Odd Lots Podcast Episode Summary
Title: How You Get and Actually Keep a Job at a Multi-Strat Hedge Fund
Hosts: Joe Weisenthal and Tracy Alloway
Guest: Brian Yelvington, Consultant at Carrington Fox and Former PM at Multiple Multi-Strat Funds
Release Date: July 7, 2025
Introduction
In this episode of Odd Lots, hosts Joe Weisenthal and Tracy Alloway delve deep into the intricate world of multi-strategy hedge funds. With the help of Brian Yelvington, a seasoned consultant from executive search firm Carrington Fox and a former portfolio manager (PM) at several multi-strat funds, the discussion sheds light on the pathways to securing and maintaining a position within these complex financial institutions.
Understanding Multi-Strategy Hedge Funds
Joe Weisenthal kicks off the conversation by expressing curiosity about the mechanisms behind decision-making in multi-strat hedge funds, highlighting gaps in common understanding despite extensive discussions on compensation, alignment, and risk management.
Tracy Alloway acknowledges the lack of perspective from active PMs and emphasizes the importance of learning from those who have firsthand experience in hiring and retaining talent within these firms.
Path to Becoming a PM at a Multi-Strat
Brian Yelvington [04:52]:
“I’ve been one of the few people who’ve been both a PM and helped bring PMs into a large multi-strat. I’ve seen it from junior analyst to senior PM and the gatekeeping involved.”
Hiring Process:
Brian explains that established PMs are typically recruited through business development (BD) teams or executive search firms. The process is highly selective, often relying on personal networks and proven track records.
Evaluating Talent:
When assessing potential PMs, firms look beyond mere performance metrics. Brian emphasizes the necessity of a well-defined "edge" – a unique strategy or insight that a PM brings to the table. He states:
“Good PMs have boiled down their edge into a concise, elevator pitch because they’ve refined their strategies through years of experience and numerous mistakes.”
Articulating Your Edge
Joe Weisenthal:
“How does someone articulate an edge during an interview? What does that sound like?”
Brian Yelvington [08:12]:
“They should be able to explain their edge in two or three sentences, clearly identifying the alpha they aim to generate. It varies widely – from anticipating monetary policy shifts to understanding niche corporate actions.”
Tracy Alloway [09:28]:
Discusses performance metrics like Sharpe ratios and the difficulty firms face in verifying these numbers due to confidentiality within hedge funds.
Role of Analysts in Multi-Strat Funds
Joe Weisenthal:
“What does an analyst actually do in a multi-strat hedge fund?”
Brian Yelvington [12:17]:
“Analysts are responsible for building surveillance specific to their pod's needs, covering particular markets or industries. Their role involves idea generation and backtesting, tailored to the pod’s strategy – be it macro, quantitative, or other specialized trades.”
Tracy Alloway adds that analysts contribute to generating actionable insights and support PMs in executing their strategies effectively.
Performance Metrics and Due Diligence
Tracy Alloway [09:46]:
“What figures or numbers are available to assess a potential PM’s performance?”
Brian Yelvington:
“Profit and Loss (P&L) data are tightly controlled within firms and rarely shared outside. PMs can provide proof of their achievements, but direct verification is often restricted by employment laws.”
Managing Drawdowns and Risk
Tracy Alloway [25:32]:
“How does a major drawdown impact a PM’s career and confidence?”
Brian Yelvington [30:38]:
“A significant drawdown can lead to job loss, especially if it violates the PM’s own risk guidelines. The aftermath varies – some may receive support or guidance, while others face immediate termination.”
Risk Management Constraints:
Brian explains that PMs are often restricted by drawdown limits, which influence their trading behavior. Exceeding these limits, even with profitable trades, can result in losing their position.
“You might have a stop-out at 7%, but capital reductions can occur much earlier, forcing PMs to become pickier and trade smaller positions.”
Psychological Impact and Trading Behavior
Brian Yelvington [26:51]:
“Experiencing a losing streak can force PMs to either take more risks to recover losses or become overly conservative, leading to underperformance.”
Joe Weisenthal:
Draws parallels between trading discipline and behaviors exhibited in poker, emphasizing the importance of emotional control.
Brian Yelvington [34:58]:
“Great PMs review their performance meticulously, akin to athletes watching game footage, ensuring they learn from every trade regardless of outcome.”
AI and the Future of Analysts
Joe Weisenthal [37:46]:
“Can AI replace analysts in multi-strat hedge funds?”
Brian Yelvington [38:23]:
“While AI can handle many analytical tasks, the nuanced storytelling and strategic insights required in trading necessitate human expertise. AI can augment but not fully replace analysts, especially in creating complex trade narratives.”
Avoiding Groupthink and Ensuring Independent Strategies
Tracy Alloway [40:46]:
“How do multi-strat funds prevent groupthink and ensure that PMs maintain uncorrelated strategies?”
Brian Yelvington [41:36]:
“Firms often limit communication between pods and structurally prevent the sharing of trade ideas. Seasoned PMs focus on their own strategies, resisting the urge to mimic others, ensuring diversification within the fund’s overall strategy.”
Continuous Improvement and Post-Trade Analysis
Brian Yelvington [35:04]:
“Top PMs regularly conduct postmortems on their trades, analyzing both successful and unsuccessful decisions to refine their strategies.”
Joe Weisenthal [34:48]:
Highlights the importance of systematic review processes, drawing analogies to poker solvers used to analyze game play.
Conclusion
The episode concludes with hosts reflecting on the insights shared by Brian Yelvington. They emphasize the complexities involved in both securing a role at a multi-strat hedge fund and sustaining it through disciplined risk management, continuous learning, and maintaining unique, uncorrelated strategies.
Joe Weisenthal:
“Brian Yelvington, thank you for shedding light on how to navigate careers within multi-strat hedge funds.”
Tracy Alloway:
Encourages listeners, especially those aspiring to enter the field, to apply the discussed principles and reach out with further questions.
Notable Quotes
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Brian Yelvington [04:52]:
“I’ve been one of the few people who’ve been both a PM and helped bring PMs into a large multi-strat.”
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Brian Yelvington [08:12]:
“They should be able to explain their edge in two or three sentences, clearly identifying the alpha they aim to generate.”
-
Brian Yelvington [34:58]:
“Great PMs review their performance meticulously, akin to athletes watching game footage, ensuring they learn from every trade regardless of outcome.”
-
Brian Yelvington [38:23]:
“While AI can handle many analytical tasks, the nuanced storytelling and strategic insights required in trading necessitate human expertise.”
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Brian Yelvington [41:36]:
“Firms often limit communication between pods and structurally prevent the sharing of trade ideas.”
Final Thoughts
This episode of Odd Lots provides a comprehensive overview of the dynamics within multi-strategy hedge funds, offering valuable insights for both aspiring professionals and those interested in the operational aspects of these financial entities. Through Brian Yelvington’s expertise, listeners gain a deeper understanding of the delicate balance between performance, risk management, and individual strategy that defines the success and longevity of a PM within these competitive environments.