Tags
L/SHedge Fund
Background
Dmitry Balyasny is the Managing Partner and CIO of Balyasny Asset Management. We cover the origin story of his unique multi-strategy firm, the common traits that great portfolio managers share, and how to incentivize talented investors.
Date
April 26, 2022
Episode Number
274
Key Takeaways
- Diversification through the Multi-Manager Model: Dmitry Balyasny's experience has shown that firms structured around multiple managers with varied strategies and specialties tend to be more durable and scalable over time. Such a structure reduces correlation. BAM houses 125 teams across different strategies.
- The Balance between Sharpe and Capacity: At both the individual PM level and the overall firm level, there's a constant effort to balance Sharpe (risk-adjusted returns) and capacity (size of investments). The goal is to consistently compound capital at scale in an uncorrelated manner, and the multi-manager model offers a structure to achieve this with consistency. Leveraging the model helps achieve an uncorrelated return stream. Leverage is tweaked.
- Strategic Allocation and Risk Management: Every strategy has defined risk constraints, and there's a significant emphasis on managing idiosyncratic risks while minimizing factor risks. The firm employs a rigorous risk management process with specialists dedicated to monitoring individual strategies, ensuring all positions remain within their risk constraints.
- Defensive Preparedness in Volatile Markets: In volatile macro-driven periods, defensive strategies ensure that a firm isn't overly vulnerable, allowing them to then take offensive moves. During the 2008 crisis, concerns about the systemic environment led BAM to largely liquidate to cash. BAM is agile at being offensive / defensive when needs be.
- Perspectives on Short Selling: Dmitry critiques a common misunderstanding in short selling: the oversimplified idea of just shorting stocks that are expected to plummet in the long run while going long on stocks predicted to soar. This approach can lead to extreme portfolio volatility. Instead, Dmitry emphasizes the importance of the relative value. Focus on understanding the relative performance of stocks over shorter durations and diversifying their short positions.
- Perspectives on Rates: Most macro trading revolves around rates. When rates are stuck at low levels, and central banks globally follow similar paths, opportunities for profitable trades diminish. In contrast, when rates are volatile and central banks diverge in their monetary policies, numerous trading opportunities arise, from curve trades to directional bets.
Transcript
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