Multi-manager or Multi-strategy or Pod funds
Hedge Fund Management
Traditionally, a hedge fund is organised around a star fund manager. The manager has got a reputation to pickup good stocks that provide above average returns. However, there is a better way to manage hedge fund investments and it is called “multi-manager” or “multi-strategy” or “pod funds”.
As the name suggests, the strategy here is NOT to rely on the ability of a single fund manager but multiple fund managers dealing with small pots (pods) of money, each given specific task - such as a strategy or sector.
Fund managers’ performance is measured based on various rules and the most important of those is the performance of the investment strategy ignoring the broad market movement. This is done by going long on the portfolio and short on the broader index.
If the performance is poor, the fund manager is fired. If the performance is not up to the mark then the size of the pod (money) is reduced, and if the performance is good then the size of the pod is increased.
Fund managers are required to focus on things such as:
Earnings, which is the most important update and the biggest source of large single-day moves.
Conference presentations
Intra-quarter data points
Legal issues
SEC filings
Management changes; and
Market strategy
Since there is a lot to chew for the fund managers, each fund manager is allowed to create a portfolio of a few dozen stocks or bonds only.
One advantage of this pod strategy is that since the overall market is hedged, the fund can use decent leverage. For example, the fund can raise $1 from investors and borrow $5 from financial institution(s) and create a portfolio comprising of $10 worth of long position and $10 worth of short position, or any other combinations as long as the leverage does not blow it up.
Importantly, the overall performance of all the pods decide the returns to the investors.