If you’ve gone from trading jobs in banks to hedge funds, to multistrategy hedge funds, and are venturing into 2024 uncertain about your future, Tim Pearey, the former chief executive of Odey Asset Management, has an alternative to offer.
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After two decades at the ill-fated Odey Asset Management, Pearey – who left in 2021 before Crispin’s downfall, has founded AB Asset Management. It’s not a multistrategy hedge fund. It’s not even a hedge fund, but Pearey explicitly wants to hire hedge fund people who are tired of the game.
“Multistrats will often let go of people for reasons other than poor performance,” he says. “For example, they’ll decide that capital is better deployed in a different strategy. Those individuals will then often go to another multistrat, where the same thing will happen again. After two or three iterations of that, people are ready for something new.”
AB Asset Scale is that new thing. It’s a first loss platform where traders who invest $250k of their own money have that matched by investor capital, which is then leveraged five times or more.
There are no salaries on offer, but successful traders on the AB Asset Scale platform get to keep 50-60% of their profits, payable on a monthly basis. Unsuccessful traders lose their own money and are either shut down or asked to stump up more capital if losses hit 10% of the unlevered principal, although Pearey says heavy conversations begin once losses reach 7%.
20% of profits go to investors. 20% go to AB Asset Scale.
The platform signed its first trader in October, and Pearey says the model is proving popular with traders for whom multistrat jobs have proven less fruitful than anticipated. “I’ve been pleasantly surprised by the diversity of people interested,” he says, adding that many have been sub-portfolio managers for existing PMs. AB Asset Scale offers them the opportunity to develop a track record of their own. “We offer an incubation process for people who might want to move to a more traditional fund structure in the future,” says Pearey.
AB Asset Scale is based in the UK, but is “geographically agnostic.” Similar arrangements exist in the US, but traders are usually expected to stump up $5m instead of $250k. “We’ve reduced the entry point,” Pearey adds.
If you want to join, you’ll need to sign up for a year and will be committed to paying that year’s management fee even if you shut down after six months. There’s no office: you’ll get to work from home. If you like, you can bring a few programmers and traders, but you’ll need to pay them yourself…
It’s an arrangement that won’t suit everyone. If you don’t have a spare $250k and can’t do without a salary until when (and if) you start making profits, you can’t play. Nor will AB Asset Scale be appropriate if you trade illiquid products or have a data heavy and tech hungry strategy. “We need to close down positions quickly and efficiently if people start to reach the drawdown level,” says Pearey. Strategies trading deep and liquid markets like macro, FX, equity indices, rates and commodities are best.
As at multistrats, not everyone will succeed. The expectation is that 20% will do badly and be stopped out, that 60% will be mediocre and that 20% will be stars. In time, those 20% could get more capital allocated to them. “It’s a natural evolution. They could migrate into a traditional fund structure under our umbrella,” Pearey says.
Just don’t call it a pod.
Photo by Gemma Evans on Unsplash
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