The Benefits for a Quant Portfolio Manager of Joining a Seeding Platform

The Seeding Platform is a business partnership where a portfolio manager can set up their own brand, run their own strategies and hire their own team, keeping a significant portion of the profits, in exchange for the "platform" keeping a cut in return for providing startup capital and a varying array of support functions.

If you have decided that you want to partner with this style of investor (See my previous article explaining the different styles of platforms) then you do gain a large number of benefits. The most tangible benefits are:

Technology Infrastructure

The technological infrastructure required to run quant trading strategies is a high barrier to entry for most to clear. Systems ranging from Research Ecosystems and Back-Testing/Simulation environments to Portfolio Management, Order Routing and Execution are just some of the things that a Portfolio Manager is able to actively make use of from day one. Not only does this mean you don't have to build everything yourself, but you can also focus on what is most important: research/implementation.

Not all platforms have a full front to back high-spec tech infrastructure that you can plug into; with some partners there may still be a need to build customised systems to your individual needs - that said, any battle-tested infra that can be utilised and saves on your build time is advantageous, not to mention having a central support team for said infra that is responsible for maintenance and testing is a blessing in itself.

Instant Access to Lots of Data

With access to data becoming a defining feature in a quant fund's success, we’re seeing a growing divide between bigger and smaller firms based on their ability to acquire ever-increasing data sets. (For more on this, see my previous article about the alternative data takeover in quant)

Before big and alternative data became as fundamentally important as it now has, it was a simpler proposition to set up a fund by yourself. These days, it’s next to impossible for ambitious portfolio managers to set up their own shop from scratch: the access to huge volumes of data (reference, market and alternative) is a large barrier to entry. Different platforms will of course have differing levels of previously acquired data and relationships with vendors and pipes from alternative sources. However, what the vast majority offer is fast access to far more data than you could get individually, and, at a cost point to your new business that is vastly reduced than if you acquired yourself.

Back/Middle office support

Working out of a platform means that you share back-office resources such as HR, accounts, regulation and compliance with other partners on the platform. This allows a portfolio manager working on a new business to focus on the strategy without needing to also invest valuable time in building a back-office from scratch.

Ability to Diversify

Once up and running, determining what further mix of strategies you'll implement can be more compelling than remaining siloed in one strategy. For managers looking to trade different markets or products, this can be a good route - Usually, there is clear capital allocated to a plan, determined by your career track. That said, once you've built your track with the seeder, there's usually good scope to spend more time researching new ideas and diversifying your business - this timeline is often built into your plan in terms of stages of growth.

Access to Further Capital

Raising assets can always be challenging, especially when what you have is not proven at scale. One of the main advantages of partnering with a Seeding Platform is that further capital can be relatively easy to source for managers whose track is positive and have the ability to scale. Most commonly during your initial lock-up period (and afterwards), you'll be using further capital from your original allocator - but following that lockup, there's often the opportunity to raise further external, at which point you get to make use of the platforms connections and marketing team to do so.

Investing Support & Guidance

Many of these businesses also offer high-level support in the form of advice and business strategy from highly experienced managers and investors. Depending on the firm and set up this does vary, but more broadly this is a big advantage for those embarking on their first venture.

IP Retention

A very attractive element of the majority of seeding platforms is that you will, in most cases, retain ownership of IP (either fully or co-owned).

No Netting Risk

As an employee in a firm, regardless of your own success, you remain at the mercy of netting risk, i.e. potential losses of others. If you’re creating and managing your own fund through a seeding platform, you of course have to wear any losses, but you also get the maximum benefit of the wins - without it being reduced by the losses of others in sister trading groups.

Compensation for Loss of Earnings

Yes, initial ticket size is important - Especially when coupled with drawdown limits and access to further capital, but one of the other key benefits Seeding Platforms offer is softening sit out periods for Managers on non-competes. This is not just salary either - some platforms will fund loss of full-year compensation while out of the game and during an initial build/research time prior to live trading. Depending on how established the platform is, and how uncorrelated a new portfolio manager's strategies are, this can be a significant amount of money.

De-risked early phase

In practice, all of these benefits together represent a hugely de-risked opportunity for portfolio managers to start their own brand vs entirely off their own back. Operating in this environment carries most of the benefits of starting out on your own, but with significant infrastructure to optimize for success, de-risking those early stages with financial and business support. The arrangement can then be re-negotiated in 3-5 years, giving the manager freedom to renegotiate, take the business elsewhere or strike out fully on their own.

Seeding Platforms only work with portfolio managers with a significant positive track record, usually with at least 3 years trailing and there’s a lot of competition to sign with the top platforms that offer the most in terms of strategic and operational support.

While joining this kind of set-up may come at the cost of the camaraderie (and safety) of being an employee and working within a broader team, for the entrepreneurially minded portfolio manager looking for more, the thrill of striking out solo can be the greater pull.

If you’re interested to learn more about what it takes to join a seeding platform, get in touch with us at [email protected]