Basic, lesson 1 of 3
How a pod is run
A pod is a small team running capital inside a larger fund, under limits set by a central risk team. The limits shape every decision an analyst makes.
8 min, 3 checks
1The setup
A multi manager platform allocates capital to many portfolio managers. Each runs a book in a sector or strategy with a few analysts. The platform wants returns that do not depend on the market, so each book is usually close to market neutral, and the risk team sets limits on gross exposure, net exposure, factor exposure, and single names.
- Allocated capital: the book's size for measuring returns and limits.
- Gross and net limits: how much the PM can hold, and how far long or short overall.
- Factor limits: caps on exposure to market, sector, size, value, momentum, and similar.
- Drawdown limits: a soft level where capital is cut, and a hard level where the book is closed.
Check 1
Why do platforms want books close to market neutral?
2Drawdown limits and payout
Limits are set as a percent of allocated capital. A typical setup might cut the book's capital at a 5% loss from its high and close it at 7.5%. Pay comes from a share of the P&L the book makes, so losses early in the year must be earned back before anyone is paid.
Check 2
A book has $800m of allocated capital and a hard drawdown limit of 6%. How much can it lose from its high before it is closed, in $m?
Check 3
A pod makes $60m of P&L for the year and its payout is 15% of P&L. How large is the team's pool, in $m?
Terms in this lesson: Factor.
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