Good morning! Another Monday. You know the ask, so I will to not repeat it this time. This is what keeps me writing this every week.

We are one week out from TOKEN2049 week, and I can feel the excitement building in my inbox. I can also feel something else, which I want to say out loud because I do not think many people are thinking forward on it.

Five days of this hits genuinely hard on a person attending it.

I am at a point in my life where my health is in good shape, and I have become very aware of what a conference week actually does to that. Unconsistent, bad food at odd hours. Drinking every evening because every conversation happens with a glass in someone's hand. Four hours of sleep, five days running. I have done enough of these now to know e x a c t l y how it ends.

You spend a month eating clean and training every day, and then you flush the whole thing down the toilet in a week in Singapore. (I have done this. More than once. I generally can accept sacrificing myself for the business, but not going to lie - I would like to stop doing this at this stage in my life.)

So I am going in deliberately this year - limiting alcohol as much as I can manage, and trying to reduce the damage over pretending there is none.

Whoever is going: you are making a trade with your body and concsiousness that week. I am not telling you not to make it. I am telling you to make it consciously, the same way you would size anything else. Know what you are paying and decide it is worth the price.

Right. Okay. Back to the mrkets.

Bitcoin is sitting near $86,000, having broken through a multi-week ceiling around $82,000. The tape is (more) alive than what feels like “ever”.
Volatility is back after a long, grinding chop. Happy days. On paper, at least.

So I spent this week on calls with quants.space allocators who asked me a very simple question: who is actually performing? They wanted to know if they had missed something.

The honest answer is that almost nothing changed. And in several cases, the volatility made teams trade worse than they were during the chop.

The stat arb books are not working despite being the-most-chased strategy class.
I genuinely expected them to behave properly. I wanted them to, because those teams have been patient for a long time and they deserve a decent stretch. It has not arrived.

So something remains structurally broken in this market, and it is preventing sustainable capture of the alphas that should be there.

Here is the mechanism, as best I can reconstruct it.

Not all volatility is tradeable volatility.

Stat arb needs dispersion with stable relationships underneath it. The pairs have to keep meaning what they meant last month and quarter. What we actually got this quarter was liquidation-driven volatility. Cascades of forced unwinds, short squeezes, positioning flushes. In early September alone we watched roughly $369M of longs get wiped in one direction and then more than $440M of shorts get wiped in the other, inside ten days.

That kind of movement does not stretch correlations but breaks them. Everything moves together, discontinuously, for reasons that have nothing to do with relative value. It is the single worst environment for mean reversion, and it looks identical to opportunity on a volatility chart.

Which is why an allocator reading "volatility is back" and expecting their market-neutral book to wake up is going to be disappointed, and will not understand why.

The one category that finally got its month is momentum. After eight months of chop, we got some one-sided movement and the trend books printed.

Here is what I suspect is happening in a lot of those momentum shops right now, and I say this with some sympathy: there is a strong temptation to message every allocator who left you in choppy markets due to negative returns and say “look what you just missed.”

Do not send that message.

I am fairly confident that if you chopped for six to eight months, you already lost most of those clients. They did not leave because they were impatient. They left because they waited a long time and nothing happened, and at some point that becomes a rational decision rather than an emotional one.

I have written this before and it has not become less true: if you lose an allocator, the chance of getting them back short term is essentially round zero. One green month does not reverse that. It just makes the loss more painful for everybody.

And there is a harder structural problem sitting underneath it. Momentum is currently the least-wanted category in this market. Not because it is bad - because allocators have worked out that momentum books are all effectively the same trade. Whichever trend manager you pick, you are buying substantially the same exposure. So you want one, maybe two, and then you are full.

What the market actually wants right now is anything that prints sustainably. Even 1%. Even 2%. The bid is for certainty, not for size of return. Capital in this regime is paying a premium to avoid uncertainty and to avoid waiting, and it will take a boring 1.5% a month over a slumpy 4% without hesitating.

If your pitch is "we're volatile but the good months are excellent," you are selling to the last true bull market (Idk if we ever see that again tbf), and that almost feels like it happened a decade ago.

Which brings me to the conversation I have been having all week, about how people actually allocate to SMA teams.

First thing to understand: there is no such thing as a typical allocator. They do not think alike, at all. Some hop on a call, get their feet wet with $50K, set the account up the same day and move on with their lives. Others take six weeks to answer an email.

I mentioned a while ago that the fastest I have ever seen was one hour - introduction to keys on a test account inside sixty minutes. And btw - that account is still trading today, roughly eight months later. The speed was not recklessness. The sale was simply already done before anyone got on the call.

So here is how I would personally do it now, with an experience behind me. I will say up front that this is unusual, and on a formal institutional level it is arguably just not the way things are done.

My first screen would be communication.

In today's market I can tell within five to ten minutes whether a team would survive the due diligence of an allocator writing a $5M-plus check. It comes through in how the data is presented, what the fact sheet looks like, and mostly in how they talk - how they handle a question they do not like, how precise they are about what they do not know. It separates people faster than any number on a tearsheet.

If a team clears that, I would write them a small ticket on day one. $50K, no extended process, with an honest promise that it scales quickly if it works. This check is just to start gathering live data as soon as possible.

And then I would start the deep diligence - while the account is already live.

The logic is straightforward once you say it out loud. At $50K I have almost no risk on the table, which means I now have all the time in the world. And crucially, I am no longer diligencing a document. I am comparing live behaviour against the claims, month after month, which is the only version of diligence that has ever told me anything real.

I would run about five of these at once and let the rest of the field go.

Because what you are really trying to learn is how these people behave when things go badly - and no data room on earth will tell you that. A live account and communication will tell you everything you need to know.

The deeper reason I would work this way is the one I have been circling all edition: alpha changes constantly. To stay synced with this market you have to act fast. A diligence process that takes six months to complete is, whether you intend it or not, a bet that the edge will still be there at the end of it. In this market that bet is losing more often than it wins.

An allocator asked me this directly this week, and I want to close on it because I do not have a clean answer and I would rather say that than pretend.

The allocator only wants to allocate to teams with sustainable alpha. Reasonable. But look honestly at the tearsheets across this year and, for the most part, the alpha has not been sustainable. Some teams have held on to some of it. Even there, the alpha itself has changed shape underneath them.

My working view is that most genuinely sustainable alpha is simply not available to the public.

And I want to be precise about why, because the usual explanation - that prop traders are smarter… is lazy and wrong. The real reason is here:

A quant at a serious shop is on something like $200–300K of base with a PnL cut on top. Around him sits a firm paying for the data, the risk system, the best-in-class execution infrastructure, the research stack and the overhead. At the pod shops, that entire cost base is a pass-through expense billed to the investors. His infrastructure is someone else's line item.

The SMA manager pays for all of it himself, out of fee revenue he has not raised yet, while also doing his own investor relations, compliance, onboarding, reporting and fundraising and so much more.

Same intelligence. Completely different cost structure. And sustaining alpha is overwhelmingly an infrastructure and research-throughput problem, which means it is a funding problem before it is a talent problem.

So the SMA universe ends up, structurally, working the leftovers - what is left on the table by the people with unlimited capital, unlimited research capacity, and the best infrastructure on earth. That is not an insult to SMA teams. It is a description of the playground they are playing on.

Do I think sustainable alpha exists in the SMA world? There is evidence both ways and I am genuinely unsure.

What I will say plainly is this: the probability of alpha staying alive for a long time is materially higher in the proprietary universe than in the SMA universe. I would like to be argued out of that. Reply to this email if you can.

If you are going to Singapore, come and find us - and if you are an allocator or a team who wants to be in the right rooms that week, say so now rather than on the day. [email protected]

And the referral offer stands, as always. If you know someone genuinely worth an introduction, make it and we will pay you for it.

Stay honest. Stay true to yourself. Stay in the game long enough.

Stay patient. Stay honest. Stay alive.

See you next week.

Quants.Space is an institutional discovery engine for systematic and discretionary trading strategies — 130+ independent, world-class quantitative and discretionary trading teams, each with vetted track records and unique alpha sources, plus a dedicated Emerging Managers sector for early-stage teams. Our mission is simple: connect institutional capital and allocators directly with best-in-class teams, all within a secure Separately Managed Account (SMA) framework. If you're an allocator active in the SMA space, or a team opening SMA capacity for institutional tickets, get in touch at [email protected].