Will England, Derek Drummond, and Tony Caruso – Disintermediating Pod Shops (EP.501)

Episode Summary

Executive Summary: The episode explores DocSide, a joint venture between Walleye Capital and institutional allocators SWIB and UTIMCO, that uses managed accounts to give asset owners direct access to single-PM hedge fund talent with full transparency, capital efficiency, and Walleye’s infrastructure. The guests argue the model improves manager selection, risk control, cost efficiency, and alignment, while creating a win-win for managers, allocators, and the platform.

Main Topics: Origin and structure of DocSide (Priority: 5/5): The platform began as a 2022 brainstorm between Walleye, SWIB, and UTIMCO, evolving into a separate managed-account business that uses Walleye’s infrastructure to run fund-of-one style accounts for institutional allocators. Why managed accounts work better for allocators (Priority: 5/5): Guests emphasize transparency, lower costs, better cash efficiency, flexibility, and the ability to access talent that may not fit multi-manager pods or traditional hedge fund structures. Manager sourcing and selection (Priority: 5/5): Instead of fighting for capacity at closed blue-chip funds, DocSide sources emerging and spinning-out PMs who want independence, differentiated capital bases, or a path to start their own businesses. Risk management, hedging, and transparency (Priority: 5/5): The platform’s daily trade visibility, factor models, dynamic hedging, and explicit risk boxes allow allocators to understand behavior, manage drawdowns, and cut left-tail risk faster. Portfolio construction and capital allocation (Priority: 4/5): The guests discuss how to allocate across a relatively small number of managers, whether DocSide is a standalone line item or a tool within a broader hedge fund portfolio, and how allocations can scale with confidence. Economics, fees, and board reporting (Priority: 4/5): DocSide can reduce total portfolio cost versus pass-through multi-manager funds by lowering fee layers and borrowing costs, with clear, board-friendly math around savings and leverage. Culture, relationships, and exits (Priority: 3/5): The conversation highlights long-term relationships, clear rules of the road, and adult exit conversations when managers move outside agreed risk bounds.

Key Arguments: DocSide provides institutional allocators direct access to single-PM talent with the infrastructure, financing, and risk systems of a scaled multi-manager hedge fund. Managed accounts are more transparent than commingled funds because allocators can see trade-level behavior, daily portfolio evolution, and intra-month volatility. The structure improves manager due diligence by combining daily returns, lagged snapshots, references, and portfolio attribution into a faster but still rigorous process. Capital efficiency is central: allocators can use unencumbered cash, run leverage more deliberately, and lower portfolio financing costs. The platform reduces the stigma historically attached to managed accounts by attracting experienced PMs who are choosing entrepreneurship rather than seeking a last-resort capital source. Risk controls are explicit and customizable: net exposure, GMV, concentration, drawdown, style-factor constraints, and hedges are agreed up front. DocSide is not meant to replace multi-manager hedge funds but to complement them by accessing talent that would otherwise be unavailable or structurally misfit for a pod platform. A smaller number of carefully selected managers can be monitored more deeply, allowing faster decisions without sacrificing diligence. The model benefits managers too: they can launch with meaningful capital from sophisticated long-term owners and avoid chasing many small clients. As the platform scales, it can generate economy-of-scale benefits in financing, execution, and access, improving economics for all parties.

Data Points: Walleye Capital AUM: $12 billion - Will England described Walleye as a $12 billion multi-strategy hedge fund. State of Wisconsin Investment Board internal/external split: ~50/50 - Derek said SWIB runs about half of assets internally and half externally. UTIMCO endowment size: $88 billion - Tony described UTIMCO as an $88 billion endowment serving 22 institutions. UTIMCO hedge fund portfolio size: ~$11 billion - Tony said he manages the zero-beta hedge fund portfolio of roughly $11 billion. DocSide GMV: ~$7 billion - Tony said the platform is currently around $7 billion of GMV in his usage. Number of DocSide managers: 60+ - The conversation states the platform now has more than 60 managers. Average hedge fund relationship length: 10+ years - Tony and Derek emphasized long-term relationships with PMs. Typical hedge fund portfolio write-up: 40+ pages - Tony compared their normal hedge fund diligence memo length to DocSide. Typical hedge fund diligence timeline: ~3 months - Tony said a traditional hedge fund deal takes about three months. DocSide diligence timeline: 3-4 weeks - Tony said DocSide can move much faster for a manager they like. Typical DocSide write-up: 10-15 pages - Tony contrasted this with the longer traditional hedge fund memo. Platform relationship turnover: 1-2 times per year - Tony said there is turnover about once or twice a year during volatile periods. Expected PM Sharpe at multi-manager platforms: 0.7-0.8 gross Sharpe - Tony referenced expected gross Sharpe for individual PMs at platforms like Citadel. Example portfolio Sharpe: 2.5+ overall portfolio Sharpe - Tony said the overall portfolio can reach 2.5+ even if individual PMs are lower Sharpe. Risk budget / leverage savings: Tens of millions of dollars per year - Derek said the cost savings to SWIB are tens of millions annually. Borrowing cost reference: Fed funds + 20 bps - Tony cited the cheap financing cost available to the overall plans. Portfolio manager count goal: 20-30 PMs - The platform is intentionally kept manageable rather than scaling to hundreds of PMs.

Pivotal Quotes: "You learn more about a manager three days on DocSide than three years if you invested in a fund." — Ted Sides (introductory framing): Used to explain why trade-level transparency and live observation matter more than periodic snapshots. "We're in the business of buying serial good decision makers." — Ted Sides (introductory framing): Describes the investing philosophy behind manager selection and why observing decisions in real time is valuable. "This is one of those few businesses where everyone wins." — Will England: Summarizes the joint-venture economics and why the platform aligns managers, allocators, and Walleye.

Implications: DocSide suggests institutional investors may increasingly bypass closed multi-manager structures to access PM talent directly, with better transparency, lower costs, and more control. The model could reshape hedge fund distribution, manager launching, and allocator risk management.