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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: On the latest Masters in Business podcast, I sit down

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Speaker 2: with Paul Zumo. He's chief investment officer at JP Morgan's

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Speaker 2: alternative Asset Management. He co founded this group back in

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Speaker 2: nineteen ninety four with essentially pocket change. It now runs

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Speaker 2: over thirty five billion dollars in assets for institutions and

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Speaker 2: high net worth investors at JP Morgan. Really just a

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Speaker 2: fascinating concept of everything about how to stand up a

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Speaker 2: division within a large company, how to think about alternatives,

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Speaker 2: how to recognize when an industry may be average, but

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Speaker 2: the best players in that industry generate significant alpha. I

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Speaker 2: thought this was fascinating, and I think you will also

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Speaker 2: with no further ado, JP Morgan's Paul Zumo, Paul Zumo,

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Speaker 2: Welcome to Bloomberg.

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Speaker 3: Thanks for having me. Great to be here.

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Speaker 2: I'm so excited about this because I just fell in

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Speaker 2: love with your thirty pearls of wisdom. We'll get to

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Speaker 2: that later. Let's start with your background. Sure, bachelors from

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Speaker 2: Sunny Albany and then an MBA from New York University.

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Speaker 4: What was the original career plan.

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Speaker 3: Sure.

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Speaker 5: So yeah, when I was young, I was always into

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Speaker 5: always into investments, or at least intrigued by investments, but

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Speaker 5: also into technology as well, like arguably to the extent

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Speaker 5: we have a gift in life. It was probably technology,

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Speaker 5: but the technology was so early stage I didn't exactly

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Speaker 5: know what it was.

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Speaker 3: So I wound up.

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Speaker 5: I wound up pursuing obviously the investments side, but kind

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Speaker 5: of use that technology from time to time, especially as

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Speaker 5: we were.

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Speaker 3: Building a group.

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Speaker 5: But originally I really wanted to get into equity research,

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Speaker 5: and not that I knew exactly what it was, but

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Speaker 5: it was the most like tangible and aligned with who

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Speaker 5: I am in terms of, you know, problem solving and

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Speaker 5: analytics and things like that, and wound up instead falling

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Speaker 5: into the hedge fund.

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Speaker 3: World and doing what I do today's hedge fund.

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Speaker 5: Solutions, which actually has a lot of elements in a

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Speaker 5: sense of what equity research is. Again, you know, your

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Speaker 5: your problem solving at its core and doing analytical work.

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Speaker 2: You get the Chartered Financial Analyst designation and you start

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Speaker 2: at Chase as an analyst.

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Speaker 4: What sort of work were you doing there?

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Speaker 3: Yeah? Sot.

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Speaker 5: Out of school, I was in a pension Fune consulting group.

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Speaker 5: And so really what you're doing is a couple of things.

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Speaker 5: I mean, one performance measurement across client accounts and you

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Speaker 5: know also you're doing some some research stock rather manager

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Speaker 5: selection on a traditional side. But I think what was

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Speaker 5: hopeful about it is it kind of gave you a

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Speaker 5: really good purview of all different asset classes and all

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Speaker 5: different styles of management. And I remember in an early

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Speaker 5: days really appreciating like this the importance of stylistic differences.

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Speaker 3: And equities as an example.

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Speaker 5: This was again early days, but like recognizing you know,

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Speaker 5: small cup world versus small cup value and a drastic differences.

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Speaker 5: But it really it really just set the stage to

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Speaker 5: understand the industry and styles and types and approaches at

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Speaker 5: at a much deeper level.

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Speaker 2: So you were a manager of retirement plans at the

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Speaker 2: inter Public Group. Tell us a little bit about that.

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Speaker 5: Yeah, So after Chase, I spent about two years at

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Speaker 5: Chase and then went to the Anti Public Group. So

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Speaker 5: this is a plan sponsor and maybe a somewhat unusual

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Speaker 5: move at that stage in my career. And what attracted

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Speaker 5: me to it was they were at a point where

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Speaker 5: they were so again this is an advertising agency. But

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Speaker 5: I worked in the Pension Funk Group and they were

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Speaker 5: they were looking to revise their asset a location materially,

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Speaker 5: so you know, changed the whole ass allocation, change the

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Speaker 5: manager lineup, and importantly they didn't have a consultant, so

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Speaker 5: they were doing an in house So they were affording me,

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Speaker 5: i mean, not solely, but awarding me a lot of

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Speaker 5: responsibility to help restructure the whole plan terminate managers, on

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Speaker 5: board managers. What year was that, So I was nineteen

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Speaker 5: ninety two to nineteen ninety four, and interesting, I'm curious

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Speaker 5: what led them to say, hey, we're just gonna well

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Speaker 5: that was over, yeah, I mean that was before I mean,

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Speaker 5: that was the kind of a decision I had already

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Speaker 5: been made, you know, and they were changing, you know again,

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Speaker 5: changing their rest location and looking at the whole manager holistically.

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Speaker 5: And interestingly, that's when I first got involved in hedge funds,

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Speaker 5: or at least first med hedge funds. So this is again,

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Speaker 5: you know, early days, right nineteen nineteen ninety everybody was

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Speaker 5: producing back then, right well then, yeah, I mean then

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Speaker 5: it was, that's true, but it was so unknown, you know.

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Speaker 5: So I met with a number of kind of market

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Speaker 5: neutral equity managers, a couple of long short matages, and

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Speaker 5: then importantly David Askin so if you know, David asking

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Speaker 5: for those that don't know, was one of the really

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Speaker 5: the first hedge fund for lack of a better word

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Speaker 5: blow ups where it was a mortgage backed derivative manager

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Speaker 5: and you know, obviously a quirky ish market and and

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Speaker 5: and wound up having significant problems. So it was you know,

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Speaker 5: we did not invest with them, but it was really

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Speaker 5: a very you know, valuable early kind of lesson from

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Speaker 5: a due diligence standpoint that you know, obviously we didn't

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Speaker 5: pay for us all all the better, but it really,

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Speaker 5: like i know, maybe tells you two things. I mean, one,

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Speaker 5: if you don't completely understand something, and admittedly at age

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Speaker 5: twenty four I didn't at the time, then you know,

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Speaker 5: still way don't put money there, and then just have

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Speaker 5: the courage to say to say no, you know, there's

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Speaker 5: there's a lot of choices out there and you need

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Speaker 5: to be disciplined and walk away.

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Speaker 3: But we did invest in an equi market neutral fund

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Speaker 3: and again that was nineteen ninety three.

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Speaker 2: So that's the initial exposure to hedge funds. How did

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Speaker 2: you go from there to JP Morgan. Yeah, so this

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Speaker 2: is probably another you know, never burn your bridges, which

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Speaker 2: which I'll come to.

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Speaker 5: So I had, as I mentioned, I'd worked at Chase

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Speaker 5: once before, and at the time, I was looking to

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Speaker 5: lead because once you restructure the plan, there's only so

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Speaker 5: much to do, especially when you when you're young.

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Speaker 3: So it was ready, you know, it was ready to

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Speaker 3: do something.

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Speaker 2: Do you literally put yourself out of a job through

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Speaker 2: the restructuring process.

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Speaker 5: Well, I mean I could have stayed, but then you're

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Speaker 5: just you know, you're just overseeing the investments as opposed

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Speaker 5: to active it's a little less interesting. And so any

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Speaker 5: any case, I was interviewing at a hedge fund Solutions,

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Speaker 5: a fund of funds out of Long Island, and you know,

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Speaker 5: really like the guys, a couple of great guys that

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Speaker 5: were there. But at the end of the day, I

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Speaker 5: decided I didn't want to go. You know, I didn't

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Speaker 5: want to reverse commune because I was living in a

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Speaker 5: city and when I go out to Long Island. So

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Speaker 5: I wound up not pursuing it. But the relevance of

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Speaker 5: that is that what would become my boss. Joel Katsman

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Speaker 5: was distributing that fund of funds, and he was a Chase,

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Speaker 5: So when it came time to do a reference check

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Speaker 5: on me, they asked Joel to do a reference check

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Speaker 5: with me because he was at Chase.

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Speaker 3: I used to work at Chase, and the reference.

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Speaker 5: Check I assume was good, But it turned out I

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Speaker 5: didn't pursue it any further, and Joel, who was distributing

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Speaker 5: the fund of funds at the time, got the idea of,

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Speaker 5: you know what, rather than distributing it, maybe we should

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Speaker 5: start this up anew and if you want to work

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Speaker 5: in a city, why don't you come work for me.

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Speaker 2: So you're at Chase, which even back in the early

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Speaker 2: nineties is still a very large bank. This seems very entrepreneurial,

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Speaker 2: very startup. Like, what was it like building this division

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Speaker 2: inside a giant money center bank?

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Speaker 5: Yeah, no, it was great, you know, I mean, you know,

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Speaker 5: bear in mind it was a different world back then

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Speaker 5: in many ways, not only from an investment standpoint, but

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Speaker 5: like what it takes to launch a new business. So yeah,

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Speaker 5: we launched with a whopping seven point four million dollars,

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Speaker 5: which is, you know, which is unusual at least walking

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Speaker 5: around pocket money. And I'd say, yeah, maybe a couple

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Speaker 5: of days. So like from an investment standpoint, it was

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Speaker 5: the perfect time to start. You had, you know, Orange

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Speaker 5: County issues, you had, you had rates going up, you

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Speaker 5: had well David Askin, as I mentioned before, you had dislocation,

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Speaker 5: and that created opportunities. The problem was, you know, not

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Speaker 5: many people knew about hedge funds, and I'd say three

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Speaker 5: quarters of the people that did had a negative view.

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Speaker 3: So even in the early nineties.

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Speaker 2: Because my bias is that the golden era of hedge

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Speaker 2: funds was from the early nineties right up to the

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Speaker 2: financial crisis, there's been far more challenging period post financial

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Speaker 2: crisis for alpha Generating the nineties, it seemed like everybody

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Speaker 2: was making money.

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Speaker 3: Well, so two things.

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Speaker 5: I mean, maybe we'll get to those points later about

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Speaker 5: about different different cycles. But again from an investment standpoint,

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Speaker 5: there were people were making money. There's no quot us

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Speaker 5: about I think the public's view, and partially like what

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Speaker 5: had often been written in the press was the negative

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Speaker 5: side of you know, hedgehunds going after this currency or

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Speaker 5: that currency, and I think the perception was one of

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Speaker 5: you know, I either it was negative or just a

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Speaker 5: lack of understanding. So a lot of what we did

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Speaker 5: early days was just educationally, like we would write newsletters

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Speaker 5: internally and educate people on alternatives. But eventually, you know,

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Speaker 5: eventually you put it together and performance kind of speaks

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Speaker 5: for itself, and you you know, you build it, you

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Speaker 5: build it over time. But it was great from an

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Speaker 5: entrepreneur entrepreneurial standpoint. This kind of goes back to my

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Speaker 5: tech side as well. I mean, one, building infrastructure broadly

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Speaker 5: in process, but you know, early days building technology as well,

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Speaker 5: Like there was no per track, which is something people

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Speaker 5: use like, so you know, we and I kind of

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Speaker 5: built it all, you know, so built a research database,

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Speaker 5: built a built a system to analyze returns, and yeah,

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Speaker 5: that was that was great.

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Speaker 3: It was a lot, a lot of fun.

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Speaker 2: So today it looks like the industry is much better known.

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Speaker 2: There's been a giant movement to try try and democratize

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Speaker 2: access to all sorts of alternatives, from edge funds to

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Speaker 2: private credit, private equity, real assets. What do you think

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Speaker 2: led to this massive interest in alternatives. It's not like

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Speaker 2: it's been a terrible equity market for the past fifteen years.

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Speaker 4: It's been great.

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Speaker 3: So yeah, two things.

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Speaker 5: I mean, i'd say, even let's go back early days,

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Speaker 5: like part of the vision this is really you know

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Speaker 5: Joel's vision first and foremost. That was that alternatives were

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Speaker 5: going to become mainstream, which you know, sitting back and

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Speaker 5: hedge funds, we're going to become mainstream eventually. And then

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Speaker 5: you know, back in nineteen ninety four, that was a

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Speaker 5: novel concept. You know, it was just this little thing

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Speaker 5: off to the side. And look, we've more or less

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Speaker 5: kind of arrived at that, right, So I think the

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Speaker 5: vision is true. And then the second part is, well,

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Speaker 5: why not retail investors? Right, And if you think about

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Speaker 5: twenty twenty two and you think about rising stock bond correlations,

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Speaker 5: you know there's so many investors, many of them more

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Speaker 5: retail oriented or you know, high networth oriented, that just

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Speaker 5: don't have alternatives or enough alternatives in a portfolios. So yeah,

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Speaker 5: that's led to the democratization and you know launch of

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Speaker 5: interval funds and tender off of funds, which is I

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Speaker 5: think really interesting. So it's giving those investors access to

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Speaker 5: alternatives which are really valuable.

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Speaker 3: In overall portfolio contexts.

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Speaker 5: And so it's about building yeah, I mean, yeah, just

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Speaker 5: to respond, like, sure, equity markets are going up today,

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Speaker 5: but they didn't in twenty twenty two, And I think

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Speaker 5: the takeaway is that you need to build a more

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Speaker 5: resilient portfolio rather than just look at these things in isolation.

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Speaker 2: So you start with barely seven million dollars, today you

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Speaker 2: have over thirty five billion dollars that you're directly overseeing.

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Speaker 2: JP Morgan Chase is giant with trillions of dollars. It

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Speaker 2: sounds like there's a whole lot more headroom for alternatives

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Speaker 2: at JP Morgan to continue growing.

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Speaker 4: Like where do you see this going?

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Speaker 3: Yeah?

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Speaker 5: I mean, you know, alternatives are definitely the fastest growing

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Speaker 5: or one of the fastest growing areas within and not

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Speaker 5: not just hedgehunds, but more broadly and as a tremendous

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Speaker 5: amount of support for it. So yeah, like I think,

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Speaker 5: you know, for us and for other alternatives, we're going

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Speaker 5: to you know, continue to build, continue to launch your product,

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Speaker 5: continue to you know, get get a larger reach into

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Speaker 5: you know, into other client types and and geographies.

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Speaker 3: So yeah, the future is extremely exciting.

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Speaker 2: So I mentioned earlier thirty pearls of wisdom for thirty years.

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Speaker 2: I want to dive into that in a moment. I

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Speaker 2: have to start with one quote that kind of quote

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Speaker 2: my eye and we talk about this all the time.

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Speaker 4: Culture is king.

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Speaker 2: The road to failure is paved with poor cultures. Explain

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Speaker 2: what led you to that conclusion.

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Speaker 5: Well, experience, I mean you, I don't know, I mean

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Speaker 5: hedge funts fail for and succeed for different reasons. But

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Speaker 5: culture is definitely at the heart of many of it.

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Speaker 5: And I'd say more importantly, like sometimes people ask what

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Speaker 5: are you know? What's like? What do you think about

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Speaker 5: most as your takeaway? Haven't been doing over thirty years?

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Speaker 5: Like for us, it's for me it's culture. Like the

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Speaker 5: culture that we've built as an organization has been spectacular

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Speaker 5: and clearly a differentiator.

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Speaker 2: Is that what's kept you with JP Morgan Chase for

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Speaker 2: thirty years? That's kind of rare these days most people

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Speaker 2: don't stay at one shop almost their entire career.

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Speaker 3: Yeah, it's a couple of things. I mean culture and

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Speaker 3: the team.

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Speaker 5: You know, it's like a family for sure, and we

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Speaker 5: make each other better, We challenge each other respectfully, We

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Speaker 5: really enjoy each other this company and appreciate our differences.

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Speaker 5: So yeah, that that's been that's been great. Leadership of

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Speaker 5: Jamie is unparalleled. So Jamie, Jamie diamonds. Oh, I've heard

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Speaker 5: of him. Remind me to tell you a funny story

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Speaker 5: about him later. And then lastly, like you know, the

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Speaker 5: job itself allows you obviously to meet with some of

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Speaker 5: the you know, best investment minds in the world, right,

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Speaker 5: which is just such a privilege. And then to be

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Speaker 5: able to like dig in deep on so many different

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Speaker 5: asset classes, so many different geographies you're constantly learning.

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Speaker 3: So those those three things for sure.

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Speaker 2: I mentioned you're not exactly very public facing, you're a

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Speaker 2: little below the radar, but you publish these really interesting things.

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Speaker 2: And one of my favorite pieces you wrote was thirty

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Speaker 2: Pearls of Wisdom from our last thirty years. We don't

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Speaker 2: have time to go through all thirty, but I picked

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Speaker 2: a few that they're just so simple and yet some insightful,

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Speaker 2: and we tend to overlook things like this. This one

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Speaker 2: just jumped out. Don't buy the portfolio by the process.

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Speaker 2: Stories change positions are fleeting, but a robust investment process

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Speaker 2: should endure. Like that just sums up so much in

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Speaker 2: two sentences. Tell us about that.

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Speaker 3: Yeah, No, it's definitely one of my favorites as well.

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Speaker 5: I mean, it applies to like all different types of hedgehunds,

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Speaker 5: but I'd say especially discretionary macro. Right, So you're interviewing

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Speaker 5: discretionary macro manager and the vast majority of more are

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Speaker 5: very smart, they tell a very good story, they have

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Speaker 5: great views, but it doesn't necessarily.

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Speaker 3: Mean they were a money maker, right.

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Speaker 5: And again I think sometimes people make the mistake of

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Speaker 5: agreeing with a view, agreeing with the manager, getting you know,

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Speaker 5: seduced by someone having insight. And obviously it's really important,

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Speaker 5: but again it doesn't necessarily speak to the profit. And

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Speaker 5: especially in something like discretetion y macro where it's it's

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Speaker 5: not a high sharp strategy, it tends to be more

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Speaker 5: volatile strategy. And if you don't develop that conviction, and again,

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Speaker 5: first and foremost in the process, you can get shaken

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Speaker 5: from you know, from that idea. Right, the ideas change,

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Speaker 5: the process should endure. So really really important.

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Speaker 2: For sure, have the courage to make mistakes, mitigate unnecessary risk,

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Speaker 2: but take calculated bets.

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Speaker 4: Again, two simple sentences. So much involved in that.

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Speaker 2: Yeah, I find a lot of people in our business

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Speaker 2: don't like to admit mistakes.

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Speaker 3: Yeah, I think it's.

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Speaker 5: It's it's something not the admitting mistakes so much, but

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Speaker 5: the courage to make mistakes.

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Speaker 4: When I think about the risk of calculator, but.

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Speaker 5: When I think about like things that I've done better

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Speaker 5: over the years, that is definitely one of them that

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Speaker 5: comes to mind. Where I've given myself more freedom to

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Speaker 5: to to make mistakes and to maybe size and lean

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Speaker 5: into themes or high conviction managers to a greater degree

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Speaker 5: as well, where I think, you know, maybe there's a

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Speaker 5: perfectionist in many of many of us, and sometimes the

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Speaker 5: flip side of that or the problem with that is

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Speaker 5: you're become too conservative. Right So now, yeah, if you

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Speaker 5: make a mistake, you need to figure it out quickly

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Speaker 5: and change course. But allowing yourself to maybe make mistakes

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Speaker 5: is definitely helpful.

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Speaker 2: Coming up, we continue our conversation with Paul Zumo, chief

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Speaker 2: investment Officer at JP Morgan Alternative Asset Management, discussing thirty

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Speaker 2: pearls of wisdom from our last thirty years.

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Speaker 4: I'm Barry Ritolts.

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Speaker 2: You're listening to Masters in Business on Bloomberg Radio.

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Speaker 4: I'm Barry Redults.

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Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 2: extra special guest today is Paul Zumo. He is chief

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Speaker 2: investment officer at JP Morgan Alternative Asset Manager, helping to

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Speaker 2: oversee thirty five billion dollars in external hedge fund assets.

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Speaker 2: He's also chair of the Alternative Asset Management Investment Committee.

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Speaker 2: He co founded the group back in nineteen ninety four.

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Speaker 2: I really like this. Don't be afraid to run into fires.

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Speaker 2: Some of the greatest investment opportunities and manager access are

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Speaker 2: sourced during this location.

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Speaker 4: Tell us about running into fires.

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Speaker 3: Yeah, so this, you know, is obviously really important.

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Speaker 5: Like I love behavioral issues and behavioral finance, and like

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Speaker 5: the challenges.

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Speaker 3: That come to that.

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Speaker 5: Of course, we're all wired, you know, inappropriately from an

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Speaker 5: investment standpoint, and that where you know, we wired to

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Speaker 5: avoid pain, which is why many people make the wrong

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Speaker 5: decisions during you know, periods of crisis or periods of

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Speaker 5: heightened volatility. I think some managers do a great job,

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Speaker 5: you know, I wrote it about you know, I guess

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Speaker 5: the manager had in mind was David Temper, you know,

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Speaker 5: like runs into fires all the time, you know, Yeah,

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Speaker 5: I mean it's got you know, let's so these days,

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Speaker 5: but certainly certainly over his moved.

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Speaker 4: To Florida kind of chilled out a little bit, but

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Speaker 4: he you.

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Speaker 5: Know, like he always again, having watched things play out

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Speaker 5: over thirty years, I always thought he did.

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Speaker 3: You know, he's done a really good job.

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Speaker 5: But and again, like this is something I think we've

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Speaker 5: done a better job at over time as well when

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Speaker 5: I think about, you know, the crisis is nineteen ninety eight,

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Speaker 5: two thousand and eight, twenty twenty. Like you know, as

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Speaker 5: I say, many of these things rhyme, and you've seen

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Speaker 5: it before, like you know, you know what it feels

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Speaker 5: like kind of coming out of it and going in

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Speaker 5: and if you're playing appropriate defense, like you should afford

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Speaker 5: yourself the opportunity to really lean into where you think

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Speaker 5: there is dislocation, especially a technical oriented dislocation.

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Speaker 3: So yeah, it's critically important.

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Speaker 5: Mean, that's where you make outsize returns during those inflection points.

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Speaker 2: So let's talk about outsized returns. Success can be a

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Speaker 2: dangerous achievement. Complacency distractions and misalignments can be silent killers.

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Speaker 3: Yeah, so.

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Speaker 5: I guess you could come at that one from a

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Speaker 5: couple of different ways, but one of one of which

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Speaker 5: the most important, is like when you find success, sometimes

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Speaker 5: people you know, the firm grows, the number of analysts grow,

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Speaker 5: the complexity of business grows and the portfolio manager you know,

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Speaker 5: goes from managing portfolios to managing people.

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Speaker 3: And yeah, like I've seen that movie so many times.

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Speaker 4: Like maybe they have that skill set, maybe they don't.

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Speaker 5: And maybe they don't and that's probably not where you

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Speaker 5: want them to spend their time, you know. So I think,

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Speaker 5: like if you think about the hedge Funt Graveyard and

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Speaker 5: like what the issues have been over the like that

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Speaker 5: there's a big.

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Speaker 3: Area that kind of has that footprint, if you will.

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Speaker 5: So yeah, people, you know, the stario portfolio manager no

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Speaker 5: longer spending the appropriate time on a portfolio managing people

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Speaker 5: getting distracted or the second piece of it is just

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Speaker 5: quite frankly, making too much money.

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Speaker 3: Right. So you know, when I when I've bought the third.

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Speaker 5: Yacht, it's that that's time to leave, you know, it's

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Speaker 5: time to leave after before the first yacht.

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Speaker 2: But the first time I heard that has to be

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Speaker 2: like twenty twenty five years ago. Hey, when your fund

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Speaker 2: manager buys a forty foot or a fifty foot boat,

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Speaker 2: it's time to move on.

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Speaker 5: Yeah, I mean it's more than app but yes, you

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Speaker 5: have to you have to watch the personal lifestyle at

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Speaker 5: times as well, and it make sure people are focused.

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Speaker 1: Now.

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Speaker 5: You know, there are people that are billion as and

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Speaker 5: they're still in the office seventy hours a week, right,

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Speaker 5: and it's it's just an eight They don't they couldn't

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Speaker 5: do anything but that. But yeah, you have to, you know,

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Speaker 5: you have to understand what.

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Speaker 3: What am I buying? And maybe a change.

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Speaker 5: Right, so maybe that star portfolio matage is built out

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Speaker 5: enough of a team and you're not buying anyone singularly,

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Speaker 5: you're buying something broader and that process earlier. But but yeah,

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Speaker 5: it's it's it's a risk for sure, and it's and

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Speaker 5: it's an area where many of successful hedge funds have

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Speaker 5: kind of either become, you know, potentially mediocre or have

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Speaker 5: had challenges because they've taken our eye off the ball

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Speaker 5: in one way or another.

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Speaker 2: Huh, really really interesting. I love this one. The opposite

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Speaker 2: of long is in short. Great short sellers are wired differently.

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Speaker 2: Don't expect success on the long side to necessarily translate

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Speaker 2: to a successful short book. First, I love the quote. Second,

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Speaker 2: are there really getting short sellers left? I think this

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Speaker 2: last run feels like it they steamrolled over everybody.

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Speaker 3: So yeah, maybe a couple of things.

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Speaker 5: So I mean, just on the quote itself, I have

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Speaker 5: to like, of all the lessons learned and all the

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Speaker 5: mistakes we've seen people make, that that one has probably

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Speaker 5: right at the top or certainly right toward the top.

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Speaker 5: Like the opposite of a long is definitely not a short,

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Speaker 5: and you know sometimes people will suggest it is. I mean,

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Speaker 5: the math is different, risk management is different, like the

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Speaker 5: timing is different, and like I would even say, like

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Speaker 5: successful shorting is about risk management first and stock picking second.

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Speaker 3: And you see that.

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Speaker 5: I mean you've seen that when he you know, nineteen

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Speaker 5: ninety nine when the internet is blowing is you know,

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Speaker 5: go nuts. You see that in the meme stocks. You

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Speaker 5: see that today with quantum computing and some of the

440
00:23:33,040 --> 00:23:37,720
Speaker 5: AI names. Again it's risk management first, stock picking second.

441
00:23:38,359 --> 00:23:42,880
Speaker 5: Timing is timing, and sizing is just critically critically important.

442
00:23:44,200 --> 00:23:46,080
Speaker 2: God, I was gonna say, I have a buddy who

443
00:23:46,200 --> 00:23:48,960
Speaker 2: used to run ahead fun trading desk, and he always

444
00:23:49,040 --> 00:23:50,880
Speaker 2: used to say, the opposite of.

445
00:23:50,880 --> 00:23:51,680
Speaker 4: Love is in hate.

446
00:23:51,720 --> 00:23:54,000
Speaker 2: The opposite of love is in difference. There you go,

447
00:23:54,119 --> 00:23:56,800
Speaker 2: and it's the same basic kind And he was talking

448
00:23:56,840 --> 00:23:59,960
Speaker 2: about stocks, but it's the same sort of thing.

449
00:24:00,320 --> 00:24:01,879
Speaker 4: They're not mirror images, are.

450
00:24:01,760 --> 00:24:03,000
Speaker 3: They no, definitely not.

451
00:24:03,280 --> 00:24:05,840
Speaker 2: Are there any short sellers around? I know, like one

452
00:24:05,960 --> 00:24:08,600
Speaker 2: thirty thirties have become popular. Yeah, and a lot of

453
00:24:08,640 --> 00:24:10,120
Speaker 2: quants approach it that way.

454
00:24:10,280 --> 00:24:12,679
Speaker 5: So maybe there's two, you know, two different aspects of it.

455
00:24:12,760 --> 00:24:16,040
Speaker 5: So there are successful and good short sellers out there.

456
00:24:16,080 --> 00:24:18,480
Speaker 5: I'd say there there are you know, less that are

457
00:24:18,560 --> 00:24:21,840
Speaker 5: dedicated short cells. So from nineteen ninety five to two

458
00:24:21,840 --> 00:24:24,520
Speaker 5: thousand and eight, we use dedicated short sellers and short

459
00:24:24,560 --> 00:24:27,879
Speaker 5: bias managers, and it was really interesting and actually a

460
00:24:27,880 --> 00:24:31,760
Speaker 5: tremendous source of overall alpha. After two thousand and eight,

461
00:24:31,800 --> 00:24:34,920
Speaker 5: we no longer use dedicated short cells and short bias managers.

462
00:24:34,960 --> 00:24:38,600
Speaker 5: So I don't follow the space nearly as much. But

463
00:24:38,640 --> 00:24:40,840
Speaker 5: there are you know, there are certainly good ones within

464
00:24:40,880 --> 00:24:43,960
Speaker 5: long short equities, you know, maybe you know, I'm sure

465
00:24:44,000 --> 00:24:45,520
Speaker 5: there is someone a standalone basis.

466
00:24:45,400 --> 00:24:48,080
Speaker 3: It's a very difficult business model.

467
00:24:48,520 --> 00:24:51,000
Speaker 5: And one of the interesting things in short sell which

468
00:24:51,040 --> 00:24:52,880
Speaker 5: I think people don't you know, I don't know, I've

469
00:24:52,880 --> 00:24:56,679
Speaker 5: never heard it spoken about before. Is you know this

470
00:24:56,800 --> 00:24:59,919
Speaker 5: again this is dated, but when you looked at it

471
00:25:00,040 --> 00:25:01,959
Speaker 5: and let's say pre two thousand and eight, where they

472
00:25:01,960 --> 00:25:05,199
Speaker 5: were probably I don't know, I don't know, there's you know,

473
00:25:06,000 --> 00:25:10,080
Speaker 5: certainly a few dozen dedicated short cells and short bias managers.

474
00:25:10,720 --> 00:25:14,040
Speaker 5: I want to say, like forty percent of them women really,

475
00:25:14,080 --> 00:25:17,560
Speaker 5: which which people don't that's fascinating, you know, so Charlotte Us,

476
00:25:17,600 --> 00:25:21,680
Speaker 5: Stephanie Ross, Dina Galante, like all these you know, very

477
00:25:21,720 --> 00:25:25,000
Speaker 5: successful short cells and in an industry that was more

478
00:25:25,000 --> 00:25:25,919
Speaker 5: male dominated.

479
00:25:26,200 --> 00:25:29,000
Speaker 3: It always struck me as just really interesting.

480
00:25:29,240 --> 00:25:33,840
Speaker 5: That in that segment that you know, an overwhelming amount

481
00:25:33,920 --> 00:25:36,200
Speaker 5: at least on a percentage basis maybe you know, maybe

482
00:25:36,240 --> 00:25:38,040
Speaker 5: it wasn't great than fifty percent, but like.

483
00:25:38,160 --> 00:25:41,840
Speaker 2: But compared to the rest it was, it was outsized.

484
00:25:41,880 --> 00:25:42,080
Speaker 5: You know.

485
00:25:42,119 --> 00:25:43,280
Speaker 3: It's just it's just interesting.

486
00:25:43,320 --> 00:25:47,000
Speaker 2: There have been a number of academic studies that say

487
00:25:47,160 --> 00:25:52,119
Speaker 2: female fund managers outperform their male counterparts by anywhere between

488
00:25:52,119 --> 00:25:56,119
Speaker 2: fifteen one hundred basis points. And it's always you know,

489
00:25:56,200 --> 00:26:00,640
Speaker 2: the joke is testosterone poisoning, but it's fast learning to hear.

490
00:26:00,720 --> 00:26:07,000
Speaker 2: I'm curious as to why female short sellers. Is it

491
00:26:07,720 --> 00:26:10,400
Speaker 2: an objectivity, is it just a different approach.

492
00:26:10,440 --> 00:26:12,080
Speaker 4: It's kind of really intriguing.

493
00:26:12,200 --> 00:26:15,679
Speaker 5: Yeah, well, my wife would probably say it's it's because

494
00:26:15,680 --> 00:26:18,320
Speaker 5: they don't have the egos of the men right the poison.

495
00:26:18,400 --> 00:26:21,280
Speaker 2: Yeah, absolutely, if it doesn't work out, they cover it

496
00:26:21,280 --> 00:26:21,720
Speaker 2: and move on.

497
00:26:22,040 --> 00:26:24,320
Speaker 5: Yeah, you know, I think there's probably you know, of

498
00:26:24,720 --> 00:26:27,920
Speaker 5: course there's great examples of both. But you know, again,

499
00:26:28,040 --> 00:26:32,800
Speaker 5: risk management and discipline is definitely is definitely the key

500
00:26:32,800 --> 00:26:34,880
Speaker 5: toest successful short selling soles.

501
00:26:34,960 --> 00:26:36,080
Speaker 3: That has to be something about.

502
00:26:36,119 --> 00:26:39,119
Speaker 2: Let's let's go with another bullet point that speaks directly

503
00:26:39,280 --> 00:26:44,080
Speaker 2: to that. I love this one. Avoid casinos. Black isn't

504
00:26:44,119 --> 00:26:48,200
Speaker 2: on a roll and red isn't due Very few managers

505
00:26:48,240 --> 00:26:51,480
Speaker 2: add value over time through timing the market, even if

506
00:26:51,480 --> 00:26:54,840
Speaker 2: it sometimes look like looks like it. Don't reward a

507
00:26:54,960 --> 00:26:59,680
Speaker 2: manager for gambling. Again, so much insight in two sentences

508
00:27:00,320 --> 00:27:03,880
Speaker 2: explain how you reach this conclusion, which I just think

509
00:27:04,000 --> 00:27:04,880
Speaker 2: is brilliant.

510
00:27:05,119 --> 00:27:08,240
Speaker 5: Yeah. So I give credit to Chris Marshall on the team.

511
00:27:08,560 --> 00:27:11,280
Speaker 5: I think he's the one that came up with that quote.

512
00:27:11,560 --> 00:27:15,439
Speaker 5: But it really, again is the observation that the vast

513
00:27:15,520 --> 00:27:19,200
Speaker 5: majority of managers are are the vast majority of them

514
00:27:19,320 --> 00:27:24,560
Speaker 5: good stock pickers, but bad portfolio managers, and serve the

515
00:27:24,560 --> 00:27:28,240
Speaker 5: skills and timing decisions. You know, the vast majority of

516
00:27:28,240 --> 00:27:32,880
Speaker 5: managers are are subtracting value from the portfolio matag.

517
00:27:32,800 --> 00:27:36,119
Speaker 2: Really the you're gonna say top quartile, top death style,

518
00:27:36,200 --> 00:27:37,760
Speaker 2: Where where's the alpha coming from?

519
00:27:37,800 --> 00:27:39,720
Speaker 5: I mean the alpha is coming from like if if

520
00:27:39,760 --> 00:27:42,080
Speaker 5: you look at let's put this, if you look at

521
00:27:42,160 --> 00:27:45,439
Speaker 5: fundamental long short equities that live within the pods and

522
00:27:45,520 --> 00:27:48,679
Speaker 5: you look at alpha generation with them on you know,

523
00:27:49,200 --> 00:27:51,600
Speaker 5: turnal leverage or whatever you want to say, and then

524
00:27:51,640 --> 00:27:54,840
Speaker 5: you look at the standalone long short universe and the

525
00:27:54,880 --> 00:27:58,800
Speaker 5: alpha that's generated. There there's a disconnect, right, And it's

526
00:27:58,840 --> 00:28:01,680
Speaker 5: not because they're not good stock pick is The disconnect,

527
00:28:01,920 --> 00:28:06,120
Speaker 5: I think is because the portfolio management, you know, bad

528
00:28:06,119 --> 00:28:11,800
Speaker 5: portfolio management or sub poorer portfolio management is subtracting value

529
00:28:11,840 --> 00:28:14,040
Speaker 5: from their stock picking. So maybe they're adding you know,

530
00:28:14,160 --> 00:28:16,040
Speaker 5: five percent of out front of stock picking and it's

531
00:28:16,040 --> 00:28:19,400
Speaker 5: decaying and that by three percent from.

532
00:28:19,680 --> 00:28:23,520
Speaker 3: From portfolio management decisions. And I just think it's it's difficult.

533
00:28:23,680 --> 00:28:27,359
Speaker 5: And you know that there's been tremendous factor moves in

534
00:28:27,400 --> 00:28:28,680
Speaker 5: the last number of years.

535
00:28:29,240 --> 00:28:30,639
Speaker 3: There's also issues.

536
00:28:30,280 --> 00:28:33,080
Speaker 5: When you're operating on a standalone basis, Like there's business

537
00:28:33,119 --> 00:28:36,760
Speaker 5: considerations rightly or wrongly. Right, So if someone's operating in

538
00:28:36,760 --> 00:28:39,680
Speaker 5: a ten boll and markets are going down and they're

539
00:28:40,000 --> 00:28:42,280
Speaker 5: you know, in a hole by eight percent. Now are

540
00:28:42,280 --> 00:28:44,560
Speaker 5: they acting differently from a you know, they should be

541
00:28:45,240 --> 00:28:47,280
Speaker 5: buying a lot more because the markets are down and

542
00:28:47,320 --> 00:28:49,440
Speaker 5: things look interesting, But are they?

543
00:28:49,520 --> 00:28:51,320
Speaker 3: Are they things playing scared?

544
00:28:51,480 --> 00:28:54,400
Speaker 5: You know? And I think it's again it's not It's

545
00:28:54,440 --> 00:28:57,880
Speaker 5: not everybody for sure, and there's some that do it well.

546
00:28:57,960 --> 00:29:00,320
Speaker 5: I just think it is very challenging to do.

547
00:29:00,440 --> 00:29:00,640
Speaker 2: You know.

548
00:29:00,680 --> 00:29:04,920
Speaker 5: It's it's much easier to find good stock pickers that

549
00:29:04,960 --> 00:29:08,760
Speaker 5: are adding alpha than it is for someone to consistently

550
00:29:08,920 --> 00:29:11,480
Speaker 5: be able to make you know, I don't.

551
00:29:11,360 --> 00:29:15,080
Speaker 3: Know, contrarying or or correct portfolio magic.

552
00:29:15,120 --> 00:29:17,480
Speaker 2: Well. See, the old joke is the crowd is right

553
00:29:17,600 --> 00:29:20,360
Speaker 2: most of the time. So if you're if you're constantly

554
00:29:20,360 --> 00:29:22,520
Speaker 2: finding the crowd, you're on the wrong side of the trend.

555
00:29:22,600 --> 00:29:23,440
Speaker 3: Yeah, you go.

556
00:29:23,600 --> 00:29:28,760
Speaker 2: Last one and again another another brilliant one. Dinosaurs go extinct.

557
00:29:29,280 --> 00:29:31,200
Speaker 2: Innovation must be constant.

558
00:29:31,680 --> 00:29:33,320
Speaker 5: Yeah, And this is for you know, this is for

559
00:29:33,400 --> 00:29:36,520
Speaker 5: hedge funds as well as us. And you know, part

560
00:29:36,560 --> 00:29:39,240
Speaker 5: of it relates to the managers themselves, part of relates

561
00:29:39,240 --> 00:29:41,360
Speaker 5: to strategies, and again part of part of it is

562
00:29:41,440 --> 00:29:44,880
Speaker 5: business model. But when I think about you know, I

563
00:29:44,920 --> 00:29:47,240
Speaker 5: think about strategies that we used to invest in in

564
00:29:47,320 --> 00:29:49,440
Speaker 5: nineteen ninety five where you can make a lot of money,

565
00:29:49,600 --> 00:29:52,880
Speaker 5: like sig merger arbitrage, you know, like merger obtrage again

566
00:29:52,920 --> 00:29:54,800
Speaker 5: you could you can make double jus at returns. It

567
00:29:54,880 --> 00:29:58,000
Speaker 5: was less competitive. Plus you need mergers and.

568
00:29:58,080 --> 00:29:59,920
Speaker 3: Well you have that that helps for sure.

569
00:30:00,480 --> 00:30:02,680
Speaker 5: But now like the strategy, I mean, there are some

570
00:30:02,840 --> 00:30:05,320
Speaker 5: very successful people that do it on a standalone basis.

571
00:30:05,880 --> 00:30:08,160
Speaker 5: Usually they do it with credit or other events. But like,

572
00:30:08,200 --> 00:30:10,720
Speaker 5: it's a much more difficult place to make money. It's

573
00:30:10,840 --> 00:30:14,760
Speaker 5: it's become largely commoditized. When it becomes interesting, there's a

574
00:30:14,800 --> 00:30:16,480
Speaker 5: swarm of money that will kind of go into it.

575
00:30:16,760 --> 00:30:19,520
Speaker 5: Isn't that true for every which is why you need

576
00:30:19,960 --> 00:30:22,280
Speaker 5: well eventually, which is why you need to innovate. You

577
00:30:22,280 --> 00:30:24,760
Speaker 5: need to you know, so let's take you know, machine

578
00:30:24,840 --> 00:30:28,520
Speaker 5: learning quant right, Like machine learning quant start investing ten

579
00:30:28,600 --> 00:30:32,000
Speaker 5: years ago, like that was novel and and you know

580
00:30:32,040 --> 00:30:35,280
Speaker 5: today it's obviously gaining a lot momentum.

581
00:30:35,440 --> 00:30:37,040
Speaker 3: People understand it more.

582
00:30:37,120 --> 00:30:40,680
Speaker 5: But you have to kind of continue to reinvent, like

583
00:30:40,760 --> 00:30:43,960
Speaker 5: from our perspective, need to continue to do look after

584
00:30:44,000 --> 00:30:47,280
Speaker 5: different strategies, different types of managers to find kind of

585
00:30:47,360 --> 00:30:50,600
Speaker 5: high alpha. And then from a manager's standpoint again, let's

586
00:30:50,640 --> 00:30:55,920
Speaker 5: think about quant again. The managers need to read, reinvent themselves,

587
00:30:56,800 --> 00:30:59,400
Speaker 5: and refine themselves from an alpha standpoint. So like alpha's

588
00:30:59,440 --> 00:31:06,080
Speaker 5: de kay, you know, yesterday's alpha's tomorrow's beta, right, and

589
00:31:07,080 --> 00:31:09,720
Speaker 5: you know a lot of what has made them successful

590
00:31:09,720 --> 00:31:11,800
Speaker 5: from an alpha standpoint is going to decay. So if

591
00:31:11,800 --> 00:31:14,360
Speaker 5: you don't, you know, maybe it's fifteen to twenty percent

592
00:31:14,920 --> 00:31:17,240
Speaker 5: is going to decay and be irrelevant each year.

593
00:31:17,280 --> 00:31:19,640
Speaker 3: So you need to constantly kind of reinvent yourself.

594
00:31:19,720 --> 00:31:22,520
Speaker 2: So when you start putting together the next thirty over

595
00:31:22,560 --> 00:31:26,000
Speaker 2: the next thirty years, yesterday's alpha is tomorrow's beta.

596
00:31:26,440 --> 00:31:28,240
Speaker 4: That's number thirty one for me.

597
00:31:28,480 --> 00:31:29,560
Speaker 3: There you go, that's the right.

598
00:31:29,600 --> 00:31:33,320
Speaker 2: So let's talk about what's going on today. Hedge funds

599
00:31:33,320 --> 00:31:37,720
Speaker 2: have had to adapt to a very challenging era, certainly

600
00:31:37,760 --> 00:31:43,880
Speaker 2: since the financial crisis. I've heard financial repression and all

601
00:31:43,960 --> 00:31:49,920
Speaker 2: sorts of reasons for why some funds have been underperforming.

602
00:31:50,280 --> 00:31:54,160
Speaker 2: Less volatility, increased dispersion, inequity returns.

603
00:31:55,480 --> 00:31:57,960
Speaker 4: What's going on in the world of hedge funds today.

604
00:31:58,240 --> 00:32:00,600
Speaker 3: So, yeah, the last.

605
00:32:00,760 --> 00:32:03,840
Speaker 5: Five years especially have been a great time for hedge funds.

606
00:32:03,840 --> 00:32:05,720
Speaker 5: So let me, let me, let me maybe frame it.

607
00:32:06,080 --> 00:32:08,120
Speaker 5: And actually we just came out with a paper called

608
00:32:08,280 --> 00:32:10,960
Speaker 5: Hedge Funds and the end of the Alpha Winter, And

609
00:32:11,120 --> 00:32:13,640
Speaker 5: I should do a shout out for Emmy Hodges who

610
00:32:13,640 --> 00:32:17,040
Speaker 5: did a great job on on putting the piece together.

611
00:32:17,800 --> 00:32:20,360
Speaker 5: But maybe just taking a step back there, there were

612
00:32:20,400 --> 00:32:23,880
Speaker 5: we identify kind of three big picture variables that really

613
00:32:23,960 --> 00:32:26,080
Speaker 5: drive excess return and hedge funds.

614
00:32:26,360 --> 00:32:27,800
Speaker 3: So one of them is volatility.

615
00:32:27,800 --> 00:32:30,960
Speaker 5: Everything else you if you want vol higher, that creates dislocation,

616
00:32:31,240 --> 00:32:35,120
Speaker 5: sloppy trading. You know, it's opportunity. It's the fuel, the

617
00:32:35,160 --> 00:32:36,480
Speaker 5: fuel of what drives alpha.

618
00:32:36,560 --> 00:32:36,720
Speaker 1: Right.

619
00:32:37,240 --> 00:32:41,840
Speaker 5: The second is dispersion, So equity dispersion first and foremost,

620
00:32:41,880 --> 00:32:45,400
Speaker 5: but why the dispersion as well, so we'll winners and losers,

621
00:32:45,680 --> 00:32:48,240
Speaker 5: you know, obviously if you're a stock picker, that's hopeful.

622
00:32:48,800 --> 00:32:51,880
Speaker 5: And the third is is rates being higher than two percent,

623
00:32:52,640 --> 00:32:54,560
Speaker 5: And higher rates.

624
00:32:54,280 --> 00:32:57,000
Speaker 3: Help in a number of ways, but both kind of mechanically.

625
00:32:57,040 --> 00:32:59,760
Speaker 5: If you obviously, if you have floating rate debt's hopeful.

626
00:33:00,440 --> 00:33:01,040
Speaker 3: High rates.

627
00:33:01,920 --> 00:33:04,280
Speaker 5: But also again we've seen this like in a period

628
00:33:04,320 --> 00:33:06,760
Speaker 5: of rising inflation, rates are going higher. That's going to

629
00:33:06,840 --> 00:33:10,040
Speaker 5: fuel increase volatility, so it's a little circular, right, but

630
00:33:10,760 --> 00:33:15,240
Speaker 5: elevated volatility or at least normal volatility, elevated dispersion, and

631
00:33:15,400 --> 00:33:18,320
Speaker 5: rates that are graded than two percent. When you have

632
00:33:18,520 --> 00:33:21,960
Speaker 5: those three elements, so even two of those three variables

633
00:33:22,040 --> 00:33:25,719
Speaker 5: kind of as a tailwind rather than a headwind, alpha

634
00:33:25,760 --> 00:33:29,040
Speaker 5: generation is really really strong. So what we've done is,

635
00:33:29,040 --> 00:33:34,120
Speaker 5: like we looked at three different periods. The first starting

636
00:33:34,120 --> 00:33:37,880
Speaker 5: with two thousand ish, kind of a ten year period.

637
00:33:39,200 --> 00:33:41,600
Speaker 5: You know, I forgot exact percentage, but like a large

638
00:33:41,600 --> 00:33:44,760
Speaker 5: percentage at a time, two of those three variables were.

639
00:33:44,360 --> 00:33:44,880
Speaker 3: At your back.

640
00:33:44,880 --> 00:33:48,160
Speaker 5: They were helpful, and you saw excess return that was

641
00:33:48,280 --> 00:33:49,000
Speaker 5: very very high.

642
00:33:49,520 --> 00:33:52,560
Speaker 3: The middle period, which is the alpha winter had tens.

643
00:33:52,960 --> 00:33:55,040
Speaker 4: Is that what we're talking about essentially.

644
00:33:54,760 --> 00:34:00,200
Speaker 5: Yeah, two thousand and ten, right, the middle period, this

645
00:34:00,320 --> 00:34:02,800
Speaker 5: is I think you know nine ish or you know,

646
00:34:02,840 --> 00:34:06,240
Speaker 5: eight nine year period, which admittedly is quite long, was

647
00:34:06,320 --> 00:34:08,880
Speaker 5: one that where you saw a lot of central bank intervention,

648
00:34:09,120 --> 00:34:11,200
Speaker 5: where those variables were generally you.

649
00:34:11,160 --> 00:34:11,800
Speaker 3: Know, depressed.

650
00:34:11,800 --> 00:34:15,200
Speaker 5: You could think about twenty seventeen realized well being really low.

651
00:34:15,640 --> 00:34:18,279
Speaker 5: Obviously we had rates of zero for a chunk of

652
00:34:18,280 --> 00:34:22,080
Speaker 5: that period as well. That was difficult to generate alpha,

653
00:34:22,200 --> 00:34:24,680
Speaker 5: not only for hedge fronts but broadly, and that's kind of.

654
00:34:24,600 --> 00:34:25,279
Speaker 3: The alpha winter.

655
00:34:25,800 --> 00:34:30,000
Speaker 5: We would suggest that that period is abnormal. And you know,

656
00:34:30,040 --> 00:34:32,160
Speaker 5: even if rates go down, even if all comes down like,

657
00:34:32,200 --> 00:34:35,600
Speaker 5: you're not likely to go back to a period that's

658
00:34:35,680 --> 00:34:40,080
Speaker 5: so dominated by that period of central bank intervention. And

659
00:34:40,600 --> 00:34:43,440
Speaker 5: you know, most importantly the PostScript to that is, for

660
00:34:43,520 --> 00:34:46,719
Speaker 5: the last five ish years, you've gone back to kind

661
00:34:46,719 --> 00:34:49,239
Speaker 5: of the good old days of alpha generation. Right, So

662
00:34:49,280 --> 00:34:52,680
Speaker 5: the last five years you've had volatility that's you know,

663
00:34:52,760 --> 00:34:58,160
Speaker 5: generally normal or higher, dispersion that's really high, and rates

664
00:34:58,200 --> 00:35:02,520
Speaker 5: that are are combinative as well, and excess return in

665
00:35:02,600 --> 00:35:06,400
Speaker 5: alpha has resumed and looks very much like what it

666
00:35:06,440 --> 00:35:09,480
Speaker 5: looked like twenty years ago versus that kind of middle

667
00:35:09,520 --> 00:35:10,480
Speaker 5: alpha winter period.

668
00:35:10,560 --> 00:35:13,920
Speaker 2: So the past five years have been really interesting. Twenty

669
00:35:13,960 --> 00:35:17,840
Speaker 2: twenty two obviously, stocks and bonds down double digits. That

670
00:35:17,880 --> 00:35:20,520
Speaker 2: seems to happen once every forty years or so. Ye,

671
00:35:20,760 --> 00:35:24,080
Speaker 2: what about twenty twenty five. What sort of role is

672
00:35:24,120 --> 00:35:30,000
Speaker 2: the globalization and shifting trade policies playing in shaping hedge

673
00:35:30,000 --> 00:35:30,680
Speaker 2: fund returns?

674
00:35:30,840 --> 00:35:33,800
Speaker 5: Yeah, I mean, obviously you have a lot of different

675
00:35:34,239 --> 00:35:35,840
Speaker 5: so you know, it's a lot of strategies, a lot

676
00:35:35,840 --> 00:35:38,160
Speaker 5: of different substrides. So it's very difficult to talk about

677
00:35:38,160 --> 00:35:40,799
Speaker 5: the whole hedge fund industry as one thing. But like

678
00:35:41,080 --> 00:35:43,880
Speaker 5: when I think about excess return, you know, all the

679
00:35:43,920 --> 00:35:46,440
Speaker 5: things that you mentioned are generally good for hedge funds, right,

680
00:35:46,480 --> 00:35:48,200
Speaker 5: So in the rest of the world is getting worried

681
00:35:48,840 --> 00:35:50,239
Speaker 5: like that is again the fuel of.

682
00:35:50,239 --> 00:35:52,160
Speaker 3: What drives hedge fund returns.

683
00:35:52,239 --> 00:35:52,399
Speaker 2: Right.

684
00:35:52,440 --> 00:35:54,680
Speaker 3: So when you see when you see.

685
00:35:55,200 --> 00:35:58,520
Speaker 5: You know, rising rising voll and, that's that's going to

686
00:35:58,560 --> 00:36:00,640
Speaker 5: be good from Cisco arbatrage is going to be good

687
00:36:00,680 --> 00:36:03,520
Speaker 5: generally for balanced stock pickers. It's going to be good

688
00:36:03,560 --> 00:36:07,680
Speaker 5: for discretion a macro managers. When you see deglobalization and

689
00:36:07,719 --> 00:36:10,799
Speaker 5: some of the trends that come out of that, whether

690
00:36:10,800 --> 00:36:13,280
Speaker 5: it's on shuring, whether you see some of the moves

691
00:36:13,320 --> 00:36:17,879
Speaker 5: in you know, in gold and like that, that's good

692
00:36:17,920 --> 00:36:19,280
Speaker 5: from a trend file and standpoint.

693
00:36:19,280 --> 00:36:21,200
Speaker 3: It's good for discrettion a macro managers.

694
00:36:21,600 --> 00:36:26,480
Speaker 5: When you see Japan right increasing rates the US decreasing rates,

695
00:36:27,280 --> 00:36:30,839
Speaker 5: that's hopeful because it's two bets to scratch my macro

696
00:36:30,920 --> 00:36:33,840
Speaker 5: managers the place. It's not just like everyone operating in

697
00:36:33,880 --> 00:36:36,960
Speaker 5: the same way. So those things are good. I mean

698
00:36:37,080 --> 00:36:40,440
Speaker 5: generally because it gives people more of a palette to,

699
00:36:40,800 --> 00:36:42,759
Speaker 5: you know, an alpha palette to which to choose from

700
00:36:43,360 --> 00:36:48,040
Speaker 5: place more bets, diversify more and also heightened volatility and

701
00:36:48,080 --> 00:36:51,240
Speaker 5: heightened uncertainty is going to be positive for the vast

702
00:36:51,239 --> 00:36:55,160
Speaker 5: majority of strategies, especially from an excess return alpha standpoint.

703
00:36:55,200 --> 00:36:56,320
Speaker 4: So you mentioned Japan.

704
00:36:56,440 --> 00:37:00,279
Speaker 2: I'm curious what regions around the world are attracted the

705
00:37:00,280 --> 00:37:03,840
Speaker 2: most new capital. We've seen Europe suddenly catch a bid,

706
00:37:03,960 --> 00:37:06,680
Speaker 2: you know, obviously, Japan has been doing well, the rest

707
00:37:06,680 --> 00:37:09,840
Speaker 2: of Asia, in the Middle East, and even the US.

708
00:37:10,160 --> 00:37:12,400
Speaker 2: You know, what what areas are attracting new capital and

709
00:37:12,400 --> 00:37:13,399
Speaker 2: what's driving that trend?

710
00:37:13,480 --> 00:37:15,560
Speaker 5: Yeah, I mean, what are the areas that we're most

711
00:37:15,600 --> 00:37:17,440
Speaker 5: excited about for sure and have been leaning in for

712
00:37:17,440 --> 00:37:18,200
Speaker 5: the last three years.

713
00:37:18,239 --> 00:37:19,480
Speaker 3: Is Japanese corporate governance.

714
00:37:19,520 --> 00:37:22,400
Speaker 5: Now, interestingly, if you look at dollar flows into Japan,

715
00:37:23,120 --> 00:37:26,000
Speaker 5: it's actually not I mean, it is positive, but it's

716
00:37:26,280 --> 00:37:28,359
Speaker 5: kind of modest in a grand scheme of things, which

717
00:37:28,800 --> 00:37:31,480
Speaker 5: kind of shocks me honestly, and like, I don't I

718
00:37:31,480 --> 00:37:35,600
Speaker 5: don't mind because we're playing events first and foremost, but

719
00:37:35,640 --> 00:37:37,759
Speaker 5: you really haven't seen that many dollar flows in which,

720
00:37:37,760 --> 00:37:40,279
Speaker 5: again is unusual given like everyone in the world and

721
00:37:40,920 --> 00:37:43,160
Speaker 5: in every way, shape or form, is probably underway Japan

722
00:37:43,280 --> 00:37:46,840
Speaker 5: and it's and it's obviously inexpensive, but most importantly you

723
00:37:46,960 --> 00:37:51,840
Speaker 5: have a material, dramatic catalyst that's driving value through through Japan.

724
00:37:53,440 --> 00:37:54,960
Speaker 3: And yeah, we're excited about it.

725
00:37:54,960 --> 00:37:57,440
Speaker 5: I mean, corporate corporate governance has been talked about in

726
00:37:57,480 --> 00:37:58,560
Speaker 5: Japan for decades.

727
00:37:58,840 --> 00:38:01,279
Speaker 3: The reality is until you.

728
00:38:01,200 --> 00:38:04,360
Speaker 5: Know, Abe had his third Arrow and you've you know,

729
00:38:04,440 --> 00:38:07,440
Speaker 5: which really set off a number of regulatory and policy

730
00:38:07,600 --> 00:38:13,680
Speaker 5: changes and importantly, like cross shareholder relationships started to unwind,

731
00:38:14,440 --> 00:38:17,480
Speaker 5: that really set the stage for increased corporate governance. So

732
00:38:17,719 --> 00:38:19,719
Speaker 5: it's you know, we we again, we've been there for

733
00:38:19,760 --> 00:38:23,439
Speaker 5: three years. I think we're maybe halfway through what needs

734
00:38:23,480 --> 00:38:26,600
Speaker 5: to be done and and there's still a very very

735
00:38:26,600 --> 00:38:27,799
Speaker 5: fertile opportunity set.

736
00:38:27,880 --> 00:38:29,760
Speaker 3: So that's that. That's one.

737
00:38:30,000 --> 00:38:32,480
Speaker 5: The other thing I would point out is just the

738
00:38:32,520 --> 00:38:35,640
Speaker 5: Middle East. Now, obviously, you know, it's not it's not

739
00:38:35,680 --> 00:38:37,799
Speaker 5: to say that there's a lot of money from an

740
00:38:37,800 --> 00:38:41,840
Speaker 5: investment standpoint going into the Middle East, but it just

741
00:38:41,880 --> 00:38:44,000
Speaker 5: come back from a you know, a week long trip

742
00:38:44,040 --> 00:38:46,040
Speaker 5: in the Middle East and you know, got there maybe

743
00:38:46,040 --> 00:38:49,000
Speaker 5: eighteen months prior, and it's really exciting what's going on.

744
00:38:49,080 --> 00:38:51,239
Speaker 5: I mean, clearly there's a lot of interest from an

745
00:38:51,280 --> 00:38:54,359
Speaker 5: investment standpoint in hedge funds and alternatives in the Middle East.

746
00:38:54,400 --> 00:38:56,760
Speaker 2: There's no question about is this because all the sovereign

747
00:38:56,760 --> 00:39:03,000
Speaker 2: wealth funds located in Pata and Arab Emirates and down

748
00:39:03,080 --> 00:39:03,480
Speaker 2: the list.

749
00:39:03,840 --> 00:39:06,719
Speaker 5: It's coming it's certainly coming from from them, but it's

750
00:39:06,760 --> 00:39:09,600
Speaker 5: brought it's broader as well. I mean, it's it's family

751
00:39:09,640 --> 00:39:13,840
Speaker 5: office money in addition to the sovereigns, and they're interested

752
00:39:13,840 --> 00:39:16,560
Speaker 5: in alternatives or interested in hedge funds, local.

753
00:39:16,280 --> 00:39:20,239
Speaker 2: Family office or europe and American family office in the middle.

754
00:39:20,360 --> 00:39:21,160
Speaker 3: All of the above, you know.

755
00:39:21,239 --> 00:39:24,480
Speaker 5: I mean there's also been rich is a maybe to

756
00:39:24,560 --> 00:39:26,680
Speaker 5: tie together one other part. I mean, there's also been

757
00:39:26,719 --> 00:39:29,080
Speaker 5: a lot of movement of people of hedge funds setting

758
00:39:29,120 --> 00:39:32,600
Speaker 5: up businesses in Dubai and Abu Dhabi and people moving

759
00:39:32,640 --> 00:39:35,759
Speaker 5: there with wealth and in turn they become you know,

760
00:39:35,800 --> 00:39:40,759
Speaker 5: potential investors in alternatives. So that's definitely a prominent story

761
00:39:40,800 --> 00:39:42,600
Speaker 5: as well, the number of people that are setting up

762
00:39:42,800 --> 00:39:45,000
Speaker 5: in the region or open up offices.

763
00:39:45,480 --> 00:39:49,000
Speaker 2: So when we used to talk about New York, London, Tokyo,

764
00:39:49,239 --> 00:39:50,719
Speaker 2: Hong Kong as centers.

765
00:39:51,160 --> 00:39:54,799
Speaker 4: Do you put Abu, Dhabi or Dubai in that list as.

766
00:39:54,760 --> 00:39:57,600
Speaker 5: Actually it's you know, for the larger for the larger

767
00:39:57,600 --> 00:40:00,520
Speaker 5: hedge funds, for sure, I think it's becoming you know,

768
00:40:00,600 --> 00:40:02,120
Speaker 5: the vast majority of them or.

769
00:40:02,160 --> 00:40:05,000
Speaker 3: Opening offices or have offices in regions.

770
00:40:05,040 --> 00:40:08,560
Speaker 5: So it is definitely an area that is attracting a

771
00:40:08,600 --> 00:40:11,080
Speaker 5: lot of a lot of interest. And then from an

772
00:40:11,080 --> 00:40:14,360
Speaker 5: investment standpoint, you know, again it's a much smaller market,

773
00:40:14,440 --> 00:40:18,280
Speaker 5: but there I think that you know, the policy changes

774
00:40:18,320 --> 00:40:22,480
Speaker 5: and regulatory changes which allow foreign ownership and a derivative

775
00:40:22,560 --> 00:40:25,880
Speaker 5: market starting is encouraging as well. It's early days, and

776
00:40:25,960 --> 00:40:28,040
Speaker 5: again it's not you know, the breadth and depth of

777
00:40:28,080 --> 00:40:31,280
Speaker 5: the market still needs to improve, but again it's exciting

778
00:40:31,280 --> 00:40:32,520
Speaker 5: for that standpoint as well.

779
00:40:32,600 --> 00:40:34,000
Speaker 4: Really kind of intriguing.

780
00:40:34,640 --> 00:40:38,120
Speaker 2: What are hedge funds thinking about with assets like crypto

781
00:40:38,400 --> 00:40:41,920
Speaker 2: or gold? How are they dealing with What are some

782
00:40:41,960 --> 00:40:44,200
Speaker 2: of the biggest winners past couple of years.

783
00:40:44,280 --> 00:40:47,520
Speaker 5: So you've seen I mean on golden and pressures, but

784
00:40:47,560 --> 00:40:50,799
Speaker 5: I mean discretion macro managers have you know, many have

785
00:40:50,960 --> 00:40:53,359
Speaker 5: had that bet on It's been a very successful bet

786
00:40:53,360 --> 00:40:55,719
Speaker 5: and theme given you.

787
00:40:55,680 --> 00:41:00,160
Speaker 3: Know, concerns on inflation and debt levels, so you know,

788
00:41:00,200 --> 00:41:02,960
Speaker 3: you can you continue to see that that theme in

789
00:41:03,040 --> 00:41:07,160
Speaker 3: people's portfolios. Crypto is a little more you know, interesting

790
00:41:07,280 --> 00:41:08,239
Speaker 3: and specific.

791
00:41:08,920 --> 00:41:12,719
Speaker 5: Some managers, again mostly discretion and macro managers have invested

792
00:41:12,760 --> 00:41:15,960
Speaker 5: in crypto mostly you know, mostly big bigcoin or eth

793
00:41:16,840 --> 00:41:22,680
Speaker 5: more from that inflationary, you know, debt standpoint, although others

794
00:41:22,719 --> 00:41:24,759
Speaker 5: have from other standpoint as well, from a you know,

795
00:41:24,840 --> 00:41:27,239
Speaker 5: from like a trend Fhong standpoint on futures.

796
00:41:27,280 --> 00:41:31,440
Speaker 3: People have done it a bid on statistical arbitrary side.

797
00:41:31,719 --> 00:41:34,200
Speaker 5: Some people play from like a cash future standpoint, from

798
00:41:34,239 --> 00:41:38,080
Speaker 5: an ORB standpoint as well, but it's still small, at

799
00:41:38,160 --> 00:41:41,400
Speaker 5: least let's say, the traditional hedge funds investing in crypto.

800
00:41:41,680 --> 00:41:42,520
Speaker 3: It's still small.

801
00:41:43,000 --> 00:41:45,440
Speaker 5: That being said, obviously you have a large number of

802
00:41:45,840 --> 00:41:50,120
Speaker 5: like dedicated crypto funds that are trading both directionally as

803
00:41:50,120 --> 00:41:52,200
Speaker 5: well as as as well as in the ORB side

804
00:41:52,200 --> 00:41:52,560
Speaker 5: as well.

805
00:41:52,719 --> 00:41:55,600
Speaker 2: Coming up, we continue our conversation with Paul Zumo, chief

806
00:41:55,640 --> 00:42:00,560
Speaker 2: investment officer at JP Morgan Alternative Asset Management, just the

807
00:42:00,640 --> 00:42:02,840
Speaker 2: state of hedge fund investing today.

808
00:42:03,080 --> 00:42:04,200
Speaker 4: I'm Barry Ridults.

809
00:42:04,280 --> 00:42:23,560
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm

810
00:42:23,560 --> 00:42:27,360
Speaker 2: Barry Redults. You're listening to Masters in Business on Bloomberg Radio.

811
00:42:27,560 --> 00:42:30,600
Speaker 2: My extra special guest today is Paul Zumo. He is

812
00:42:30,680 --> 00:42:35,160
Speaker 2: Chief investment officer at JP Morgan, Alternative Asset Manager, helping

813
00:42:35,239 --> 00:42:39,759
Speaker 2: to oversee thirty five billion dollars in external hedge fund assets.

814
00:42:40,000 --> 00:42:44,759
Speaker 2: He's also chair of the Alternative Asset Management Investment Committee.

815
00:42:45,040 --> 00:42:48,280
Speaker 2: He co founded the group back in nineteen ninety four.

816
00:42:48,640 --> 00:42:51,600
Speaker 2: So what styles and hedge fund worlds are doing well

817
00:42:51,640 --> 00:42:54,839
Speaker 2: in twenty twenty five. I've noticed over the past few

818
00:42:54,920 --> 00:42:59,520
Speaker 2: years emerging managers have made some consistent gains. Quants have

819
00:42:59,600 --> 00:43:01,919
Speaker 2: done well well, some of the multi strats have done well.

820
00:43:01,960 --> 00:43:04,759
Speaker 2: What what are you seeing in in the rest of

821
00:43:04,800 --> 00:43:08,560
Speaker 2: the field, some of which, even in this high volatility,

822
00:43:08,840 --> 00:43:10,680
Speaker 2: high alpha market, have been struggling.

823
00:43:11,520 --> 00:43:13,839
Speaker 5: Yeah, I'd say so we we look at pivotal path

824
00:43:14,040 --> 00:43:17,040
Speaker 5: as you know, their industry's first and foremost. I think

825
00:43:17,080 --> 00:43:20,440
Speaker 5: it's they're the they're very very good quality industries and

826
00:43:20,600 --> 00:43:22,240
Speaker 5: I think paints a very good picture.

827
00:43:22,920 --> 00:43:24,160
Speaker 3: And that's kind of what I have in mind.

828
00:43:24,200 --> 00:43:26,600
Speaker 5: So like when you when you look at it, you'd

829
00:43:26,600 --> 00:43:29,720
Speaker 5: find that most strategies and substrategies.

830
00:43:29,120 --> 00:43:30,879
Speaker 3: Have done pretty well this year in the grand scheme

831
00:43:30,920 --> 00:43:31,200
Speaker 3: of things.

832
00:43:31,239 --> 00:43:31,400
Speaker 2: You know.

833
00:43:31,440 --> 00:43:35,320
Speaker 5: The one exception to that is is ctias, which have struggled.

834
00:43:35,560 --> 00:43:37,640
Speaker 4: Even with gold running away and.

835
00:43:38,160 --> 00:43:42,760
Speaker 5: CTAs got heard in in April where they were very

836
00:43:42,920 --> 00:43:45,600
Speaker 5: very long equities and yet you know, Liberation Day and

837
00:43:46,000 --> 00:43:49,640
Speaker 5: markets correct a lot. So you saw you know a

838
00:43:49,719 --> 00:43:53,480
Speaker 5: bit of a retrenchment in CTIA's performance in April that

839
00:43:53,560 --> 00:43:55,960
Speaker 5: get hit pretty hard, and they've been trying to like

840
00:43:56,000 --> 00:43:58,919
Speaker 5: piece it together and they and they have the last

841
00:43:58,960 --> 00:44:00,840
Speaker 5: couple of months have been have been stronger.

842
00:44:01,080 --> 00:44:04,520
Speaker 2: To be fair, it's very challenging to follow a trend

843
00:44:04,560 --> 00:44:08,200
Speaker 2: when the trends is dependent on the whims.

844
00:44:07,800 --> 00:44:08,640
Speaker 4: Of one person.

845
00:44:08,880 --> 00:44:11,239
Speaker 5: That that is true for you, right, doesn't show up

846
00:44:11,560 --> 00:44:14,560
Speaker 5: what the good news is, most other strategies actually are

847
00:44:14,600 --> 00:44:16,640
Speaker 5: doing quite well. Right, So if you look at across

848
00:44:16,680 --> 00:44:19,560
Speaker 5: relative value, as you mentioned quant the multi strip pause,

849
00:44:19,640 --> 00:44:24,880
Speaker 5: convertible bond arbitrage has been good with strong issuance discretion.

850
00:44:25,239 --> 00:44:27,640
Speaker 3: Macro as we talked about some of the themes.

851
00:44:27,320 --> 00:44:30,200
Speaker 5: Whether it's you know, whether it's gold or you know

852
00:44:30,560 --> 00:44:35,560
Speaker 5: or rates themes has done well as well. You might say, okay, well,

853
00:44:35,560 --> 00:44:38,160
Speaker 5: the markets are up but it's not just beta, it's alpha.

854
00:44:38,280 --> 00:44:41,080
Speaker 5: So a couple of people have come up with you know,

855
00:44:41,320 --> 00:44:43,440
Speaker 5: if you if you look at the alpha generation this year,

856
00:44:43,440 --> 00:44:45,520
Speaker 5: it's about five percent five and a half percent in

857
00:44:45,600 --> 00:44:49,600
Speaker 5: long short which is quite healthy. And even you know,

858
00:44:49,640 --> 00:44:52,520
Speaker 5: Merger Arbertrage events done well. You know, credit's done fine.

859
00:44:52,600 --> 00:44:55,080
Speaker 5: So I'd say it's been a good year overall, with

860
00:44:55,160 --> 00:45:00,239
Speaker 5: most strategies generating you know, strong kind of single mid

861
00:45:00,320 --> 00:45:03,640
Speaker 5: single digit to high single digit returns or high single

862
00:45:03,640 --> 00:45:06,520
Speaker 5: digit returns, and you know, overall, definitely good year for

863
00:45:06,560 --> 00:45:07,160
Speaker 5: the industry.

864
00:45:07,400 --> 00:45:11,279
Speaker 2: So we've seen the rise of multi strategy managers over

865
00:45:11,320 --> 00:45:13,480
Speaker 2: the past few years and there have been a number

866
00:45:13,480 --> 00:45:17,680
Speaker 2: of very large multistrats and uh it seems to be

867
00:45:17,719 --> 00:45:20,080
Speaker 2: a direction a lot of funds are heading. How has

868
00:45:20,120 --> 00:45:24,080
Speaker 2: that changed competition within the industry or is there more

869
00:45:24,160 --> 00:45:28,960
Speaker 2: collaboration within a multi strategy shop amongst all the different pods.

870
00:45:29,160 --> 00:45:30,320
Speaker 4: How is that playing out?

871
00:45:30,520 --> 00:45:31,280
Speaker 3: Uh?

872
00:45:31,320 --> 00:45:34,960
Speaker 5: Well, I think collaboration amongst themselves, I think I think

873
00:45:35,000 --> 00:45:35,719
Speaker 5: there's a proble.

874
00:45:35,719 --> 00:45:38,880
Speaker 2: I'm assuming they're not competing, They're not collaborating with the

875
00:45:38,960 --> 00:45:40,040
Speaker 2: fund across the street.

876
00:45:40,040 --> 00:45:42,359
Speaker 4: It's all internal, right.

877
00:45:42,360 --> 00:45:42,759
Speaker 3: I'm sorry.

878
00:45:42,840 --> 00:45:46,560
Speaker 5: Collaboration for the pods pots or within the pods.

879
00:45:46,800 --> 00:45:50,600
Speaker 2: Collaboration within a multi strat from Hey, here's the macro,

880
00:45:50,840 --> 00:45:54,600
Speaker 2: here's the long short, here's the quant group, here's the

881
00:45:54,719 --> 00:45:55,360
Speaker 2: trend group.

882
00:45:55,760 --> 00:45:58,640
Speaker 5: What are we are we seeing that cross polinization across

883
00:45:58,760 --> 00:46:01,120
Speaker 5: across teams? I think it's depends in the model, you know,

884
00:46:01,200 --> 00:46:03,040
Speaker 5: like if you if you look at the pods. Obviously

885
00:46:03,040 --> 00:46:06,600
Speaker 5: there's some prominent ones out there. They differ materially from

886
00:46:06,920 --> 00:46:09,960
Speaker 5: the strategies that they pursue, They differ materially from the

887
00:46:09,960 --> 00:46:14,239
Speaker 5: culture that they pursue. They know, they just different. The

888
00:46:14,320 --> 00:46:19,200
Speaker 5: risk management approaches is different. So it really depends. There

889
00:46:19,320 --> 00:46:23,320
Speaker 5: are some managers where you know, whether they are benefiting

890
00:46:23,320 --> 00:46:29,320
Speaker 5: from maybe cross polarization, you know, across teams or a

891
00:46:29,440 --> 00:46:33,799
Speaker 5: cent a book that's maybe drawing upon best ideas. So,

892
00:46:33,920 --> 00:46:35,880
Speaker 5: but it's really going to differ kind of pod to

893
00:46:35,920 --> 00:46:38,600
Speaker 5: pod based on the style and how they how they operate.

894
00:46:38,880 --> 00:46:41,840
Speaker 4: Fair enough, let's talk about risk management.

895
00:46:42,200 --> 00:46:45,240
Speaker 2: There were obviously some lessons learned this year in April,

896
00:46:45,760 --> 00:46:48,600
Speaker 2: and plenty of lessons learned in twenty twenty two. What

897
00:46:48,640 --> 00:46:50,759
Speaker 2: do you think are going to be the most impactful

898
00:46:50,840 --> 00:46:53,840
Speaker 2: lessons for managers looking forward?

899
00:46:54,560 --> 00:46:57,719
Speaker 5: Looking forward, I mean things you're worried about today is

900
00:46:57,760 --> 00:47:00,360
Speaker 5: just complacency, you know. I mean, mark time you have

901
00:47:00,400 --> 00:47:04,000
Speaker 5: markets going up for you know, for for a while, inevitably,

902
00:47:04,040 --> 00:47:07,240
Speaker 5: complacency develops in some way, shape or form. So we're

903
00:47:07,840 --> 00:47:12,360
Speaker 5: certainly being you know, front footed and having discussions whereas

904
00:47:12,400 --> 00:47:14,759
Speaker 5: that and whether it's credit or equity markets, and like

905
00:47:14,800 --> 00:47:17,160
Speaker 5: how do we or or specific areas with.

906
00:47:17,160 --> 00:47:18,880
Speaker 3: Hedge fronts and how do we guard against that a

907
00:47:18,920 --> 00:47:19,319
Speaker 3: little bit.

908
00:47:19,840 --> 00:47:21,520
Speaker 5: But I think some of the events last year, like

909
00:47:21,520 --> 00:47:23,719
Speaker 5: we're talking about, you know, Liberation Day or maybe a

910
00:47:23,719 --> 00:47:26,680
Speaker 5: deep Seek event and some managers being you know.

911
00:47:26,680 --> 00:47:29,080
Speaker 2: God was Deep Seek twenty twenty five, It seems like

912
00:47:29,280 --> 00:47:32,279
Speaker 2: decade years now, maybe it was, you know, it was

913
00:47:32,400 --> 00:47:35,040
Speaker 2: January this year, and then everybody's minds.

914
00:47:36,320 --> 00:47:39,640
Speaker 5: I mean, I think it really underscores a couple of things.

915
00:47:39,640 --> 00:47:42,200
Speaker 5: I mean one, risk management first and foremost right, And

916
00:47:42,239 --> 00:47:45,040
Speaker 5: it's certainly, you know, certainly on Liberation Day, I think

917
00:47:45,360 --> 00:47:49,040
Speaker 5: a lot of people were caught off balance in their

918
00:47:49,080 --> 00:47:52,440
Speaker 5: books and then again oftentimes kind of retrench after that

919
00:47:52,600 --> 00:47:56,279
Speaker 5: lock and losses. It's not a great recipe. So like

920
00:47:56,400 --> 00:48:01,360
Speaker 5: sizing positions and sizing risk across areas you know, in

921
00:48:01,440 --> 00:48:04,480
Speaker 5: which people investor are obviously always critically important. And then

922
00:48:04,480 --> 00:48:07,920
Speaker 5: on deep see a cliok ai is extremely exciting. It

923
00:48:08,320 --> 00:48:11,359
Speaker 5: creates tremendous opportunities. But going back to what we're saying

924
00:48:11,400 --> 00:48:15,040
Speaker 5: about short selling before, it also creates tremendous risk and

925
00:48:15,160 --> 00:48:17,600
Speaker 5: you know, risk of just being one sided bet but

926
00:48:17,680 --> 00:48:20,560
Speaker 5: also a risk of again operating in a long short

927
00:48:20,560 --> 00:48:25,880
Speaker 5: fashion and getting thinking about like offsetting risks and basis

928
00:48:25,960 --> 00:48:29,480
Speaker 5: and sizing so thoi things are critically important.

929
00:48:31,280 --> 00:48:36,160
Speaker 2: So, speaking of AI, I just overheard pull tutor Jones

930
00:48:36,719 --> 00:48:41,680
Speaker 2: speaking to somebody on Bloomberg saying, you know, maybe AI

931
00:48:42,160 --> 00:48:44,880
Speaker 2: might be developing into a small bubble, but it's not

932
00:48:45,000 --> 00:48:48,239
Speaker 2: a giant headache. How are you looking at all this

933
00:48:48,400 --> 00:48:54,760
Speaker 2: bubble chatter, high valuation, concentrated markets. This seems to be

934
00:48:54,960 --> 00:48:58,200
Speaker 2: part of the wall of worry that markets are climbing.

935
00:48:58,239 --> 00:48:59,440
Speaker 4: What's your perspective on this?

936
00:48:59,680 --> 00:49:02,880
Speaker 3: I mean, Paul said it, it must be right, so you

937
00:49:02,880 --> 00:49:06,520
Speaker 3: could do worse. Yeah, that's right, that's right.

938
00:49:07,760 --> 00:49:10,959
Speaker 5: I mean, look, is it a bubbles And obviously it's real,

939
00:49:11,000 --> 00:49:13,399
Speaker 5: it's going to be impactful, it's you know.

940
00:49:13,360 --> 00:49:14,840
Speaker 3: It's going to be enormously important.

941
00:49:14,880 --> 00:49:17,239
Speaker 5: It's going to reshape how we do so many, so

942
00:49:17,360 --> 00:49:18,000
Speaker 5: many things.

943
00:49:18,400 --> 00:49:18,839
Speaker 3: For sure?

944
00:49:19,480 --> 00:49:22,480
Speaker 5: Is there excess in certain areas related to it? There

945
00:49:22,520 --> 00:49:26,280
Speaker 5: has to be for sure. Again, I think it comes

946
00:49:26,320 --> 00:49:29,000
Speaker 5: down to risk management first and form. You know, assuming

947
00:49:29,040 --> 00:49:30,640
Speaker 5: you want to set up a balanced book, it comes

948
00:49:30,640 --> 00:49:34,279
Speaker 5: down to risk management first and foremost, and if you don't,

949
00:49:34,320 --> 00:49:36,839
Speaker 5: if you just want to play it from a thematic standpoint, Again,

950
00:49:36,920 --> 00:49:39,480
Speaker 5: it also comes down to risk managers from a sizing standpoint.

951
00:49:39,520 --> 00:49:41,840
Speaker 5: You need to size it to be able to handle

952
00:49:41,880 --> 00:49:43,799
Speaker 5: the inherent volatility of it.

953
00:49:44,560 --> 00:49:47,360
Speaker 3: But is it rich, Well, of course it's rich. Is

954
00:49:47,360 --> 00:49:49,120
Speaker 3: it a bubble? I don't know.

955
00:49:49,360 --> 00:49:52,360
Speaker 5: I'm not the best one to say, but it certainly

956
00:49:52,400 --> 00:49:52,719
Speaker 5: is real.

957
00:49:52,760 --> 00:49:55,240
Speaker 3: It's certainly going to revolutionize and change our lives.

958
00:49:56,000 --> 00:49:58,600
Speaker 2: Every time someone asked me about it, I like to

959
00:49:58,640 --> 00:50:03,440
Speaker 2: remind them Greenspan's irrational, a zuberant speech was ninety six.

960
00:50:03,560 --> 00:50:05,920
Speaker 2: You still have a long way to go before that

961
00:50:06,120 --> 00:50:07,240
Speaker 2: really became a bubble.

962
00:50:07,480 --> 00:50:10,680
Speaker 5: But also, look look at you know, we're talking about

963
00:50:10,800 --> 00:50:13,840
Speaker 5: you know, dot com, right, So I mean as a

964
00:50:13,840 --> 00:50:16,960
Speaker 5: little bit of your you know, your model and your playbook, right,

965
00:50:17,040 --> 00:50:19,359
Speaker 5: So I mean obviously Amazon came out of that, but

966
00:50:19,400 --> 00:50:21,920
Speaker 5: there's a lot you know, pets dot Com, you know,

967
00:50:22,440 --> 00:50:24,200
Speaker 5: dating myself, but you know, and.

968
00:50:24,160 --> 00:50:28,080
Speaker 2: I have Star Network on my desk.

969
00:50:28,200 --> 00:50:30,279
Speaker 5: You know, like, really it's gonna be when, it's gonna

970
00:50:30,280 --> 00:50:34,520
Speaker 5: be winners and losers and and it is extremely important,

971
00:50:34,600 --> 00:50:38,120
Speaker 5: extremely powerful, but it's not gonna lift all boats at

972
00:50:38,120 --> 00:50:38,920
Speaker 5: all times.

973
00:50:38,920 --> 00:50:40,440
Speaker 3: So you need to be selective and you need to

974
00:50:40,480 --> 00:50:41,040
Speaker 3: size it right.

975
00:50:41,239 --> 00:50:44,759
Speaker 2: Huh makes great sense. Last question before we get to

976
00:50:44,840 --> 00:50:48,840
Speaker 2: our favorite questions. What do you think hedge fund managers

977
00:50:48,920 --> 00:50:51,320
Speaker 2: investors are not talking about.

978
00:50:51,280 --> 00:50:52,399
Speaker 4: But really should be.

979
00:50:52,480 --> 00:50:57,960
Speaker 2: What what topics assets policies are getting overlooked but shouldn't.

980
00:50:59,160 --> 00:51:01,399
Speaker 5: Well, I mentioned compcency a little bit just because where

981
00:51:01,440 --> 00:51:03,479
Speaker 5: we are in a cycle. But maybe if it's okay

982
00:51:03,640 --> 00:51:06,120
Speaker 5: taking a different direction to say like it's more of

983
00:51:06,160 --> 00:51:09,680
Speaker 5: a misnomer about the hedge fund industry, which is if

984
00:51:09,680 --> 00:51:12,960
Speaker 5: that's okay, it's a little little different. So like one

985
00:51:13,000 --> 00:51:15,279
Speaker 5: thing I would say, that's that's frustrating. I think a

986
00:51:15,280 --> 00:51:17,840
Speaker 5: lot of people get wrong is they look at the

987
00:51:17,880 --> 00:51:20,560
Speaker 5: hedge fund industry as an asset class. And what I

988
00:51:20,600 --> 00:51:23,520
Speaker 5: mean by that is if you have an asset class,

989
00:51:23,600 --> 00:51:26,520
Speaker 5: then you know, everything in an asset class should be

990
00:51:26,520 --> 00:51:29,480
Speaker 5: more or less you know, highly correlated to each other.

991
00:51:29,560 --> 00:51:31,120
Speaker 3: Right, it's the same. It's the same thing.

992
00:51:31,120 --> 00:51:33,560
Speaker 5: And if you take the ten thousand or so hedge

993
00:51:33,560 --> 00:51:37,040
Speaker 5: funds that are out there, the correlation across correlation pairwise

994
00:51:37,080 --> 00:51:38,600
Speaker 5: correlation is is something like.

995
00:51:38,600 --> 00:51:40,560
Speaker 3: Point point two or point twenty.

996
00:51:40,480 --> 00:51:41,560
Speaker 4: Five near one.

997
00:51:41,800 --> 00:51:44,359
Speaker 5: It's nowhere near one, right, So what you really have

998
00:51:44,640 --> 00:51:48,640
Speaker 5: is a collection of strategies, a collection of substrategies. Importantly,

999
00:51:48,680 --> 00:51:52,520
Speaker 5: the characteristics of those strategies are just vastly different from

1000
00:51:52,640 --> 00:51:56,120
Speaker 5: each other in many cases, and the way you use

1001
00:51:56,200 --> 00:51:57,680
Speaker 5: them and a portfolio.

1002
00:51:57,160 --> 00:51:58,000
Speaker 3: Is vastly different.

1003
00:51:58,040 --> 00:52:02,319
Speaker 5: So when people think about the hedgephone industry and they're

1004
00:52:02,320 --> 00:52:05,840
Speaker 5: looking at like a hedge fund benchmark, which is or

1005
00:52:05,880 --> 00:52:11,000
Speaker 5: you know, like ten thousand funds cobbled together, oftentimes they

1006
00:52:11,000 --> 00:52:12,279
Speaker 5: look at it and they're like, well, I don't know

1007
00:52:12,320 --> 00:52:13,040
Speaker 5: what to make of this.

1008
00:52:13,160 --> 00:52:13,719
Speaker 3: It has an.

1009
00:52:13,680 --> 00:52:18,600
Speaker 5: Okay return and an okay volatility with okay characteristics. Maybe

1010
00:52:18,640 --> 00:52:21,440
Speaker 5: I don't need it. And it's the right conclusion to

1011
00:52:21,480 --> 00:52:25,920
Speaker 5: the wrong answer, right and and oh, I'm sorry, the

1012
00:52:26,000 --> 00:52:30,440
Speaker 5: right conclusion for the wrong question, right, And like again,

1013
00:52:31,000 --> 00:52:34,359
Speaker 5: the observation is correct, But really the question is can

1014
00:52:34,400 --> 00:52:39,560
Speaker 5: I look at subsets of this industry that are deeply valuable,

1015
00:52:39,920 --> 00:52:42,400
Speaker 5: rather than just looking at the whole thing as a whole.

1016
00:52:42,960 --> 00:52:45,799
Speaker 5: And we would strongly suggest that if people are just

1017
00:52:45,840 --> 00:52:50,239
Speaker 5: looking at the aggregate industry, they're missing the point that

1018
00:52:50,360 --> 00:52:56,000
Speaker 5: beneath that there are strategies and substrategies and certainly managers

1019
00:52:56,040 --> 00:53:00,160
Speaker 5: that are add an enormous, enormous value that's being overlooked by,

1020
00:53:00,440 --> 00:53:03,759
Speaker 5: you know, someone who's plugging the average into an optimizer.

1021
00:53:04,080 --> 00:53:07,920
Speaker 2: I'm so glad you said that, because over the course

1022
00:53:07,960 --> 00:53:11,279
Speaker 2: of twenty five thirty years, I've watched the hedge fund

1023
00:53:11,360 --> 00:53:15,520
Speaker 2: industry change so dramatically, and my own views on it

1024
00:53:15,560 --> 00:53:18,880
Speaker 2: have evolved. It's very easy to look at a broad

1025
00:53:18,920 --> 00:53:22,400
Speaker 2: index and say, gee, this is expensive and doesn't generate

1026
00:53:22,440 --> 00:53:25,480
Speaker 2: great returns. But again, depending on what you want to

1027
00:53:25,560 --> 00:53:28,680
Speaker 2: draw the line, top quartile, top decile, when you look

1028
00:53:28,719 --> 00:53:33,040
Speaker 2: at the top performing funds, there is genuine alpha generation.

1029
00:53:32,760 --> 00:53:33,440
Speaker 3: Yeah, for sure.

1030
00:53:33,719 --> 00:53:36,239
Speaker 5: And interestingly, like if we would have met, you know,

1031
00:53:36,320 --> 00:53:38,879
Speaker 5: twenty five years ago, fifteen years ago, like I would

1032
00:53:38,920 --> 00:53:41,040
Speaker 5: have said the same thing is that, Like I'm not

1033
00:53:41,719 --> 00:53:44,960
Speaker 5: here to say the hedge fund industry as a whole

1034
00:53:45,880 --> 00:53:49,319
Speaker 5: is such a tremendous value proposition Like that was never

1035
00:53:49,520 --> 00:53:50,320
Speaker 5: the thesis.

1036
00:53:50,400 --> 00:53:50,600
Speaker 2: You know.

1037
00:53:50,680 --> 00:53:52,040
Speaker 3: The thesis is more.

1038
00:53:52,400 --> 00:53:54,759
Speaker 5: Are there one hundred or two hundred managers out there

1039
00:53:54,800 --> 00:53:58,400
Speaker 5: that are adding enormous value? Yes, and you know ken

1040
00:53:59,120 --> 00:54:03,040
Speaker 5: through great due diligence. I can myself and other people

1041
00:54:03,320 --> 00:54:05,000
Speaker 5: find them if they if they spend a time and

1042
00:54:05,040 --> 00:54:05,680
Speaker 5: do a great job.

1043
00:54:05,880 --> 00:54:06,120
Speaker 3: Yes.

1044
00:54:06,320 --> 00:54:09,759
Speaker 5: And is that tremendously value in portfolios, yes, you know,

1045
00:54:09,880 --> 00:54:14,080
Speaker 5: but it's not about the hedge fund industry as a whole,

1046
00:54:14,760 --> 00:54:17,920
Speaker 5: and the averages are gonna knock the lights out.

1047
00:54:18,200 --> 00:54:23,520
Speaker 2: Jim Jim Chanos has this quota of He says, you know,

1048
00:54:23,560 --> 00:54:26,040
Speaker 2: when he started out in the late eighties early nineties,

1049
00:54:26,480 --> 00:54:28,080
Speaker 2: there were a couple of hundred hedge funds and the

1050
00:54:28,160 --> 00:54:31,480
Speaker 2: all generated alpha. Today there's eleven thousand hedge funds and

1051
00:54:31,520 --> 00:54:34,800
Speaker 2: it's the same two hundred hedge funds generating alpha. Which

1052
00:54:34,880 --> 00:54:37,080
Speaker 2: do you know, there's a lot of truth to Sturgeon's law.

1053
00:54:37,120 --> 00:54:40,200
Speaker 2: There's a lot of truth to ninety percent of everything's

1054
00:54:40,800 --> 00:54:41,320
Speaker 2: not great.

1055
00:54:41,719 --> 00:54:44,520
Speaker 3: Yeah, yeah, I don't know if it's the same two hundred.

1056
00:54:44,239 --> 00:54:48,320
Speaker 2: But he said the same number, not necessarily the same funds.

1057
00:54:48,560 --> 00:54:51,480
Speaker 5: They come and go, yeah, Look, it's it's an industry

1058
00:54:51,640 --> 00:54:56,080
Speaker 5: and an asset class and a fee structure that attracts

1059
00:54:56,080 --> 00:55:00,239
Speaker 5: a lot of people. But and you know, and and

1060
00:55:00,360 --> 00:55:02,640
Speaker 5: many of them deserve that fee structure, and many of

1061
00:55:02,680 --> 00:55:06,680
Speaker 5: them are are great. But yeah, you know, obviously you

1062
00:55:06,760 --> 00:55:07,640
Speaker 5: need to be selective.

1063
00:55:08,000 --> 00:55:08,480
Speaker 4: Absolutely.

1064
00:55:08,520 --> 00:55:11,279
Speaker 2: All right, let's jump to our favorite questions that we

1065
00:55:11,440 --> 00:55:14,800
Speaker 2: ask all of our guests, starting with tell us about

1066
00:55:14,800 --> 00:55:17,360
Speaker 2: your mentors who helped shape your career.

1067
00:55:18,480 --> 00:55:21,520
Speaker 3: Sure, I think so to to come to mind.

1068
00:55:21,520 --> 00:55:24,399
Speaker 5: I mean, if I go back, really, you know, back

1069
00:55:24,440 --> 00:55:27,120
Speaker 5: to high school, and I'm forgetting I'm forgetting his name.

1070
00:55:27,760 --> 00:55:28,879
Speaker 3: It's my wrestling coach.

1071
00:55:28,920 --> 00:55:30,919
Speaker 4: I swear to god, I knew you to say that.

1072
00:55:30,960 --> 00:55:34,200
Speaker 5: Is my Yes, my wrestling coach who was my economics professor.

1073
00:55:34,400 --> 00:55:38,600
Speaker 5: And this is when I first started getting interested in

1074
00:55:38,600 --> 00:55:44,040
Speaker 5: in investments and started reading you know, uh, I don't know,

1075
00:55:44,080 --> 00:55:47,719
Speaker 5: some of like the classic books from from way way back.

1076
00:55:47,760 --> 00:55:51,920
Speaker 5: When one I'm in street stockture, you know, and he

1077
00:55:52,040 --> 00:55:53,680
Speaker 5: was the one I kind of encourage and we actually

1078
00:55:53,719 --> 00:55:55,759
Speaker 5: played this game at the end of the year, which

1079
00:55:55,800 --> 00:55:57,879
Speaker 5: was like a stock market game, and I actually found

1080
00:55:57,880 --> 00:56:00,839
Speaker 5: an arbitrage and we've made more money than anyone had

1081
00:56:00,880 --> 00:56:03,120
Speaker 5: ever made, you know, And he's like, you know, that's

1082
00:56:03,239 --> 00:56:05,960
Speaker 5: kind of like real life finance, you should you know,

1083
00:56:05,960 --> 00:56:09,480
Speaker 5: if it's that interesting, you should exploit. So I credit

1084
00:56:09,560 --> 00:56:12,840
Speaker 5: him for kind of pushing helping push me in that direction.

1085
00:56:13,080 --> 00:56:17,040
Speaker 5: And then from a career standpoint, I mentioned Joel Katzman,

1086
00:56:17,239 --> 00:56:20,000
Speaker 5: who you know, hired me to you know, start to

1087
00:56:20,080 --> 00:56:22,839
Speaker 5: visit with him, and yeah, here was really instrumental.

1088
00:56:22,880 --> 00:56:24,719
Speaker 3: I mean one of the things.

1089
00:56:24,840 --> 00:56:27,360
Speaker 5: I don't think we spend as much time, but like,

1090
00:56:27,400 --> 00:56:31,600
Speaker 5: skepticism is really important. I'm a deeply skeptical person. I

1091
00:56:31,600 --> 00:56:33,520
Speaker 5: think it helps you navigate things. It's one of the

1092
00:56:33,520 --> 00:56:34,800
Speaker 5: pearls of wisdom.

1093
00:56:35,360 --> 00:56:38,399
Speaker 2: Be a skeptic approach due diligence from the perspective where

1094
00:56:38,400 --> 00:56:39,080
Speaker 2: does this break?

1095
00:56:39,320 --> 00:56:40,000
Speaker 3: What does it break?

1096
00:56:40,080 --> 00:56:42,840
Speaker 5: Yeah, and I mean it's like approaching due diligence. I

1097
00:56:43,239 --> 00:56:45,839
Speaker 5: give an analogy of like thinking about a balance sheet

1098
00:56:45,840 --> 00:56:50,359
Speaker 5: where people again behavioral biases you. You you know, too

1099
00:56:50,360 --> 00:56:52,799
Speaker 5: many people say, approach it from the asset side?

1100
00:56:52,840 --> 00:56:55,160
Speaker 3: How much can I make? What's the story?

1101
00:56:55,680 --> 00:56:57,520
Speaker 5: You need to approach it from the liability side, like

1102
00:56:57,520 --> 00:56:58,760
Speaker 5: what can go wrong with this manager?

1103
00:56:58,800 --> 00:57:00,000
Speaker 3: What can go wrong with the strategy?

1104
00:57:00,239 --> 00:57:02,680
Speaker 5: As a break, and then turn to the assets side

1105
00:57:02,719 --> 00:57:06,000
Speaker 5: and effectively say, am I getting compensated for that, right,

1106
00:57:06,080 --> 00:57:09,200
Speaker 5: and you could teach people some of that, but part

1107
00:57:09,239 --> 00:57:11,279
Speaker 5: of it has to be innate as well, like you

1108
00:57:11,360 --> 00:57:15,240
Speaker 5: need to be innate skeptic maybe so any case, Joel.

1109
00:57:15,440 --> 00:57:18,160
Speaker 5: You know, Joel, I think shared my skepticism for sure.

1110
00:57:18,360 --> 00:57:20,840
Speaker 5: He certainly taught me a lot about the business and

1111
00:57:21,600 --> 00:57:22,880
Speaker 5: you know, running a business.

1112
00:57:23,440 --> 00:57:28,240
Speaker 3: So yeah, you know, props of Joel. Let's talk about books.

1113
00:57:28,280 --> 00:57:30,920
Speaker 4: Since you mentioned some books, what are some of your favorites.

1114
00:57:30,920 --> 00:57:31,920
Speaker 4: What are you reading currently?

1115
00:57:32,160 --> 00:57:33,160
Speaker 3: Yeah? So books.

1116
00:57:33,200 --> 00:57:35,439
Speaker 5: So I have a so we investment around one hundred

1117
00:57:35,480 --> 00:57:38,080
Speaker 5: and twenty hedge funds, and that's what you read. Vast

1118
00:57:38,160 --> 00:57:42,480
Speaker 5: majority of what I'm reading is their letters, their research,

1119
00:57:42,520 --> 00:57:46,439
Speaker 5: you know, my my analyst research, and that's the very

1120
00:57:46,480 --> 00:57:48,760
Speaker 5: you know, it's a vast majority. And then like Michael

1121
00:57:48,760 --> 00:57:53,120
Speaker 5: Simblest does great work, really really good work. So I

1122
00:57:53,160 --> 00:57:56,840
Speaker 5: have to say that's consuming the vast majority of my time. Last,

1123
00:57:56,880 --> 00:57:59,200
Speaker 5: the only thing that stands out there is a book.

1124
00:58:00,400 --> 00:58:00,840
Speaker 3: What is it?

1125
00:58:01,320 --> 00:58:04,960
Speaker 5: Speak like Churchill and Stand like Lincoln that my old

1126
00:58:04,960 --> 00:58:07,640
Speaker 5: boss Jamie Kramer, gave it to me. It's about public speaking,

1127
00:58:08,280 --> 00:58:12,160
Speaker 5: which actually really really good, andsightful like easy easy read books.

1128
00:58:11,920 --> 00:58:14,160
Speaker 2: Speak like Churchill stand like Lincoln.

1129
00:58:14,240 --> 00:58:17,520
Speaker 5: Yeah, and it's a real, real easy read to you know,

1130
00:58:17,680 --> 00:58:24,520
Speaker 5: just some like reinforcing some good lessons of public speaking.

1131
00:58:24,840 --> 00:58:31,360
Speaker 2: You mentioned Michael Semblist, so I consume his regular output.

1132
00:58:31,560 --> 00:58:35,680
Speaker 2: And then the JP Morgan Quarterly Guide to the Markets

1133
00:58:36,080 --> 00:58:41,040
Speaker 2: is just a spectacular, spectacular resource, really really fine.

1134
00:58:41,080 --> 00:58:44,360
Speaker 4: It amazing. Let's let's talk about what's keeping you entertained

1135
00:58:44,400 --> 00:58:44,920
Speaker 4: these days.

1136
00:58:44,920 --> 00:58:49,840
Speaker 2: Are you watching or listening to anything well interesting like Netflix?

1137
00:58:49,920 --> 00:58:53,640
Speaker 3: And you know, so, uh yeah, well I.

1138
00:58:53,960 --> 00:58:56,320
Speaker 5: About five and a half year old, and so she's

1139
00:58:56,480 --> 00:58:59,440
Speaker 5: she's dominating the Netflix account.

1140
00:59:00,080 --> 00:59:03,000
Speaker 3: Usually it's a K pop Demon Hunters.

1141
00:59:03,200 --> 00:59:04,600
Speaker 4: That's the number one thing like that.

1142
00:59:05,080 --> 00:59:06,280
Speaker 3: That's kind of said, I don't know if you know

1143
00:59:06,320 --> 00:59:06,840
Speaker 3: what that is.

1144
00:59:07,600 --> 00:59:11,200
Speaker 2: Every time I'm searching for anything, I put it on

1145
00:59:11,280 --> 00:59:13,080
Speaker 2: for thirty seconds and my wife is.

1146
00:59:13,080 --> 00:59:14,520
Speaker 4: What are we watching? Can you take this?

1147
00:59:14,760 --> 00:59:18,080
Speaker 5: Yeah? So, unfortunately it's it's a little it's it's a

1148
00:59:18,080 --> 00:59:21,240
Speaker 5: little too much of K pop Demon Hunters. But you know,

1149
00:59:21,800 --> 00:59:26,440
Speaker 5: away from away from work, I like wine, So it's

1150
00:59:26,480 --> 00:59:30,560
Speaker 5: probably some podcasts or or related to wine, just to

1151
00:59:31,040 --> 00:59:34,280
Speaker 5: when I'm not reading the you know the right, you know,

1152
00:59:34,360 --> 00:59:36,240
Speaker 5: it's so, but there's a there's a great one called

1153
00:59:36,280 --> 00:59:40,680
Speaker 5: Wine with Jimmy, which is uh wine with if you

1154
00:59:40,720 --> 00:59:42,080
Speaker 5: want to do a deep dive on Yeah.

1155
00:59:42,200 --> 00:59:48,400
Speaker 2: Yeah, I literally just bought the I forgot the name

1156
00:59:48,480 --> 00:59:51,920
Speaker 2: of it. But during Amazon Prime it was on my

1157
00:59:51,960 --> 00:59:54,280
Speaker 2: wish list and it was like ninety eight bucks and

1158
00:59:54,320 --> 00:59:56,640
Speaker 2: it showed up for thirty books, the thirty bucks the

1159
00:59:57,840 --> 00:59:59,040
Speaker 2: atlass gund.

1160
00:59:59,160 --> 01:00:00,520
Speaker 4: Oh yeah, win on the world.

1161
01:00:00,800 --> 01:00:01,680
Speaker 3: That's a fat book.

1162
01:00:02,080 --> 01:00:04,760
Speaker 2: Fat And I'm like, all right, that's absolutely worth having

1163
01:00:04,800 --> 01:00:06,360
Speaker 2: on the on the dry bar.

1164
01:00:06,480 --> 01:00:08,360
Speaker 3: Now you have to read it. You look, you look

1165
01:00:08,480 --> 01:00:09,880
Speaker 3: look good, look smart.

1166
01:00:10,800 --> 01:00:13,920
Speaker 2: It's more of a reference guy. But give us some

1167
01:00:13,960 --> 01:00:15,840
Speaker 2: of your favorite wines. If you're not gonna give us

1168
01:00:16,080 --> 01:00:17,280
Speaker 2: more books, give us some wines.

1169
01:00:17,280 --> 01:00:18,320
Speaker 4: What do you what do you drink?

1170
01:00:18,360 --> 01:00:19,200
Speaker 2: What do you like? Well?

1171
01:00:19,240 --> 01:00:22,000
Speaker 3: This is I mean, I like I like red more

1172
01:00:22,040 --> 01:00:22,400
Speaker 3: than white.

1173
01:00:22,480 --> 01:00:25,840
Speaker 5: I like, you know, a I don't know, like a

1174
01:00:25,880 --> 01:00:32,040
Speaker 5: barollo so a nice tannic red red wine. So I

1175
01:00:32,160 --> 01:00:35,000
Speaker 5: you know, I drink a Barolos temporaneo.

1176
01:00:35,280 --> 01:00:39,200
Speaker 2: So we're always looking for a house wine, just like

1177
01:00:39,280 --> 01:00:41,880
Speaker 2: something reasonable that you could pop open anytime.

1178
01:00:42,840 --> 01:00:44,040
Speaker 4: This this.

1179
01:00:45,560 --> 01:00:48,880
Speaker 2: Entray Natali Virgo is about a twenty dollars bottle and

1180
01:00:48,920 --> 01:00:50,680
Speaker 2: it drinks like a fifty dollars.

1181
01:00:50,760 --> 01:00:54,800
Speaker 3: Nice finding those values. Where's it from Italy? Okay?

1182
01:00:54,840 --> 01:00:57,440
Speaker 4: But they only like it's a small winery.

1183
01:00:57,520 --> 01:01:00,360
Speaker 2: They make, you know, a few thousand cases you can't

1184
01:01:00,360 --> 01:01:02,360
Speaker 2: get like I'll get a case and that's it.

1185
01:01:02,360 --> 01:01:04,120
Speaker 4: It's you're done till next year.

1186
01:01:04,160 --> 01:01:06,080
Speaker 3: Well we'll swap great value wines.

1187
01:01:06,120 --> 01:01:11,040
Speaker 2: After there was another one called Xanthos that was a

1188
01:01:11,120 --> 01:01:12,560
Speaker 2: maritage X A. N. T.

1189
01:01:12,880 --> 01:01:13,320
Speaker 3: Joe s.

1190
01:01:13,800 --> 01:01:17,000
Speaker 2: And the twenty seventeen was spectacular. You can't find any Yeah,

1191
01:01:17,120 --> 01:01:19,160
Speaker 2: it was like a fifteen dollars bottle of wine. Drink

1192
01:01:19,200 --> 01:01:22,000
Speaker 2: like a fifty dollars bottle of wine. I don't feel

1193
01:01:22,000 --> 01:01:25,080
Speaker 2: like I have a palette to go much beyond that.

1194
01:01:25,480 --> 01:01:27,600
Speaker 2: Like all right, I appreciate.

1195
01:01:27,320 --> 01:01:29,400
Speaker 5: Listen if you could find twenty dollars bottles of wine

1196
01:01:29,400 --> 01:01:30,680
Speaker 5: and drink like sixty dollars wine.

1197
01:01:30,760 --> 01:01:33,560
Speaker 3: But you know, my I'm forgetting a name. But I

1198
01:01:33,600 --> 01:01:36,600
Speaker 3: have a sanchoves like that, which I founded, one of

1199
01:01:36,600 --> 01:01:38,760
Speaker 3: the ones. You know, you go to these like.

1200
01:01:38,760 --> 01:01:41,919
Speaker 5: Wine tasting events, but you go around and you could

1201
01:01:41,920 --> 01:01:44,800
Speaker 5: taste wine. A bunch of it could be blind, but

1202
01:01:44,880 --> 01:01:47,360
Speaker 5: this is like a games suckling one. You taste all

1203
01:01:47,400 --> 01:01:50,800
Speaker 5: different types of wines and.

1204
01:01:49,800 --> 01:01:51,480
Speaker 3: Then you you know, you I don't know.

1205
01:01:51,520 --> 01:01:53,160
Speaker 5: For me, I take pictures and the ones I like,

1206
01:01:53,200 --> 01:01:55,400
Speaker 5: and then you go back and then you look it

1207
01:01:55,480 --> 01:01:56,960
Speaker 5: up and some of them are like one hundred and

1208
01:01:56,960 --> 01:01:58,680
Speaker 5: fifty dollars and you're like, oh, I didn't find anything.

1209
01:01:58,720 --> 01:01:59,960
Speaker 5: And then you you know, you see one that's like

1210
01:02:00,080 --> 01:02:02,240
Speaker 5: twenty bucks, and you're like, all right, maybe I maybe

1211
01:02:02,280 --> 01:02:04,200
Speaker 5: I found the jewel.

1212
01:02:04,640 --> 01:02:07,440
Speaker 2: Right, it's easy to get disappointed in one hundred and

1213
01:02:07,440 --> 01:02:07,959
Speaker 2: fifty dollars.

1214
01:02:08,000 --> 01:02:09,160
Speaker 4: Well one it's twenty dollars.

1215
01:02:09,800 --> 01:02:11,400
Speaker 3: It's there's a lot of great wine.

1216
01:02:11,720 --> 01:02:13,520
Speaker 2: And then you go to Italy and you sit at

1217
01:02:13,520 --> 01:02:15,400
Speaker 2: a cafe and you get an eight dollar caref and

1218
01:02:15,440 --> 01:02:16,880
Speaker 2: it's thank you fatacular.

1219
01:02:17,080 --> 01:02:17,240
Speaker 5: Right.

1220
01:02:17,560 --> 01:02:20,439
Speaker 2: It's just so crazy trying to figure figure that out.

1221
01:02:21,800 --> 01:02:25,000
Speaker 2: So our final two questions, what sort of advice would

1222
01:02:25,040 --> 01:02:28,200
Speaker 2: you give to a recent college grad interest in the

1223
01:02:28,280 --> 01:02:32,880
Speaker 2: career in either investing or hedge funds or alternatives.

1224
01:02:34,080 --> 01:02:36,840
Speaker 5: Yeah, so, I mean, first, you know, and I guess

1225
01:02:36,880 --> 01:02:39,480
Speaker 5: it's it's a cliche, but like the like do what

1226
01:02:39,560 --> 01:02:43,120
Speaker 5: you love thing is so real and valuable, but I

1227
01:02:43,120 --> 01:02:45,200
Speaker 5: think you have to like find what you love first,

1228
01:02:45,360 --> 01:02:47,640
Speaker 5: like when you're when you're twenty years old, I don't

1229
01:02:47,680 --> 01:02:50,120
Speaker 5: know that anyone the big world like has a great

1230
01:02:50,240 --> 01:02:52,800
Speaker 5: vision on it. I would say, like, trust your instinct,

1231
01:02:52,920 --> 01:02:56,600
Speaker 5: you know. So like it's obvious to me today why

1232
01:02:56,640 --> 01:02:59,520
Speaker 5: I'm doing what I'm doing. It's like this is I

1233
01:02:59,520 --> 01:03:04,200
Speaker 5: don't know. I'm I'm skeptical, I'm structured, I'm creative, I'm

1234
01:03:04,400 --> 01:03:07,920
Speaker 5: like curious, Like it makes sense today. It didn't make

1235
01:03:08,040 --> 01:03:13,280
Speaker 5: sense completely at the time, but like you follow your instinct.

1236
01:03:13,280 --> 01:03:15,360
Speaker 5: You're like, oh, I love to do this, So I'm

1237
01:03:15,520 --> 01:03:18,880
Speaker 5: working on the weekend every week because like this really

1238
01:03:18,880 --> 01:03:21,880
Speaker 5: intrigues me and it's interesting, and like, you know, I

1239
01:03:21,920 --> 01:03:24,160
Speaker 5: don't know, they not pay me and I'm still doing

1240
01:03:24,200 --> 01:03:26,720
Speaker 5: this right, So, like I think being true to yourself

1241
01:03:26,760 --> 01:03:30,320
Speaker 5: and really exploring, like what makes you happy, what makes you,

1242
01:03:30,320 --> 01:03:33,840
Speaker 5: you know, intrigued, what really makes you dive deep on things,

1243
01:03:34,360 --> 01:03:36,720
Speaker 5: and then continue to lean in and continue to pursue.

1244
01:03:36,480 --> 01:03:37,760
Speaker 3: It and learn learn more and more.

1245
01:03:39,080 --> 01:03:41,080
Speaker 5: Maybe the second part of it is just be a

1246
01:03:41,120 --> 01:03:44,080
Speaker 5: student of history, so whether you are, so I like baseball,

1247
01:03:44,160 --> 01:03:46,560
Speaker 5: and you know, I think like when I was young,

1248
01:03:46,640 --> 01:03:48,480
Speaker 5: like how much I learned about the you know, Tay

1249
01:03:48,560 --> 01:03:51,240
Speaker 5: Cobs and Tamasio and Ruths and everybody. Like I think

1250
01:03:51,240 --> 01:03:53,680
Speaker 5: if you're a baseball player, like you should know the history.

1251
01:03:54,000 --> 01:03:56,200
Speaker 5: If you're going into the edgemand industry, like, you should

1252
01:03:56,280 --> 01:03:59,360
Speaker 5: know the history. When I say, David Askin, you know

1253
01:03:59,440 --> 01:04:02,040
Speaker 5: you should know it. You know, so like take the

1254
01:04:02,120 --> 01:04:05,600
Speaker 5: time to understand the history because I mean a number

1255
01:04:05,640 --> 01:04:08,720
Speaker 5: of reasons. One it gives you context, but two like

1256
01:04:08,760 --> 01:04:12,840
Speaker 5: the mistakes and the opportunity is often you know, often

1257
01:04:12,920 --> 01:04:14,760
Speaker 5: rhyme with each other, right, So like, how do you

1258
01:04:14,800 --> 01:04:18,200
Speaker 5: like investing in twenty twenty? And watch twenty twenty? Turns

1259
01:04:18,200 --> 01:04:20,600
Speaker 5: out it looked a lot like twenty eighteen, two thousand

1260
01:04:20,640 --> 01:04:23,920
Speaker 5: and eight, nineteen ninety eight, Like there were elements that

1261
01:04:23,960 --> 01:04:27,800
Speaker 5: are very very similar, and being a student of history

1262
01:04:27,840 --> 01:04:29,920
Speaker 5: helps you navigate much better in the future.

1263
01:04:30,760 --> 01:04:34,360
Speaker 2: To say, the very least final question, what do you

1264
01:04:34,440 --> 01:04:37,400
Speaker 2: know about the world of investing in hedge funds today?

1265
01:04:37,400 --> 01:04:40,200
Speaker 2: That would have been useful back in nineteen ninety four

1266
01:04:40,240 --> 01:04:44,360
Speaker 2: when you were first launching JP Morgan alternative asset.

1267
01:04:44,440 --> 01:04:49,400
Speaker 5: Well, I mean there's no Internet, right, so back in

1268
01:04:49,480 --> 01:04:52,040
Speaker 5: nineteen ninety five, I mean I don't know. You like,

1269
01:04:52,560 --> 01:04:54,880
Speaker 5: we knew a fraction, we knew five percent of what

1270
01:04:54,960 --> 01:04:57,840
Speaker 5: we knew today, but it was fifty percent more than

1271
01:04:57,880 --> 01:05:02,200
Speaker 5: next person knew, right, So I mean it's all about

1272
01:05:02,320 --> 01:05:04,400
Speaker 5: it's all about getting you know, it's all about getting

1273
01:05:04,400 --> 01:05:06,600
Speaker 5: an edge and continue to reinvent yourself. I think the

1274
01:05:06,680 --> 01:05:10,040
Speaker 5: biggest the biggest lessons learned for you know, for us,

1275
01:05:10,080 --> 01:05:14,040
Speaker 5: but for the industry is and what I would have

1276
01:05:14,280 --> 01:05:17,440
Speaker 5: taken back if I could, is just the depth of

1277
01:05:17,560 --> 01:05:22,640
Speaker 5: understanding on financing. So you know, in financing agreements right

1278
01:05:22,720 --> 01:05:26,080
Speaker 5: like prime broken agreements and term and triggers and all

1279
01:05:26,520 --> 01:05:28,840
Speaker 5: sorts of things that have caused problems over the years.

1280
01:05:30,440 --> 01:05:32,520
Speaker 5: If you could take that one, you know, and it's

1281
01:05:32,560 --> 01:05:35,200
Speaker 5: caused a lot of you know, pain historically from time

1282
01:05:35,240 --> 01:05:37,360
Speaker 5: to time. And if you had that knowledge and you

1283
01:05:37,520 --> 01:05:41,080
Speaker 5: pull that back to nineteen ninety five, wow, you would

1284
01:05:41,120 --> 01:05:43,640
Speaker 5: be able to you know, navigate.

1285
01:05:43,240 --> 01:05:44,840
Speaker 3: You seamlessly.

1286
01:05:45,760 --> 01:05:48,480
Speaker 5: Across the industry in a way that you know was

1287
01:05:48,560 --> 01:05:51,240
Speaker 5: much bumpier for everybody along the way.

1288
01:05:52,520 --> 01:05:53,240
Speaker 4: Paul, Thank you.

1289
01:05:53,320 --> 01:05:56,360
Speaker 2: This has been absolutely fascinating, and thank you for being

1290
01:05:56,400 --> 01:05:59,440
Speaker 2: so generous with your time. We have been speaking with

1291
01:05:59,520 --> 01:06:05,440
Speaker 2: Paul's he's chief investment officer at JP Morgan Alternative Asset Management.

1292
01:06:06,040 --> 01:06:08,680
Speaker 2: If you enjoy this conversation, well, check out any of

1293
01:06:08,680 --> 01:06:11,560
Speaker 2: the six hundred we've done over the past twelve years.

1294
01:06:11,600 --> 01:06:16,200
Speaker 2: You can find those that Spotify, iTunes, Bloomberg YouTube, wherever

1295
01:06:16,240 --> 01:06:18,920
Speaker 2: you find your favorite podcasts, and be sure and check

1296
01:06:18,920 --> 01:06:22,720
Speaker 2: out my new book, How Not to Invest The Ideas, numbers,

1297
01:06:22,720 --> 01:06:26,640
Speaker 2: and behaviors that destroy Wealth and How to avoid them

1298
01:06:27,080 --> 01:06:30,960
Speaker 2: wherever you buy your favorite books. I would be remiss

1299
01:06:31,040 --> 01:06:33,000
Speaker 2: if I did not thank the Crack team that helps

1300
01:06:33,040 --> 01:06:37,800
Speaker 2: put these conversations together each week. Alexis Noriega is my

1301
01:06:38,040 --> 01:06:43,000
Speaker 2: video producer. Anna Luke is my regular producer. Sage Bauman

1302
01:06:43,120 --> 01:06:46,320
Speaker 2: is the head of podcasts here at Bloomberg. Sean Russo

1303
01:06:46,520 --> 01:06:50,720
Speaker 2: is my researcher. I'm Barry Ritolts. You've been listening to

1304
01:06:50,840 --> 01:06:53,640
Speaker 2: Masters in Business on Bloomberg Radio.