Understanding the Inner Workings of Multi-Strategy ‘Pod Shops’

Multi-strategy hedge funds are all the rage right now. But there’s also a lot of confusion about what exactly they do, and how the the so-called “pod shops” differ from more traditional hedge funds. On this episode of the podcast, we speak with Giuseppe ‘Gappy’ Paleologo, a long-time veteran of the space. In addition to writing books about quantitative finance, Gappy was formerly the director of risk and quantitative analysis at Citadel and the head of enterprise risk at Millennium, among many other jobs. He walks us through what multi-strat traders actually do all day, what makes for a good multi-strat candidate, and how to win in the pod shop game. This transcript has been lightly edited for clarity.

Key insights from the pod:
Gappy’s many jobs in the hedge fund industry — 3:51
How do pod shops make money? — 5:18
What are the benefits of working within a trading platform — 7:41
How 300 pods in one organization can stay diversified — 9:32
How pod shops manage risk — 14:56
The average lifespan of a portfolio manager — 20:25
Why the world belongs to the “obsessed” — 27:24
The two ways to create alpha — 29:05
Why assets still get mispriced in the age of Big Data — 33:31
What will be the next big innovation for hedge funds — 38:29