Is SM or MM pure stock picking ?
Might be a dumb question but what position in hfs is mostly pure stock picking alpha rather than running a market neutrsl hedged book like a pod , correct me if I’m wrong but in a pod you have 0 market risk and are just playing the risk between 2 stocks with no factor exposure , the way you make money is your longs going up and your shorts going down ,in most pods is your market exposure 0? Are you perfectly balanced between your longs and shorts or do some pods prefer net long ? I understand that pods pretty much make you deploy all your capital but what if you only have 2-3 good ideas and don’t want to weigh them that much? Then do you just allocate the capital to your 4th and 5th best idea anyway? In a SM it’s all up to the PM on whether you deploy all your capital but why do LPs prefer the pod model then? Is it just the consistent 6-8% with limited risk?
There's like a million questions in here.
Yes pods are market neutral. That inherently means near zero market risk, in theory. But it's not like you start as a PM.
Market neutral doesn't mean you have to have a short or a long, just means you need a pair trade where one should outperform the other. Neither necessarily has to go down.
Idk about the capital thing.
You're confusing how LPs think about pods with how you, as a prospective analyst, thinks about pods. You're thinking about one pod, the LP is thinking about the entire pod shop. Law of large numbers, theyre not worried about individual teams. LPs like MMs because they're low beta, "pure alpha". Hard to get this exposure in asset management in public markets.
Ok I see, so LPs aren’t looking for the home run play with pods , they’re just looking for the consistent hit, makes sense
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