SinStockPapi

Oh man had so many conversations with PMs over the years on this exact topic. Existential conversations. Investment professional leaves a solid seat for a pod PM role. Guarantee is enticing. Autonomy & direct payout is enticing. "I've been a money maker, how hard can it be". Market neutral, tight risk, you are great if you can do 3-5% consistently (looser risk 6-8%+). BUT, 3-5% on gross is actually 6-10% long/short spread, i.e. if my longs are up 6% and my shorts are flat I made 3% on gross. And this alpha is actually alpha, not relative factor bets, beta exposure, etc. And 3% isn't really 3%, as you have between 50-75bps of top-line expenses to chop through before you are in the money. The range of outcomes is so wide. $100m P&L year and we are talking about a $15-20m profit pool at typical payout ratios. PM can take home eight figures and pay lieutenants seven figures. Life changing money. A flat year and you are living off base salary, which is nearly impossible to do in NYC with a family. This range of outcomes makes the seat incredibly stressful. It can eat you alive if you let it (in ways, it ate me alive). The reality is making 3-5% on gross is damn hard, particularly doing so consistently. Pareto distribution holds...the average poker player doesn't make money, nor will the average PM. So 6-8 / 10 PMs will churn out over 2-3 years running market neutral, and it indeed is not a sustainable career path. But it's not designed to be! Except for the exceptional PM, the maniac who can grind positive P&L 10-12 months or consistently generate $50-$150m of P&L on a scaled book. But those are the exceptions, not the modal outcome. And with more capital and more competition, sustaining position as the exceptional PM gets more and more challenging. Advice I always give for senior investment professionals headed to market neutral PM seats. Let go. Don't be attached to the outcome. Know you are playing an incredibly difficult game. Try to not let it grind you down. Certainly work hard and plan for 100% dedication. Swing the bat and hope for the best, but remember it's not life or death. Probabilistically you will fail. And paradoxically with that less serious mindset, you can shrug off the inevitable challenging periods and maintain the focus, self-belief & optimism that are required to play the hubristic game of alpha investing.