams have an abundance of research resources.

• MMs provide direct paths into investing from undergraduate while providing structured training, a feature often lacking in other buy-side firms.

• MMs provide the fastest route to managing money for talented SM HF or LO analysts.

Cons of working in MMs

• Mentally exhausting: Modeling requires excruciating detail and precision thinking, often demanding long hours. You need to know everything about your covered companies, even if they are insignificant, which is also exhausting.

• Concerns about drawdowns consume your mind and create stress. Stock prices are more unpredictable in the short term, and the constant fear of a portfolio blow-up looms large.

• The "eat-what-you-kill" model means that if your pod makes no money, you receive only base pay and the team members will eventually be let go. In contrast, SM HF founders can pay out of their own pocket to retain talent during down years, if they care of course.

Risk Management

The central risk management team monitors every PM's position in real-time and flags abnormalities (such as rising correlation). The renowned Citadel Risk Management Center can probably rival the sophistication of NASA's facilities. I've heard stories of individuals experiencing drawdowns at Millennium Management and receiving calls from Israel Englander himself.

MMs take risk limits very seriously: it's not personal; an MM PM is simply a stock in a portfolio. If you fail, you're out.

Central Book

The central book is another feature of an MM that can lead to tensions. A computer algorithm constructs a portfolio that reflects the best ideas of each PM.

However, the central book creates a free-rider problem, as PMs are not compensated for their contributions to the central book, while the firm benefits from the PMs’ intellectual capital. This dynamic can create tension.

Different firms implement centralized books differently. The approach often hinges on bargaining power. I suspect the Big 3 can be more predatory without repercussions, whereas Tier 2 firms tend to be more cooperative on this matter.

Investment Style

MM engages in relative value trades, which work best in sectors with significant return dispersions. That’s why typically MM pods are for TMT, healthcare, and consumer sectors because of fierce competition and disruptions resulting in winners (to go long) and losers (to go short) in the sector.

MMs typically operate with a 3-9 month time horizon, focusing on "trading quarterly earnings." This entails understanding market expectations heading into a quarter, developing variant views on whether companies will surpass or miss quarter results and guidance, and setting up trades accordingly. They also trade other events such as for analyst days and generally anything with a catalyst – for example, shorting a company because of a competitor product launch, etc.

However, MMs are not looking for the next "10-bagger" on the long side or the next zero on the short side.

Your path into an MM

Pod shops are always hiring for reasons described before.

Here are your ways in:

• Undergraduate: The Big 3 hire directly from select schools

  • Point72 Academy

  • Millennium Management has a partnership with UBS Equity Research, where recruits undergo training for a year before joining a Millennium pod to swim or sink

  • Citadel Associate Program (CAP)

• Traditional experience routes: Investment banking, private equity, and equity research professionals get looks from MMs. Equity research candidates are valued as they already support MM clients daily on the job. IB and PE candidates are valued for their modeling.

• For non-traditional backgrounds, network with the MMs’ Business Development personnel (essentially internal recruiters) for informational interviews to get leads.

Outlook

I have previously discussed the outlook of multi-managers here.

For MMs, the number of talented PMs is not growing at the same pace as asset inflows. Moreover, new firms continue to emerge, such as Bobby Jain’s Jain Global, which has struggled to raise money. The hedge fund industry is fragmented and crowded, necessitating consolidation.

Recent developments include Weiss Multi-Strategy Advisers’ decision to shut down and Schonfeld calling off the tie-up with Millennium Management after securing $3 billion from existing LPs, suggesting consolidation and exits are taking place.

Industry giants like Citadel are expected to dominate as long as they can retain the cornered resources who are the talented PMs.

List of multi-manager platforms

• AB Arya (under AllianceBernstein)

• Balyasny Asset Management

• Boothbay Fund Management

• Citadel, which has a few brands underneath: CGE (Citadel Global Equities), Surveyor, Ashler, Citadel International Equities

• DE Shaw

• Eisler Capital

• ExodusPoint (founded by ex-Millennium head of fixed income and head of equity)

• Hudson Bay Capital

• J Goldman

• Jain Global

• Marshall Wace

• Millennium Management

• Polymer Capital Management (Asia Focus)

• Schonfeld

• UBS O’Connor

• Walleye Capital

Carlson Capital (Dallas)

Founded in 1993 and based in Dallas, this firm specializes in event-driven investing across a wide range of strategies. They run everything from corporate catalyst and relative value equity to macro, equity long/short, and credit. Some strategies, like relative value arbitrage and risk arbitrage, are market-neutral by design, while others, such as macro and equity long/short, are more directional.

The firm was founded by Clint Carlson, who spent five years as Head of Risk Arbitrage for the Bass Brothers’ investment arm before launching Carlson Capital. He holds a BA and MBA from Rice University and a JD from the University of Houston.

Cinctive Capital Management (NY)

• Founded: 2019

• Founder background:

  • Richard Schimel; previously head of Aptigon Capital (a Citadel division that shut down) and PM at SAC Capital; University of Michigan UG

  • Larry Sapanski; previously CIO of Scoria Capital, earlier worked at Steve Cohen’s SAC Capital; St. John’s UG. Both are co-founders of Diamondback Capital

Point72 (Greenwich, CT)

No intro necessary—Steve Cohen is a legend. One of the greatest traders of all time. Founder of SAC Capital and the inspiration behind a hit TV series.

Point72 was formed after SAC Capital (SAC had $16 billion peak AUM) pleaded guilty to insider trading. Point72 was formed as a family office and was banned from running client money for two years. Then in 2018, it was open for outside capital and here we are, the king is back.

Verition (Greenwich, CT)

Verition was started in 2008 by Nicholas Maounis—the same guy who founded Amaranth Advisors, which you might remember as one of the biggest hedge fund blowups ever. Back in 2006, Amaranth lost over $6 billion betting on natural gas futures, which at the time was the biggest trading loss out there.

Verition’s a multi-manager, multi-strategy hedge fund, and one of the things they do is market-neutral long/short equity.

Nicholas originally launched Verition just to manage his own money. The name comes from the Latin word for “truth,” veritas. He ended up hiring a bunch of ex-Amaranth folks—by 2010, three of the four former Amaranth partners were working at Verition. This time around, they were way more cautious, putting in daily risk monitoring and bringing in risk management pros to keep an eye on things.

Investors were hesitant for a while because, let’s be honest, the Amaranth name didn’t help. But then in 2020, during the pandemic, Verition made money while most others didn’t—and that changed everything. Money started flowing in.

In April 2025, Affiliated Managers Group bought a minority stake. One thing that sets Verition apart is they have more portfolio managers relative to capital than other funds, which means they tend to make a bunch of smaller bets instead of swinging big on a few.

As of March 2025, they’ve delivered a 12.9% annualized return since launch. But here’s the kicker: they made 30.4% in 2020 alone (when average hedge fund made 9.5% that year)—that year really put them on the map and fueled a lot of the growth that came after.

Please let me know if I am inaccurate and/or if you have additional insights. I will award subscriptions to those who provide invaluable insights.

Thanks for reading. I will talk to you next time.