Citadel, Millennium, or...? Life at the big multistrategy hedge funds
Once it was Goldman Sachs. Then it was hedge funds built around talented individual managers like Paul Marshall, the British hedge fund manager angling to become a media mogul. Now it's the big multistrategy hedge funds.
In 2023, the multistrategy funds are the most prestigious and often the most lucrative places to work in finance. They're expanding fast: as we reported in April, some of the biggest funds (in order of size) - Millennium, Citadel, Point72, and Balyasny - now employ a combined 11,595 people. But as you will know if you read these pages a lot, working for each one can be a very different experience.
People who work in and with the biggest funds tend to be secretive. Like banks, the big funds are keen to curate their images. They don't think highly of current or ex-employees who talk about them. Nor do they favor headhunters with loose lips. For this reason, the information in this article has been provided on an off the record basis.
"All these funds are very different," says one New York headhunter who works with the big multistrats. "They have a different DNA and a different way that they operate." A London headhunter agrees."These are not identikit places," he says. "They all have their foibles and tics. Things can differ from team to team as much as firm to firm."
As hedge funds grow and hire, perceptions of their culture are becoming increasingly important. Each is chasing the best portfolio managers. No one wants to work in a toxic environment.
The grandaddy of the multistrategy hedge fund is Ken Griffin at Citadel. Three decades ago, Griffin had the notion of creating a fund with multiple pods, each following different strategies with the idea that the fund as a whole would be market neutral. "The structure of a multistrategy fund is about trying to minimize volatility from one month to the next," says one insider. "It's a market neutral multimanager platform."
Will England, the CEO and Co-CIO of Walleye Capital, the Minnesota-based fund with $5bn under management that's been transforming itself into a multi-strat, describes multistrategy funds as (ideally) "pure alpha vehicles." All their costs are passed on to investors. They combine multiple different types of strategy including, "long/short stock picking, both from a fundamental standpoint and a quantitative standpoint, various different forms of macro strategies, various different forms of volatility trading" in the pursuit of profits irrespective of whether the market rises or falls.
Within these constraints, some things are a given. If you make big losses, you won't survive. But there are also differentiators around this fundament.
Pod shops; autonomy and centralization
Insiders say the number one difference, particularly between the two biggest funds - Citadel and Millennium - is the autonomy of the pods. Citadel is comparatively centralized; Millennium is not.
"At Millennium it's almost like you're operating your own mini hedge fund and your experience will vary considerably according to the pod," says one insider. "At Citadel, you are joining Citadel. The experience is more universal. There's a Citadel formula and you follow it."
Neither fund agreed to comment for this article. However, Citadel is known to operate in a way that's less siloed than other funds and people there are encouraged to share ideas across the firm. Millennium, by comparison gives its portfolio managers autonomy to follow their own strategies, although they partner when necessary.
"The Millennium pods are very distinct," says one headhunter. "If you join a big established pod like Numerus Partners, you'll have a completely different experience than if you join a smaller one."
Because Millennium pods operate autonomously, there are grumbles that some compete against each other. "They have pods doing similar things," claims one headhunter. "If five are making money and two are losing money, they will cut the two."
Technology, or not
As England at Walleye notes, the best portfolio managers don't need to work. They're not interested in funds that provide a ping pong table or "gimmicky things." When portfolio managers are choosing an employer, they want the technology and data platforms that will allow them to make money.
This is what Citadel and Millennium excel at. It's why Millennium has built a technology hub in Miami. It's why Citadel has a program called NXT to hire experienced engineers. It's what other funds are trying to replicate - sometimes without success. And it's why quantitative trading managers following systematic strategies, in particular, leave funds with technology that's second rate.
It's not just about trading systems. Citadel's technology is put to use running its centralized proprietary risk factor model under chief risk officer Joanna Welsh. Visualized on 35-foot by 8-foot screens, the model shows stress-rest results, performance and risk analytics as a single narrative. Speaking earlier this month, Ken Griffin said Citadel was built on research "largely driven by quantitative analytics that were not commonly used." Today, he said Citadel supplements these analytics, built over decades, with "deep fundamental research" from "gifted market specialists."
None of this technology is cheap. When you join a pod as a portfolio manager, a critical factor is the extent to which you access and pay for the use of the central technology resource, or build your own. This is a key factor in determining PnL.
Stop losses; brittle or bend
The other key differentiator is the fund's approach to losses and the transgression of risk limits. Here, some funds can be harsher than others.
Millennium has a reputation for pulling the plug abruptly on portfolio managers who don't perform, although some suggest that this is a "legacy misperception" of the situation there. Similarly, there are complaints of a lack of tolerance for losses at smaller rival Eisler Capital, although Eisler COO Chris Milner says this is unfair. “Risk limits are a source of debate and not a gilded cage," Milner told us. "It’s about someone’s process, whether they have followed that process, whether the outcome is predictable as a result of following the process given the environment they are in. There are people who have reached their stop or got very close but we understood their processes and believed in their strategy. We sat them out for a bit, and then we reloaded.”
Some hedge funds have a reputation for tolerance. Brevan Howard, which has $34bn of assets under management, has a higher tolerance for stop-losses and doesn't fire traders immediately if they're transgressed. It helps that CEO Aron Landy is Brevan's former chief risk officer. Alex Assouline, Brevan's current CRO, runs a team that partners with traders to coach them as problems appear instead of suddenly cutting them off when losses are made.
Schonfeld, the struggling hedge fund that's considering partnering with Millennium, has a similar reputation for leniency. "Some of our most successful PMs would have been fired by our competitors because they initially struggled," Ryan Tolkin, the CEO of Schonfeld, said four years ago. Whether this approach will continue under a Millennium partnership remains to be seen.
Training-up or hiring-in
Funds' varying willingness to tolerate losses is partly the result of their sunk costs. Some funds train juniors and are 'invested' in them as portfolio managers; other funds hire-in the finished product.
Point72, the hedge fund founded by Steve Cohen is the most advanced when it comes to training. Cohen himself has articulated his strategy as being building rather than buying champions. Many hedge funds run graduate training programs and internships, but Point72's academy program is one of the most refined. For this reason, CIO Harry Schwefel says it doesn't dump junior portfolio managers just because they make a mistake: "We're not subjecting them to binary outcomes with drawdowns in those early years because they're figuring it out." It's Point72's big differentiator, says one headhunter: "They want the majority of their PMs to be people who progressed through the junior ranks."
Citadel, equally, is big on graduate training and hires only the most exceptional juniors. "It's more elitist and there are more hoops to jump through, which creates a more arrogant culture," complains one source. If you're good, though, they will promote you quickly. "Citadel want you running risk as quickly as possible," says another source. Nearly 50% of Citadel PMs started with the firm as associates or analysts; half of the business heads in its investment businesses are homegrown.
At Balyasny Capital Management, Dmitry Balasny says he hires juniors with a few years' experience elsewhere and turns them into portfolio managers over a two year period. "Typically, they'll know stock picking, but they won't know portfolio construction. They might've not had a lot of experience to trading. They probably wouldn't have managed a lot of people before. So, we coach them on all those aspects."
Headhunters say that smaller funds like Verition, Walleye will hire junior portfolio managers and "give them a huge book." This is in contrast to Millennium, which they claim prefers proven portfolio managers with "ten years under their belts."
Churning and burning
It's in the nature of all multistrategy funds to cut people who exceed their loss limits, but some funds have a greater reputation for doing so than others. "Both Citadel and Millennium will cut you if you don't perform," says one headhunter. Both funds would refute the notion that they do so unfairly.
Citadel is sometimes portrayed as having a demanding culture. Reviews on forum website Blind give it only two stars for culture and complain of stress and high pressure, although 92% of its employees say it's a great place to work in the survey of the same name. Millennium doesn't have a comparable Blind profile. Both firms, however have people who've been there a long time. At Citadel, the average tenure of the management team is more than 10 years
When portfolio managers leave, funds need to hire new ones urgently to deploy their assets. Hence the rabid competition for staff.
Smaller and friendlier
There's no such thing as a friendly multistrategy hedge fund, but if you want something friendlier, insiders suggest the smaller funds like Walleye and Verition. "Verition have a very humble culture," says one portfolio manager there. "They're very supportive."
Ultimately, though, it's a matter of personal taste. "When you get deep in the culture, it turns into a question of whether you like the personalities," says one headhunter. "You will always hear gossip in the hedge fund space."
As funds work hard to smooth their rougher edges, a new breed of multistrategy manager might emerge in the style of Bobby Jain, the former co-CIO of Millennium. Jain is seen as more of a risk manager and organiser than a risk taker. He's currently hiring for Jain Global, his new multistrategy fund which is due to launch next year. After seven years at Millennium, though, Jain's approach is unlikely to be that different to the rest.
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