The job of a hedge fund manager is complex, and to those of us not in the hedge fund world, it can be a somewhat mystifying one.
Hedge funds have been much maligned in the mainstream press, but part of this is because they are so opaque and complex. Let’s draw back the curtain and find out more.
Hedge funds are financial partnerships that use pooled funds across various strategies to generate active returns. Multiple investors - whether that’s say pension funds or insurance funds or any other fund - will invest their money into a big pot run by the hedge fund. The fund then employs various portfolio managers and other functions to generate investment ideas and portfolios on which to trade upon, therefore generating further assets for the investors.
Seems simple, right? Well… there are a number of things that make hedge funds extremely complicated. For example, there can be specific arrangements between the fund and the investor, where the investor will dictate what investment ideas they are not willing to have their money put towards. These restrictions include, but are not limited to position sizing, leverage, risk management, liquidity management, service providers, operations, trade execution, tech, and regulatory compliance.
All of these things are on top of the core investment idea generation or portfolio creation which is managed by a hedge fund manager. That’s why it’s so easy to lose sight of the core concept of creating and selling good investment ideas to investors - there’s just so much to juggle.
The founding team at Upside met when they were running a $4 billion fund. At this fund, the team split these things so that portfolio managers could focus on managing their portfolios and management looked after everything else. The everything else includes operations, tech, risk management, leverage, position sizing and trading. This model worked well, and allowed the firm to have a wide variety of portfolio managers with different sector specialities to focus on.
The team also saw a bigger opportunity. Not just to focus on giving the portfolio managers space to create and cultivate great investment ideas, but also help them get better at it. This is a hard ask at a hedge fund when you are chasing daily, weekly and monthly returns. There are only so many portfolio managers you can hire before all the desks in your office are filled, and only a finite amount of money investors are willing to hand over.
So the team took this seed of an idea and built Upside. We want to focus on the investment ideas and the portfolios (we like to call them Curations), and leave the other things to other investors to worry about.
It’s a win win. It allows the ideas people to generate better and better ideas, and allows the hedge funds to find the ideas that suit them, and not have to worry about finding more portfolio managers to fill their desks and generate ideas.
There’s a science to being right, and it’s here at Upside.