Investment Banking Strategies

Let me give you an insider look into the hedge fund industry. (For wannabe analysts, allocators and managers). I have been working on the launch of my macro hedge fund Palinuro Capital for 11 months now. Here is what I learnt. 1️⃣ For wannabe analysts If you want to break into the hedge fund industry, your best odds aren't with online applications. Instead, it's about: - Content creation (visibility) - Proof of concept (concrete skills) - Communication (marketing yourself) Hedge fund managers or PMs are likely to hire someone that consistently produces great quality content, approaches them with concrete solutions to their problems, and does so in a concise and efficient way. If you are looking for a hedge fund job, show the manager why she needs you. And specifically you. 2️⃣ For allocators Research shows that managers' alpha tends to be concentrated in the first years of a fund: that's when managers are hungrier and most concentrated on risk-adjusted returns than AuM maximization. Yet there is an extremely limited amount of allocators out there that are willing to take the ''career risk'' of allocating to boutique managers. The assessment is mostly qualitative in the early stages, and I have observed the smartest day-1 allocators are after: - A repeatable investment process - Managers that understand the importance of operations and cash flows - Humility and long-term mindset 3️⃣ For managers Launching a hedge fund in 2024 is extremely hard. You have two main routes: - Get a deal from a seeder (sell equity or revenue share to get seed capital) - Go solo (bootstrapping) A seed deal generally comes in the 50-200M area (~100M median), and seeders require a substantial portion of your GP equity in exchange. Yet they give you a large amount of working capital to start, and peace of mind when it comes to operations. These deals are hard to get by, and they don't allow you to remain independent. Unless you are spinning off Millennium or Citadel, if you want ''your own baby'' then prepare to: - Front at least $250k in working capital - Work on the setup and asset raising for 12 months - Fight hard to get to breakeven AuM (~50M) At Palinuro Capital we have managed to raise some solid day-1 capital, and it's been mostly by NOT showing any rush to our investors. We are here for the long run, and allocators love a true long-term mindset. As a wannabe hedge fund analyst, allocator or manager: do you agree or disagree with this post?

8 is Great! Multi-Asset Credit or MAC has emerged as a compelling solution for capital allocators looking to generate attractive risk-adjusted returns in the Public Credit markets. MAC distinguishes itself by dynamically allocating capital across the four segments of the public credit universe—Structured Credit, Leveraged Loans, High Yield, and Emerging Markets, best implemented when maintaining a rigorous focus on credit selection, sector rotation and active risk management. At its core, credit managers who run active MAC programs are best served by using their keen knowledge and applying it to dynamic asset allocation based on disciplined fundamental research and understanding of relative value. Specialized-dedicated individual portfolio management teams with deep domain expertise operate within each asset class as an integrated team and the CIO presides over the program. This creates a collaborative environment where investment decisions are enriched by a range of perspectives to uncover optimal relative value. By allocating across the four primary sectors of Public Credit, MAC benefits from differentiated drivers of return, while mitigating idiosyncratic risk. Dedicated teams expert in Structured Credit provides a wide range of opportunities (RMBS, ABS, CMBS, CLOs) with relatively lower volatility. BSL offer floating-rate exposure, low duration, and strong relative performance in a rising rate environment. Dedicated teams for High Yield and Leveraged Loans adds upside potential through credit spread selection along the yield-credit curve. Dedicated team for Emerging Markets, focused on hard currency sovereign, quasi-sovereign, and corporate bonds introduce global diversification without assuming local currency risk. The net result is additive when run under a single mandate. MAC strategy is measured vs. its benchmarks, but should deliver more than a benchmark return, if the investment manager has the requisite specialized credit expertise, couples it with dynamic optimal allocation approach to deliver a cohesive, risk-managed solution for institutional investors seeking alpha through cycles. When I think of investing in public credit markets, I don’t think of just one segment but the entire market place. In order to do so, you must employ specialized investment teams that are integrated and collaborative to drive an optimal public credit portfolio. I believe investors and capital allocators are best served by a multi-asset approach. This graph below shows the component yield today, with MAC the yellow dot in the middle. “8 is Great” is my mantra for MAC today.

𝐒𝐢𝐦𝐩𝐥𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬, 𝐂𝐨𝐦𝐩𝐥𝐞𝐱 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬: The Case for ... Doing Nothing? 🏖️ Most endowments and pension funds in the US follow a model similar to the aforementioned Yale Model: Large investment teams consisting of veteran investors, making active bets on managers, geographies and industries with the goal of outperforming the market over the long-term. Interestingly, that idea is being upstaged by one of their own. Steve Edmundson, CIO of the Nevada Public Employees’ Retirement System (NPERS), 𝐜𝐡𝐨𝐨𝐬𝐞𝐬 𝐭𝐨 (𝐦𝐨𝐬𝐭𝐥𝐲) 𝐝𝐨 𝐧𝐨𝐭𝐡𝐢𝐧𝐠 𝐚𝐭 𝐚𝐥𝐥. NPERS, to the most part, goes against the ideas of the Yale Model and its search for complexity. 𝐈𝐭𝐬 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐨𝐟 𝐫𝐨𝐮𝐠𝐡𝐥𝐲 66 𝐛𝐢𝐥𝐥𝐢𝐨𝐧 𝐝𝐨𝐥𝐥𝐚𝐫𝐬 (𝐚𝐬 𝐨𝐟 𝐌𝐚𝐫𝐜𝐡 2025) 𝐢𝐬 𝐭𝐨 𝐭𝐡𝐞 𝐦𝐨𝐬𝐭 𝐩𝐚𝐫𝐭 𝐢𝐧𝐯𝐞𝐬𝐭𝐞𝐝 𝐢𝐧 𝐩𝐚𝐬𝐬𝐢𝐯𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬:For US stocks (35%), they are invested in the S&P. For international stocks (14%), they are invested in MSCI World ex-US. For US bonds (28%), they hold US treasuries. The only exceptions are Private Real Estate and Private Equity (12% target allocation), which they have outsourced to external managers. 𝐀𝐧𝐝 𝐭𝐡𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬 𝐬𝐩𝐞𝐚𝐤 𝐟𝐨𝐫 𝐭𝐡𝐞𝐦𝐬𝐞𝐥𝐯𝐞𝐬: Since inception, NPERS has outperformed the market return by 0,3% p.a. Compare that to CalPERS, the largest public pension fund in the US, which employs a large investment team and makes active investments in liquid and illiquid assets - yet notoriously lags its benchmark over a 20-year period and just barely outperformed over 10- and 30-year periods. It’s interesting to see that large institutional investors suffer from the same level of “ego” that I personally see in affluent investors (and admittedly, sometimes myself): We have a top-notch team, we are smarter than other investors - we can generate alpha, we can outperform the market. But can they, really? Often, the numbers tell a different story. But to me, there's an even more important learning. Many of our affluent clients think that they need to invest differently from the average retail investor simply because they have more investable capital (and maybe my many newsletter about PE and other alts don't help). After all, that level of investable capital is needed to access some asset classes in the first place, such as private equity or hedge funds, and the recent push by GPs into fundraising from affluent individuals doesn’t help either. But it’s especially in such a moment where I like to highlight the story of NPERS: It’s a massive pool of capital, run by a tiny investing team, that actively chose not to make active choices - and that is succeeding with that strategy.

Honey, I Shrunk the Sample Covariance Matrix - Research Paper "Honey, I Shrunk the Sample Covariance Matrix" by Olivier Ledoit and Michael Wolf addresses a fundamental issue in portfolio optimization: the instability of the sample covariance matrix when the number of assets is large relative to the number of observations. This instability can lead to poor portfolio performance, as the sample covariance matrix tends to overfit the data. Key Points 1. Problem with Sample Covariance Matrix: When the number of assets (p) approaches the number of observations (n), the sample covariance matrix becomes unreliable. This is because it tends to capture noise rather than the true underlying relationships between assets. The problem worsens as the ratio of p/n increases, making it harder to estimate the covariance matrix accurately. 2. Shrinkage Estimator: The authors propose a "shrinkage" method to improve the estimation of the covariance matrix. The idea is to combine the sample covariance matrix with a well-structured target matrix. By introducing a shrinkage factor, the estimator is a weighted average of the sample covariance matrix and the target matrix. The shrinkage reduces the impact of sampling noise while retaining essential information about asset relationships. 3. Optimal Shrinkage: The authors derive an optimal shrinkage coefficient that balances bias and variance. This is done using a rigorous statistical framework, minimizing the mean-squared error of the estimator. 4. Benefits: The shrinkage estimator improves out-of-sample performance in portfolio optimization by providing more stable and reliable covariance matrix estimates. It helps prevent the overfitting problem associated with using the raw sample covariance matrix, leading to better risk-adjusted returns. 5. Applications: This approach is widely applicable in portfolio construction, and optimization. It is particularly valuable in high-dimensional settings where the number of assets exceeds or is close to the number of observations. In essence, the paper offers a practical and theoretically sound solution to the problem of noisy covariance matrix estimates in portfolio optimization by "shrinking" the sample covariance matrix toward a more stable and robust estimator. I've attached a comprehensive research paper. I highly recommend reading it for anyone interested in portfolio optimization. #covariance #portfolio #optmization #shrinkage

Manager Selection: The Hidden Alpha Engine “It’s not just the strategy. It’s who’s driving the car.” We obsess over strategies: macro vs long/short, private equity vs credit. But in alternatives, it’s often not what you buy—it’s who you back. Top-quartile managers can outperform by thousands of basis points. And yet, due diligence often gets treated like a checkbox. I’ve seen funds with dazzling decks and nothing under the hood. And I’ve seen quieter managers with airtight process, discipline, and skin in the game deliver decade-long outperformance. Manager selection isn’t always glamorous. But it’s your real edge. Don’t chase alpha. Allocate to it. #bealternative So how do you identify the right managers—and avoid the wrong ones? Here are five actionable principles backed by Hedge Fund Due Diligence, Due Diligence and Risk Assessment of an Alternative Investment Fund, and Private Equity Compliance: 1. Prioritize Behavioral Red Flags Over Marketing Shine Most blowups stem from behavioral warning signs—not poor returns. – Be alert to evasive answers, overpromising, and CV inconsistencies. – If the manager can’t clearly explain their worst drawdown, walk away. Operational risk often wears a smile. 2. Use a Layered Due Diligence Framework – Investment: strategy clarity, mandate discipline, leverage use. – Operational: NAV policies, service providers, valuation controls. – Manager: track record, co-investment, legal history. A strong fund passes all three layers—not just the first. 3. Move Beyond the Checklist Mentality – Ask how—not just what. – Request audit letters, compliance manuals, fund org charts. – Evaluate how quickly and how clearly information is shared. It’s not what’s disclosed. It’s how it’s delivered. 4. Re-underwrite Annually—Not Just at Allocation Diligence doesn’t stop once the subscription agreement is signed. – Monitor for style drift, team turnover, and audit delays. – Build an annual risk scorecard: manager alignment, NAV consistency, valuation transparency. Great managers stay great when they’re held accountable. 5. Investigate the “Why” Behind the Performance Outperformance isn’t always repeatable—but process is. – Ask: “What edge do you believe is durable?” – Review decision-making consistency, not just returns. – Confirm fee alignment, risk-adjusted mindset, and long-term incentive structure. Strong governance and repeatable process beat personality and narrative—every time. Alpha doesn’t live in the deck. It lives in the decisions behind it. What’s your non-negotiable when assessing a manager beyond performance? #bealternative

With public equity and fixed income markets in turmoil in recent weeks the traditional 60:40 portfolio model has again been challenged. There's little doubt uncertainty will pervade these markets for the foreseeable future. Therefore it is timely to release further research on the beneficial portfolio characteristics of private market assets. In this paper "Optimising private market asset allocations" we examine the integration of this asset class within traditional asset allocation strategies to  assess performance impacts across investor risk profiles. We believe that including private market assets can significantly enhance portfolio returns for investors who adopt a risk-based utility-maximising strategy in portfolio construction. Additionally, we find that unlisted infrastructure has the most potential of the private market assets considered to improve portfolio Sharpe ratios, especially for ‘Defensive’ and ‘Balanced’ investors. Our research applies a utility maximisation framework which facilitates risk appetite aware optimisation to tailor portfolios to match specific investor risk preferences and lifecycle stages. A novel two-stage returns unsmoothing approach is used to more accurately estimate true private market return volatility. We show that even after returns unsmoothing, private markets can significantly enhance portfolio outcomes. This study finds that defensive investors benefit from allocations  to infrastructure and private credit, achieving lower volatility and higher returns. Balanced investors see similar advantages with  a stable allocation to infrastructure, while growth investors lean towards private equity for higher risk-reward profiles. This analysis adds further weight to our assertion that private market assets have a material role to play in optimising investor portfolios. With IFM Investors Economics & research Frans van den Bogaerde, CFA and Christopher Skondreas #investment #assetallocation #risk #privatemarkets #portfolioconstruction

“Put all your eggs in one basket – and watch that basket.” 👀 🥚 This is what Stanley Druckenmiller, billionaire hedge fund manager and erstwhile protégé of George Soros, famously told investors. 🤷♂️ Of course, staking the family farm on one position, no matter how convinced you are of the logic, is not for everyone – nor would I recommend it. Druckenmiller’s example is an extreme one, but it does serve to illustrate the upside potential from following your convictions and running a concentrated portfolio. The problem is that most so-called 'active' managers are way over diversified. 🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚🥚 Data from Value Research Online shows that large-cap US mutual funds, on average, hold around 38 shares, mid-cap funds around 50 and balanced funds (65-70% of their assets in equity) around 52. Note that they are all way beyond the range established by widely accepted academic research. This sets these funds up for a mediocre performance at best – and that’s even before fees are taken into account! Why do most fund managers overdiversify? Career risk: As John Maynard Keynes observed, "It is always more comfortable to fail conventionally than to succeed unconventionally". Managers that go against the herd risk exposing themselves to significant career risk if they move away from a benchmark. Asset-gatherer mentality: Most large asset managers prioritise maximising the amount of assets under management (AUM) rather than performance. This is because fee structures are generally structured around a percentage of AUM. Investors hate performance fees! Regulation: There is significant regulatory pressure on asset managers in Europe and the US to diversify to reduce risk. Examples include the Prudent Person rule in the US and the 50/10/40 rule for European UCITS funds. This is unfortunate, as managers with a high active share (and, as a result, a concentrated stock portfolio) tend to outperform their benchmarks when this is combined with a low portfolio turnover (holding period of around two years or more). Why concentrated portfolios can outperform: High conviction: Concentrated portfolios are the result of high conviction on the part of the fund manager. High conviction is achieved through knowing enough about a particular investment to feel comfortable about the idiosyncratic risks involved and how the position relates to the rest of the portfolio. Informational edge: Concentrating on a smaller number of positions enables a fund manager to allocate more resources to researching and understanding those investments. Long-term focus: Active managers by definition believe that the market is inefficient and therefore they must be able to stomach periods where their strategy underperforms. Real long-term outperformance requires real conviction, which in turn leads to a concentrated portfolio strategy. This runs against the grain when it comes to the prevailing culture within most asset management firms.

Navigating Acquisitions: Key Considerations for Software #Startups 🚀💼 Thinking about selling your software #startup? The decision to pursue a merger or acquisition (M&A) is a pivotal moment that requires careful planning and strategic alignment. Based on insights from Volaris Group's The Ultimate Guide to Selling Your Software Company (2025), here are key factors startups should consider when approaching an acquisition: (1) Merger vs. Acquisition: Decide whether a merger (integrating with a complementary business) or an acquisition (operating standalone or absorbed) aligns with your goals. For instance, mergers suit smaller startups seeking access to larger customer bases, while acquisitions are ideal for market leaders with strong brand recognition. (2) Customer Impact: Choose an acquirer committed to maintaining your product and service quality. Ask: Will they invest in your software, or force customers to migrate? Will support remain consistent? Prioritizing customer trust ensures your legacy endures. (3) Employee Development: A great acquirer invests in your team’s growth. Look for buyers with a culture of collaboration, clear talent management strategies, and opportunities for professional development to secure your employees’ future. (4) Strategic Fit and Values: Align with an acquirer whose values and growth strategies match yours. Investigate their track record—do they foster long-term growth through R&D investment, or focus on short-term gains? A shared vision is critical for success. (5) Avoid Common Pitfalls: Don’t wait too long to sell, as market conditions can shift. Ensure transparency during due diligence and prioritize deal structure over price alone—earnouts and contingencies can impact your outcome. (6) Prepare Thoroughly: Build a strong M&A team (CEO, CFO, CTO, legal counsel) and create a comprehensive Information Memorandum to showcase your company’s value. Address technical debt and refine your growth story to boost valuation.

𝐒𝐞𝐚𝐬𝐨𝐧 𝟑: 𝐋𝐞𝐚𝐝𝐞𝐫𝐋𝐞𝐧𝐬 訾源 𝐙𝐢 𝐘𝐮𝐚𝐧: 𝐑𝐞𝐬𝐢𝐥𝐢𝐞𝐧𝐜𝐞, 𝐑𝐢𝐬𝐤, 𝐚𝐧𝐝 𝐑𝐚𝐢𝐬𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐢𝐧 𝐂𝐡𝐢𝐧𝐚’𝐬 𝐇𝐞𝐝𝐠𝐞 𝐅𝐮𝐧𝐝 𝐌𝐚𝐫𝐤𝐞𝐭 🔥 Partner & Chief Operating Officer, Golden Nest Capital Management 🔥 Former Local Product Head, UBS Wealth Management China 🔥 Ex-GLG Partners London | Analyst, Multi-Manager Investments 🔥 Secretary General, CHINESE OVERSEAS PRIVATE FUNDS ASSOCIATION 中资海外私募基金协会 (COPFA) From London’s hedge fund streets to navigating the depths of China’s capital markets, Yuan ZI’s career bridges global experience with local execution. As COO of Golden Nest Capital, a Shanghai-Hong Kong based hedge fund focused on Greater China equity long/short, he leads operations, risk, and fundraising in one of the world’s most complex investment environments. I had the privilege to speak with Zi Yuan — and what a conversation! We spoke about: ➡️ Early inspiration at LSE — Founding the LSE Hedge Fund Society and being mentored by leaders at GLG, Blackstone, and Brevan Howard. ➡️ Transition from UBS to Golden Nest — Why he moved from private banking back into hedge funds at the market peak in 2021—and what makes Golden Nest different. ➡️ True hedge fund DNA — How the firm embeds risk management at its core, targeting low volatility and drawdown with real downside capture discipline. ➡️ Investor trust and transparency — Why consistency, clear communication, and local insight matter more than performance alone. ➡️ Fundraising in a post-COVID China — Building relationships with allocators in Europe, the Middle East, and Asia during geopolitical uncertainty. ➡️ Navigating policy risk — Turning China’s evolving regulatory landscape into a source of edge, not fear. ➡️ Advice to fund managers today — Know your edge, align with LPs, and remember: trust is built over years, not quarters. 🎯 “We're not selling products. We’re building partnerships.” 🎯 “In hedge funds, risk is not a report—it’s a culture.” 🎯 “慎终如始，则无败绩 — Be as cautious at the end as at the beginning, and you will avoid defeat.” Mike Sim Follow me for more conversations with the people shaping alternative investments across Asia. #whatinspireme #fundmanagement #hedgefunds #chinainvesting #leaderlens

The current hedge fund economic model hasn't really changed the way many other industries have. It is still largely a cottage industry model where each fund manager has to do everything, with most of these activities providing no edge. We see the future as efficient, knowledgeable infrastructure hubs linked to a constellation of specialized trading groups and emerging managers that can really focus on their strengths. This will create better outcomes for the managers. And it also creates better outcomes for investors for a couple of reasons. Firstly they avoid the time and costs of operational due diligence every time they find a new manager. Manager fee structures can reduce the management fee component as their operating costs are far lower. And this approach will allow more new and potentially value-creating managers to get started, giving investors a broader set of investment opportunities. In this respect, Noviscient has its own investment solutions focused on alpha, while the fundbox.ai solution is starting to build that constellation of global emerging managers connected to our fund management infrastructure hub. P.S. Join over 3k hedge fund professionals who read my newsletter every week. https://lnkd.in/gHC5ASV4