Citadel, Millennium, Point72 and BAM are richer, smarter, and faster than you. Here's how small hedge funds can win regardless:
Alix Pasquet (
@alixpasquet), managing partner of hedge fund Prime Macaya Capital Management, explains:
"A lot of game theory is very technical and mathematical, but it really reduces to one thing: play weaker players. Don't get into the ring with Mike Tyson. That's not what you want to do."
"We don't try to compete with the pods. They are richer than we are, smarter than we are, move faster than we are, have more resources, and in many cases are better looking. That's bad for our self-esteem, for our ego, and also our wallet."
"We don't compete with them on who they hire. They're interviewing sophomores and juniors in college now. I can't afford to pay an analyst $300,000 plus a bonus including half a million dollars. But the analytical turnover inside these shops is high enough that you get to hire these kids afterwards."
"Whereas pods have been lengthening their trades to weekly, monthly, we like dynamics that are six to 18 months and above. There's names we've owned forever, and there's names we'll own expecting 18 months where the upside happens in weeks."
"Some of these hedge funds pay the Wall Street banks more to get the first one-on-one meeting with management, so they can trade on it. We don't do that."
"I'm rewriting my business plan for the age of AI, and one of the sections is: we have no requirement in our process that says you have to meet management teams. No requirement that says you need alt data. No requirement for Wall Street research. No requirement to hire from certain schools. Strategy is about trade-offs. Let them have that. We'll be right here. There's a lot more advantage here than you would think."