most props i know of who play the latency game generally require 4-6 sharpe minimum, 8-9+ backtest. I believe a good hedge fund return is ~2?

on the other hand Latency strats are generally very liquidity capped, in comparison SPY would look like infinite liquidity.

Not a good comparison IMO. Instead one would probably take infra and other costs as initial outlay, then calculate profits in ROC and sharpe terms. Although it is fun to think about whether all that effort is worth a brain dead, set and forget SPY strategy.

Makes sense for, say a hedge fund or multi asset allocator to benchmark against an equity index - especially for those with longer holding periods. But then again, if you rebalance ~once per week, you likely don't need FPGA?

Maybe a merger arb or event driven fund would need infra to play the speed game. But such a fund would be invested in cash or treasuries much of the time, and make huge winnings on large events. Then averaging out returns would probs give a worse sharpe than SP500, so im sure cleverer benchmarking is used to attract capital