What's the Edge of Pod Shops?

Dynamic Capital Allocation & Leverage

One of the (many) reasons multi-manager hedge funds are so successful is because they can shift capital around in real time based on performance and a wide variety of metrics. The basic idea is “if one pod (team) is underperforming, we are going to cut their capital and allocate it to another pod that is crushing it”. This is an oversimplification, but this dynamic is on top of the central book, which we have previously discussed.

There was an interesting experiment/paper on this topic published a few days ago that garnered some interest and is worth discussing.

Before we go into it, many of you asked to hear more about the announcement in our previous post that Allen White, a former 10-year Millennium Portfolio Manager, has joined Phoenix. You can get full information and answers to your questions here: https://www.phoenixlearning.io/allen-info.

Now, let’s get straight into it.

Experiment

This experiment, or whatever you want to call it, is actually quite interesting. It’s fairly simple and you can read it yourself here, but the gist of it is the following: