1
00:00:00,160 --> 00:00:01,400
Speaker 1: Hello, Odd Lots listeners.

2
00:00:01,440 --> 00:00:04,600
Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, We're doing

3
00:00:04,680 --> 00:00:06,960
Speaker 2: another live show and it's right here in New York City.

4
00:00:07,160 --> 00:00:10,160
Speaker 3: Yeah, this one should be our biggest yet, and we're

5
00:00:10,160 --> 00:00:12,560
Speaker 3: going to have a bunch of Odd Lots favorites and

6
00:00:12,840 --> 00:00:15,600
Speaker 3: do something maybe a little different to some of our

7
00:00:15,640 --> 00:00:17,919
Speaker 3: previous live podcast recordings.

8
00:00:17,960 --> 00:00:20,799
Speaker 2: When the guests are revealed, the show is going to

9
00:00:20,840 --> 00:00:22,520
Speaker 2: sell out right away, so you should really just go

10
00:00:22,560 --> 00:00:23,920
Speaker 2: get your ticket right now.

11
00:00:24,280 --> 00:00:25,480
Speaker 1: It's June twenty sixth.

12
00:00:25,480 --> 00:00:28,120
Speaker 2: It's at Recket, NYC, and you can find a ticket

13
00:00:28,120 --> 00:00:31,160
Speaker 2: link at Bloomberg dot com slash odd Lots or Bloomberg

14
00:00:31,160 --> 00:00:34,200
Speaker 2: Events dot com slash odd Lots Live and why.

15
00:00:34,080 --> 00:00:35,120
Speaker 3: We hope to see you there.

16
00:00:38,000 --> 00:00:53,240
Speaker 4: Bloomberg Audio Studios, Podcasts, Radio News.

17
00:00:53,520 --> 00:00:56,680
Speaker 3: Hello and welcome to another episode of the Authoughts podcast.

18
00:00:56,800 --> 00:00:58,280
Speaker 3: I'm Tracy Alloway.

19
00:00:57,960 --> 00:00:59,120
Speaker 1: And I'm Joe Wisenthal.

20
00:00:59,600 --> 00:01:04,320
Speaker 3: Joe, did you, at some point last month when markets

21
00:01:04,360 --> 00:01:07,920
Speaker 3: were being very, very dramatic, did you maybe hear that

22
00:01:08,000 --> 00:01:11,880
Speaker 3: a pod was blowing up? Maybe just maybe.

23
00:01:11,680 --> 00:01:15,640
Speaker 2: I probably saw some tweets, probably tongue in cheek. I

24
00:01:15,680 --> 00:01:18,600
Speaker 2: may have sent some dms to people saying jokingly, have

25
00:01:18,640 --> 00:01:20,959
Speaker 2: you heard of any pods blowing up? But no, it's

26
00:01:21,000 --> 00:01:23,759
Speaker 2: become such a meme. Anytime like the market moves half

27
00:01:23,840 --> 00:01:27,160
Speaker 2: a percent, I imagine some pods did blow up. But it

28
00:01:27,240 --> 00:01:28,759
Speaker 2: is a funny joke, good intro.

29
00:01:29,080 --> 00:01:32,000
Speaker 3: It's definitely become a thing. But I think it kind

30
00:01:32,040 --> 00:01:35,240
Speaker 3: of highlights something something very real, which is there is

31
00:01:35,280 --> 00:01:39,120
Speaker 3: this mystique around pod shops, the multi strategy hedge funds,

32
00:01:39,440 --> 00:01:42,480
Speaker 3: and whenever something weird is happening in markets now, they

33
00:01:42,680 --> 00:01:45,360
Speaker 3: tend to get blamed or people start joking about them.

34
00:01:45,680 --> 00:01:48,440
Speaker 3: And also part of the mystique is there's just a

35
00:01:48,480 --> 00:01:51,160
Speaker 3: lot of interest in why they seem to be so

36
00:01:51,320 --> 00:01:54,080
Speaker 3: hot right now blowing up in a very different way.

37
00:01:54,520 --> 00:01:58,920
Speaker 3: And what exactly is the attraction for big allocators of capital,

38
00:01:59,480 --> 00:02:02,520
Speaker 3: because I always think it's not like big investors can't

39
00:02:02,720 --> 00:02:06,080
Speaker 3: create their own diversified portfolios or invest in a fund

40
00:02:06,080 --> 00:02:09,920
Speaker 3: of funds or traditional two and twenty or whatever. So

41
00:02:10,400 --> 00:02:14,079
Speaker 3: what exactly is it about the pod shops that makes

42
00:02:14,120 --> 00:02:14,919
Speaker 3: them so attractive.

43
00:02:15,120 --> 00:02:19,320
Speaker 2: We've done a lot of episodes on the multistreads at

44
00:02:19,320 --> 00:02:21,600
Speaker 2: this point, the pod shops so various flavors.

45
00:02:21,800 --> 00:02:24,240
Speaker 1: There are still a lot of things I don't understand.

46
00:02:24,320 --> 00:02:27,000
Speaker 2: First of all, my understanding is that they sort of

47
00:02:27,040 --> 00:02:30,240
Speaker 2: continue to prove their metal. I mean, it seems like

48
00:02:30,360 --> 00:02:33,400
Speaker 2: they didn't lose a lot of money in April during

49
00:02:33,440 --> 00:02:38,880
Speaker 2: some of that volatility, So they have this promise uncorrelated returns.

50
00:02:38,960 --> 00:02:41,959
Speaker 2: We'll get into how they deliver that. So far, it

51
00:02:42,080 --> 00:02:46,280
Speaker 2: seems like they continue to more or less do what's advertised.

52
00:02:46,840 --> 00:02:49,440
Speaker 2: I have a lot of questions about how and what

53
00:02:49,600 --> 00:02:51,680
Speaker 2: is the actual source of alpha and how long can

54
00:02:51,760 --> 00:02:53,880
Speaker 2: this go on, and whether there are a lot of

55
00:02:53,919 --> 00:02:57,120
Speaker 2: copycats and whether that will cause alpha decay and all

56
00:02:57,160 --> 00:02:57,920
Speaker 2: this stuff.

57
00:02:58,400 --> 00:03:01,359
Speaker 3: I have questions about comp the most important thing.

58
00:03:01,600 --> 00:03:03,840
Speaker 2: Well, this is really important, and actually, you know, we

59
00:03:03,880 --> 00:03:07,680
Speaker 2: did that episode with the founder of Freestone, Grove dan Morello,

60
00:03:08,000 --> 00:03:11,240
Speaker 2: just a lot of the conversation was about comp And

61
00:03:11,400 --> 00:03:14,280
Speaker 2: I'm interested in comp because I'm interested in the topic

62
00:03:14,320 --> 00:03:16,959
Speaker 2: of making a lot of money, But also I get

63
00:03:16,960 --> 00:03:22,600
Speaker 2: the impression that comp and incentive alignment more broadly is

64
00:03:22,800 --> 00:03:26,280
Speaker 2: actually one of the key problems that people are trying

65
00:03:26,320 --> 00:03:27,400
Speaker 2: to solve for all the time.

66
00:03:27,480 --> 00:03:30,000
Speaker 3: I think that's right. Okay, So I am very pleased

67
00:03:30,000 --> 00:03:32,040
Speaker 3: to say we do, in fact have the perfect guest.

68
00:03:32,320 --> 00:03:34,600
Speaker 3: We're going to be speaking with Ronan Cosgrave. He is

69
00:03:34,600 --> 00:03:38,360
Speaker 3: a partner at Alburn Partners. So Ronan, thank you so

70
00:03:38,440 --> 00:03:39,520
Speaker 3: much for coming on all thoughts.

71
00:03:39,760 --> 00:03:41,320
Speaker 5: Thank you very much. I'm really honored to be here.

72
00:03:41,600 --> 00:03:45,400
Speaker 3: First question, what exactly is Alborn Partners because it's not

73
00:03:45,600 --> 00:03:46,880
Speaker 3: a pod shop itself.

74
00:03:47,120 --> 00:03:48,400
Speaker 5: No, No, we're so.

75
00:03:48,440 --> 00:03:51,080
Speaker 6: I co lead multi strategy heads fund coverage at Alborn.

76
00:03:51,360 --> 00:03:55,280
Speaker 6: We are an advisory only independently owned consultant. We help

77
00:03:55,360 --> 00:03:58,880
Speaker 6: institutional investors invest in hedge funds, private equity, real estate,

78
00:03:59,040 --> 00:04:01,880
Speaker 6: all across the alternate that spectrum. We have about three

79
00:04:01,920 --> 00:04:05,080
Speaker 6: undred and fifty clients worldwide and we advise on greater

80
00:04:05,160 --> 00:04:07,840
Speaker 6: than seven hundred and fifty billion dollars in assets.

81
00:04:08,120 --> 00:04:11,200
Speaker 2: Okay, give us a little bit more of your background.

82
00:04:11,720 --> 00:04:14,880
Speaker 2: You're the perfect guests to talk about multi strategy hedge

83
00:04:14,880 --> 00:04:18,440
Speaker 2: funds and why allocators like allocating to them. Talk to

84
00:04:18,680 --> 00:04:21,360
Speaker 2: us about like how you built up your familiarity with

85
00:04:21,440 --> 00:04:24,719
Speaker 2: the space and how you've built up your like understanding

86
00:04:24,839 --> 00:04:26,440
Speaker 2: of their inner mechanics.

87
00:04:26,720 --> 00:04:29,160
Speaker 6: That's a long answer. I've been over twenty years in

88
00:04:29,160 --> 00:04:30,000
Speaker 6: the hedge front industry.

89
00:04:30,120 --> 00:04:30,400
Speaker 5: Okay.

90
00:04:30,520 --> 00:04:32,760
Speaker 6: I worked at a fund of funds called Pamco for

91
00:04:32,839 --> 00:04:35,400
Speaker 6: fifteen years or the partner there did a whole lot

92
00:04:35,400 --> 00:04:37,800
Speaker 6: of stuff there, covered pretty much kind of the constituent

93
00:04:38,120 --> 00:04:40,840
Speaker 6: strategies of many of the multi strats, right, so you're

94
00:04:40,839 --> 00:04:45,120
Speaker 6: talking about longstrared equity, long shot credit, convert arab ballarb.

95
00:04:45,440 --> 00:04:47,919
Speaker 6: As it got more difficult, I got more involved, you know.

96
00:04:48,240 --> 00:04:50,880
Speaker 6: Since then, I've worked with Albourne. I joined Albourne for

97
00:04:51,040 --> 00:04:53,640
Speaker 6: four and a bit years ago, and you know, with

98
00:04:53,640 --> 00:04:56,440
Speaker 6: my colleague Martina, we cover the multi strategy universe globally.

99
00:04:56,880 --> 00:05:00,320
Speaker 6: So part of our job really is to kind of

100
00:05:00,960 --> 00:05:04,440
Speaker 6: dig in deep into the multistrats, not just learn about

101
00:05:04,440 --> 00:05:08,359
Speaker 6: the people, but the process, the inner mechanisms of what

102
00:05:08,400 --> 00:05:11,240
Speaker 6: differentiates one particular multi strat from another. And the really

103
00:05:11,279 --> 00:05:13,919
Speaker 6: cool thing is that they're all actually really different, you know.

104
00:05:14,080 --> 00:05:17,000
Speaker 6: And one of the fun things listening to you guys

105
00:05:17,279 --> 00:05:19,520
Speaker 6: is when you talk about pod shops and so on

106
00:05:19,600 --> 00:05:21,919
Speaker 6: and so forth, or multi strats in general, I mean,

107
00:05:22,000 --> 00:05:25,000
Speaker 6: there's huge differences in how they're run internally, you know.

108
00:05:25,080 --> 00:05:27,960
Speaker 6: And the other thing I distinguish in the multi strategy

109
00:05:27,960 --> 00:05:30,040
Speaker 6: space is the pod shops, which are the classic ones

110
00:05:30,080 --> 00:05:32,440
Speaker 6: that are you know, you know, with the three layer

111
00:05:32,480 --> 00:05:36,400
Speaker 6: of the fees versus the more traditional multi strategy hedge funds,

112
00:05:36,400 --> 00:05:37,240
Speaker 6: which are two and twenty.

113
00:05:38,000 --> 00:05:38,200
Speaker 1: Oh.

114
00:05:38,440 --> 00:05:41,160
Speaker 3: That is an important difference, isn't it. Before we get

115
00:05:41,200 --> 00:05:44,120
Speaker 3: into that, I want to ask, when you're doing due

116
00:05:44,160 --> 00:05:48,880
Speaker 3: diligence on possible hedge fund investments, how do you go

117
00:05:48,960 --> 00:05:51,520
Speaker 3: about doing that? Actually, because you just said you dig

118
00:05:51,560 --> 00:05:55,839
Speaker 3: into you know, the culture, the people, risk management. How

119
00:05:55,920 --> 00:05:58,320
Speaker 3: much access do you have and how do you do that?

120
00:05:59,640 --> 00:06:00,880
Speaker 5: That's another big question.

121
00:06:01,440 --> 00:06:03,360
Speaker 6: So the thing is with the multi strategy hedge fund

122
00:06:03,400 --> 00:06:07,480
Speaker 6: space is you start really with the single strategy stuff,

123
00:06:07,800 --> 00:06:10,600
Speaker 6: and it's not really fair to ask anybody to cover

124
00:06:10,680 --> 00:06:13,599
Speaker 6: multi strategies if they haven't worked hard at understanding the

125
00:06:13,600 --> 00:06:17,600
Speaker 6: individual contributions of all the different trades and trade types

126
00:06:17,600 --> 00:06:20,760
Speaker 6: that make up a multi strategy. But the critical thing,

127
00:06:20,760 --> 00:06:23,560
Speaker 6: and you alluded to this, is that multi strategy hedge

128
00:06:23,560 --> 00:06:27,640
Speaker 6: funds are another level of abstraction away from the markets.

129
00:06:27,680 --> 00:06:30,800
Speaker 6: Because yes, we do look at trades, at traders and

130
00:06:30,839 --> 00:06:33,720
Speaker 6: pms and stuff like that, but almost as important as

131
00:06:33,720 --> 00:06:36,640
Speaker 6: you're evaluating them as business models, you're evaluating them as

132
00:06:36,720 --> 00:06:40,880
Speaker 6: risk models and investment models, and you know, they're all

133
00:06:40,920 --> 00:06:43,640
Speaker 6: super interlinked. And one of the things that we look

134
00:06:43,680 --> 00:06:48,240
Speaker 6: at and look for is kind of consistency between all

135
00:06:48,320 --> 00:06:51,560
Speaker 6: the strands, because if you have things that are in

136
00:06:51,600 --> 00:06:55,520
Speaker 6: conflict internally, you end up with a suboptimal outcome, right,

137
00:06:55,560 --> 00:06:57,200
Speaker 6: I mean, we've all lived that in our own personal

138
00:06:57,200 --> 00:07:00,000
Speaker 6: and professional lives. But if things aren't in a line,

139
00:07:00,320 --> 00:07:02,919
Speaker 6: and you mentioned compensation, competition is a huge part of that,

140
00:07:02,960 --> 00:07:04,920
Speaker 6: and I'm you know, one of the things I'd argue

141
00:07:05,520 --> 00:07:09,440
Speaker 6: is that comp affects far, far, far more dimensions of

142
00:07:09,440 --> 00:07:12,480
Speaker 6: a multi strategy hedge fund than almost any aspect.

143
00:07:12,760 --> 00:07:13,720
Speaker 5: Yeah.

144
00:07:14,080 --> 00:07:17,560
Speaker 2: No, this seems very interesting to me because often it

145
00:07:17,600 --> 00:07:21,560
Speaker 2: feels as though, okay, you have some investment strategy and

146
00:07:21,600 --> 00:07:24,480
Speaker 2: then make a lot of money and then okay, some

147
00:07:24,560 --> 00:07:27,080
Speaker 2: of it goes to the manager and some of it

148
00:07:27,120 --> 00:07:30,440
Speaker 2: goes to the outside investor. That's how I conceive of things.

149
00:07:30,520 --> 00:07:33,920
Speaker 2: But it really does seem like comp structure is actually

150
00:07:34,080 --> 00:07:36,160
Speaker 2: core to the business model. But before we get to that,

151
00:07:36,360 --> 00:07:39,080
Speaker 2: why don't you actually go back for listeners, and for

152
00:07:39,160 --> 00:07:42,400
Speaker 2: my sake, when you distinguish between the sort of traditional

153
00:07:42,440 --> 00:07:47,120
Speaker 2: two and twenty multistrats with the so called podshops, In

154
00:07:47,240 --> 00:07:50,040
Speaker 2: my mind, I associate with the millenniums of the world

155
00:07:50,240 --> 00:07:53,080
Speaker 2: but talk to us about the differences in these business

156
00:07:53,120 --> 00:07:54,840
Speaker 2: models when you use these terms.

157
00:07:54,960 --> 00:07:58,240
Speaker 6: Yeah, so I refer to two and twenty simple it's

158
00:07:58,280 --> 00:08:00,720
Speaker 6: a straight management fee of two, but it could be

159
00:08:00,760 --> 00:08:03,960
Speaker 6: any fixed number, and a performance fee of twenty percent

160
00:08:04,080 --> 00:08:05,480
Speaker 6: on the overall portfolio.

161
00:08:05,560 --> 00:08:07,080
Speaker 5: So the only fees paid.

162
00:08:06,880 --> 00:08:09,080
Speaker 6: By the investor are the management fee, which is idignated

163
00:08:09,120 --> 00:08:13,120
Speaker 6: in advance, plus a cut of the gross performance of

164
00:08:13,120 --> 00:08:15,560
Speaker 6: the portfolio as the whole. And that's a really critical

165
00:08:15,640 --> 00:08:19,600
Speaker 6: distinction between between them and the platforms or pod shops. Right,

166
00:08:19,680 --> 00:08:24,040
Speaker 6: so a pod shop has all that right now. First off,

167
00:08:24,440 --> 00:08:26,880
Speaker 6: the first thing that happens is that the management fee

168
00:08:27,000 --> 00:08:28,880
Speaker 6: may or may not be fixed. It can be what's

169
00:08:28,920 --> 00:08:31,040
Speaker 6: known as a pass through fee, where it's kind of

170
00:08:31,040 --> 00:08:33,480
Speaker 6: a blank check in many ways. For the most part,

171
00:08:33,520 --> 00:08:35,840
Speaker 6: they do take good care of that. But the third

172
00:08:35,920 --> 00:08:38,600
Speaker 6: layer of fees that's really important is that there's fees

173
00:08:38,720 --> 00:08:42,360
Speaker 6: payable at the level of the PM, not at the

174
00:08:42,400 --> 00:08:44,920
Speaker 6: overall fund. And when you get to that level, there's

175
00:08:44,960 --> 00:08:47,120
Speaker 6: a lot of things that people take for granted and

176
00:08:47,200 --> 00:08:50,120
Speaker 6: investing just simply breakdown, you know. And to go on

177
00:08:50,160 --> 00:08:52,400
Speaker 6: to that, like the one thing that I keep getting told,

178
00:08:53,040 --> 00:08:55,080
Speaker 6: you know, in my own personal investing life and everybody's

179
00:08:55,080 --> 00:08:58,560
Speaker 6: personal investing life, is that diversification is the only fee

180
00:08:58,600 --> 00:09:03,640
Speaker 6: launch R. When you are paying performance fees on a

181
00:09:04,160 --> 00:09:07,559
Speaker 6: on individual components of a portfolio. Diversification is not a

182
00:09:07,600 --> 00:09:10,280
Speaker 6: free launch. It costs you money, real money.

183
00:09:10,920 --> 00:09:14,679
Speaker 3: Wait, can you explain how do clients? How do investors

184
00:09:14,720 --> 00:09:18,439
Speaker 3: actually pay individual pms? Like, how does that work?

185
00:09:18,960 --> 00:09:19,280
Speaker 5: Yeah?

186
00:09:19,320 --> 00:09:22,000
Speaker 6: So in a pod shop, what you have you think

187
00:09:22,040 --> 00:09:24,800
Speaker 6: about it is you have you know a number of pms,

188
00:09:24,880 --> 00:09:28,559
Speaker 6: anything between five to three hundred and something. They each

189
00:09:28,600 --> 00:09:30,960
Speaker 6: basically have their own individual P and L. Right, so

190
00:09:31,040 --> 00:09:35,000
Speaker 6: they the manager, the overall fund manager track tracks each

191
00:09:35,040 --> 00:09:38,520
Speaker 6: PM and their p and L. They'll charge back all

192
00:09:38,520 --> 00:09:39,920
Speaker 6: the appropriate stuff that would be charged to that. They

193
00:09:40,000 --> 00:09:43,880
Speaker 6: will normally be charged Bloomberg for example, all other trading costs,

194
00:09:43,960 --> 00:09:46,920
Speaker 6: the analysts costs perhaps, and then if that number is

195
00:09:46,920 --> 00:09:50,240
Speaker 6: above zero, the PM gets a payment from the manager

196
00:09:50,280 --> 00:09:52,559
Speaker 6: out of the fund and that's their performance fees. So

197
00:09:52,600 --> 00:09:55,760
Speaker 6: the investors themselves don't actually pay them, paid.

198
00:09:55,520 --> 00:09:56,520
Speaker 5: For them by the manager.

199
00:09:57,800 --> 00:10:01,199
Speaker 2: Now, you said that there can be the instances in

200
00:10:01,320 --> 00:10:04,280
Speaker 2: when diversification is not a free launch, and so I

201
00:10:04,400 --> 00:10:08,000
Speaker 2: take that to mean that you can have situations in

202
00:10:08,040 --> 00:10:10,960
Speaker 2: which at the fund level you don't have a good

203
00:10:11,040 --> 00:10:14,640
Speaker 2: year and you're not making any money. But some pod

204
00:10:14,760 --> 00:10:17,040
Speaker 2: managers had a great year and they still have to

205
00:10:17,040 --> 00:10:19,440
Speaker 2: get paid. And so you talk to us a little

206
00:10:19,440 --> 00:10:24,240
Speaker 2: bit about these conditions under which that diversification can be costly.

207
00:10:24,440 --> 00:10:27,120
Speaker 6: Yeah, let's use a simple, simple model. So you have

208
00:10:27,160 --> 00:10:29,160
Speaker 6: a pod shop, but you want to got two pods,

209
00:10:29,400 --> 00:10:30,760
Speaker 6: and at the end of the year, one pod is

210
00:10:30,840 --> 00:10:33,320
Speaker 6: up ten dollars and one pod is down ten dollars.

211
00:10:33,600 --> 00:10:35,800
Speaker 6: Because it's pod shop, you're paying on the panel of

212
00:10:35,800 --> 00:10:39,200
Speaker 6: each individual PM. So let's say it's twenty percent. Right,

213
00:10:39,240 --> 00:10:43,319
Speaker 6: So on a gross before fees basis your flat. However,

214
00:10:43,720 --> 00:10:46,760
Speaker 6: you're paying the guy who was up ten dollars two dollars, right.

215
00:10:46,840 --> 00:10:50,120
Speaker 6: So after this is added together, now your portfolio is

216
00:10:50,120 --> 00:10:53,480
Speaker 6: down two dollars. And that is netting risk. And the

217
00:10:53,520 --> 00:10:56,600
Speaker 6: interesting thing about netting risk is because to bring it

218
00:10:56,640 --> 00:10:59,679
Speaker 6: out further, is that netting risk you could argue, well,

219
00:10:59,720 --> 00:11:01,280
Speaker 6: that's you and be an issue for the ones that

220
00:11:01,360 --> 00:11:02,800
Speaker 6: pay at the top level.

221
00:11:03,280 --> 00:11:05,000
Speaker 5: Well, the issue is.

222
00:11:04,640 --> 00:11:07,200
Speaker 6: That because they exist in a competitive landscape for pms,

223
00:11:07,720 --> 00:11:10,679
Speaker 6: pod shops can go to a PM who didn't get paid.

224
00:11:11,080 --> 00:11:11,840
Speaker 5: Right, So, if you think.

225
00:11:11,720 --> 00:11:14,720
Speaker 6: About it, if that was a traditional two and twenty

226
00:11:14,800 --> 00:11:17,760
Speaker 6: multi strat ten dollars up, ten dollars down, flash, nobody

227
00:11:17,760 --> 00:11:19,760
Speaker 6: gets paid. The fact is you've got a very very

228
00:11:19,800 --> 00:11:22,600
Speaker 6: unhappy PM who's up ten dollars, he's made ten dollars,

229
00:11:22,640 --> 00:11:25,839
Speaker 6: who's like sitting there in the corner really angry because

230
00:11:25,840 --> 00:11:28,040
Speaker 6: they worked really hard, they made a lot of money

231
00:11:28,480 --> 00:11:29,319
Speaker 6: and they get nothing.

232
00:11:29,880 --> 00:11:31,439
Speaker 5: And the pod shop can ring them up.

233
00:11:31,400 --> 00:11:33,679
Speaker 6: And says we'll take you, yeah you know, and will

234
00:11:33,679 --> 00:11:36,319
Speaker 6: guarantee if you make money you will get paid it.

235
00:11:36,559 --> 00:11:39,160
Speaker 6: The other thing to remember as regards netting risk is

236
00:11:39,200 --> 00:11:42,040
Speaker 6: it's actually we've modeled it at Albourne. We've worked it

237
00:11:42,080 --> 00:11:45,800
Speaker 6: out and using various simulations, it averages for a just

238
00:11:45,840 --> 00:11:48,959
Speaker 6: a regular set of managers and pms around one percent

239
00:11:48,960 --> 00:11:49,280
Speaker 6: a year.

240
00:11:49,960 --> 00:11:50,160
Speaker 5: Right.

241
00:11:50,160 --> 00:11:52,760
Speaker 6: When you think about a two and twenty hedge fund,

242
00:11:52,880 --> 00:11:56,280
Speaker 6: yeah you might, you kind of expectationally, should expect to

243
00:11:56,320 --> 00:11:58,959
Speaker 6: pay one percent of that two percent management fee to

244
00:11:59,040 --> 00:12:01,199
Speaker 6: people who've made money when everybody halse has lost money.

245
00:12:01,440 --> 00:12:03,120
Speaker 6: And it can be way more than that, and that's

246
00:12:03,160 --> 00:12:17,520
Speaker 6: a real business risk.

247
00:12:20,559 --> 00:12:22,880
Speaker 3: So one thing I wanted to ask is I get

248
00:12:22,880 --> 00:12:28,800
Speaker 3: the impression that podshops are very, very competitive, and you know,

249
00:12:28,840 --> 00:12:32,520
Speaker 3: the talent is competitive, but the pod shop itself is

250
00:12:32,559 --> 00:12:36,120
Speaker 3: supposed to kind of work together, right and the positions

251
00:12:36,160 --> 00:12:40,360
Speaker 3: are supposed to diversify and even each other out and

252
00:12:40,400 --> 00:12:42,559
Speaker 3: all of that. So I guess my question is how

253
00:12:42,640 --> 00:12:45,360
Speaker 3: cutthroat is it actually working at a pod shop?

254
00:12:46,559 --> 00:12:47,240
Speaker 5: It varies.

255
00:12:47,720 --> 00:12:51,880
Speaker 6: The fact is that a podshop is an entity that

256
00:12:51,960 --> 00:12:55,600
Speaker 6: can make certain decisions to create either competition or cooperation.

257
00:12:56,120 --> 00:12:59,440
Speaker 6: Any multistract can do this in a pure eat what

258
00:12:59,520 --> 00:13:03,800
Speaker 6: you kill and vironment. Obviously there's no incentive to do cooperation,

259
00:13:04,040 --> 00:13:07,840
Speaker 6: but people do recognize this, right, And what I would

260
00:13:07,880 --> 00:13:12,520
Speaker 6: say for that is that it's all about what do

261
00:13:12,559 --> 00:13:15,640
Speaker 6: you want as what does the manager want to produce?

262
00:13:16,080 --> 00:13:18,960
Speaker 6: And one of the things what I would say is

263
00:13:19,000 --> 00:13:21,120
Speaker 6: there's a real choice that you have to make between

264
00:13:21,240 --> 00:13:24,080
Speaker 6: kind of talent and structure. And what do I mean

265
00:13:24,120 --> 00:13:27,200
Speaker 6: by that? What I mean by that is to use

266
00:13:27,200 --> 00:13:30,000
Speaker 6: the sports context. There's kind of two ways assemble professional

267
00:13:30,000 --> 00:13:32,840
Speaker 6: sports teams. The first is to get a big pilot

268
00:13:32,840 --> 00:13:35,560
Speaker 6: cash and go hire the best players in this position

269
00:13:35,840 --> 00:13:38,679
Speaker 6: and put them on the field and hope for the best. Right,

270
00:13:38,720 --> 00:13:41,040
Speaker 6: that's a focus on talent. The other way is to

271
00:13:41,120 --> 00:13:43,240
Speaker 6: hire a really really good coach with a really good

272
00:13:43,240 --> 00:13:47,880
Speaker 6: system and to have him or her go with their

273
00:13:47,920 --> 00:13:50,640
Speaker 6: team kind of a moneyball system where you put together

274
00:13:50,679 --> 00:13:52,880
Speaker 6: people who fit in the structure. And what that means

275
00:13:53,000 --> 00:13:56,240
Speaker 6: is the first one is like the emphasis on the individual,

276
00:13:56,800 --> 00:13:58,760
Speaker 6: and the second one of the emphasises on it on

277
00:13:58,800 --> 00:14:02,760
Speaker 6: the whole. And when you talk about competition, one of

278
00:14:02,760 --> 00:14:05,160
Speaker 6: the main ways you enforce competition.

279
00:14:04,800 --> 00:14:06,320
Speaker 5: Is probably obviously compensation.

280
00:14:06,800 --> 00:14:10,280
Speaker 6: If you have a situation where it's purely what you

281
00:14:10,360 --> 00:14:12,080
Speaker 6: kill and you get a presentive of your own P

282
00:14:12,160 --> 00:14:15,240
Speaker 6: and L and that's it, it's very very hard to

283
00:14:15,520 --> 00:14:19,840
Speaker 6: enforce that level of That's where you get those cutthroat stories, right.

284
00:14:19,880 --> 00:14:21,960
Speaker 6: But there are many others out there who have other

285
00:14:22,040 --> 00:14:25,160
Speaker 6: ways of doing this who recognize that. You know, if

286
00:14:25,200 --> 00:14:27,840
Speaker 6: you just have everybody in it for themselves, you produce

287
00:14:27,840 --> 00:14:30,560
Speaker 6: a portfolio that's actually suboptimal at the top level.

288
00:14:30,800 --> 00:14:32,280
Speaker 3: This is what I was going to ask. Have you

289
00:14:32,360 --> 00:14:36,119
Speaker 3: noticed a difference in performance between the sort of cutthroat

290
00:14:36,200 --> 00:14:38,880
Speaker 3: competitive firms versus the more cooperative ones.

291
00:14:38,960 --> 00:14:41,320
Speaker 6: That's a really good question, and the short answer is

292
00:14:41,360 --> 00:14:44,760
Speaker 6: it's really hard to distinguish between them. On the outside

293
00:14:45,320 --> 00:14:49,080
Speaker 6: The interesting thing really is more around what happens when

294
00:14:49,080 --> 00:14:51,760
Speaker 6: things are going badly for both that you're more likely

295
00:14:51,800 --> 00:14:53,800
Speaker 6: to have people kind of like quickly leave the more

296
00:14:53,800 --> 00:14:56,480
Speaker 6: competitive and cut throat one. Ah then you would have

297
00:14:56,720 --> 00:14:59,400
Speaker 6: then maybe they're more cooperative, you know. I mean the

298
00:14:59,480 --> 00:15:02,120
Speaker 6: cool thing about the pod shop and the platform space

299
00:15:02,520 --> 00:15:05,000
Speaker 6: is there's literally no right way to do this. There's

300
00:15:05,040 --> 00:15:08,080
Speaker 6: a real series of trade offs, right, and there's choices

301
00:15:08,120 --> 00:15:11,680
Speaker 6: you make have cost many different different dimensions. Because, for example,

302
00:15:11,960 --> 00:15:15,560
Speaker 6: if you choose to do cooperation right and you incentivize everybody,

303
00:15:15,600 --> 00:15:16,880
Speaker 6: you typically would do it in a kind of a

304
00:15:16,880 --> 00:15:20,920
Speaker 6: traditional multi strategy context, right. What that means is that

305
00:15:20,960 --> 00:15:23,320
Speaker 6: you're not going to have the eat what you kill mentality.

306
00:15:23,360 --> 00:15:26,080
Speaker 6: You may have certain bits around that, but if you

307
00:15:26,200 --> 00:15:30,000
Speaker 6: use that thing, you have a very good place to work,

308
00:15:30,880 --> 00:15:31,280
Speaker 6: but you.

309
00:15:31,320 --> 00:15:32,320
Speaker 5: End up with a situation.

310
00:15:32,400 --> 00:15:34,400
Speaker 6: Where As we talked about earlier, netting risk is a

311
00:15:34,440 --> 00:15:37,640
Speaker 6: real cost. So what that often means is that compensation

312
00:15:37,840 --> 00:15:41,400
Speaker 6: choice drives you to be a bit more correlated within

313
00:15:41,480 --> 00:15:43,960
Speaker 6: your own portfolio and be a bit bit less, bit less,

314
00:15:44,360 --> 00:15:47,400
Speaker 6: little lower sharp ratio. Why is that Because if netting

315
00:15:47,480 --> 00:15:49,760
Speaker 6: risk or the cost of netting is a real business risk.

316
00:15:49,800 --> 00:15:51,840
Speaker 6: You choose to minimize it, and the way easily to

317
00:15:51,920 --> 00:15:54,160
Speaker 6: minimize it has had everybody kind of make money at

318
00:15:54,160 --> 00:15:56,600
Speaker 6: the same time everybody kind of lose money at the

319
00:15:56,600 --> 00:15:58,560
Speaker 6: same time, and then you won't be picked off by

320
00:15:58,560 --> 00:16:03,440
Speaker 6: the pod Shopsimilarly, if you have competition, right, competition is

321
00:16:03,560 --> 00:16:08,120
Speaker 6: an incredibly powerful human thing, but it gets out of

322
00:16:08,120 --> 00:16:10,720
Speaker 6: control and you end up with a situation where people

323
00:16:10,800 --> 00:16:13,640
Speaker 6: just burn out and just leave you. People are unhappy.

324
00:16:14,160 --> 00:16:15,880
Speaker 6: You know, you have to kind of keep feeding people

325
00:16:15,960 --> 00:16:18,000
Speaker 6: into it, and you know that that's totally fine because

326
00:16:18,040 --> 00:16:20,480
Speaker 6: there are many other industries out there besides finance that

327
00:16:20,520 --> 00:16:24,080
Speaker 6: does this, you know. But at the same time, you know,

328
00:16:24,120 --> 00:16:25,720
Speaker 6: you end up with a whole lot of scenarios that

329
00:16:25,760 --> 00:16:27,960
Speaker 6: are kind of you end up with a kind of

330
00:16:27,960 --> 00:16:30,880
Speaker 6: a team of rivals, you know, and then that's it's

331
00:16:30,880 --> 00:16:32,400
Speaker 6: a dynamic, but it is the one that you have

332
00:16:32,440 --> 00:16:34,640
Speaker 6: to really control zooming out.

333
00:16:34,920 --> 00:16:38,120
Speaker 2: Obviously, the performance of a lot of the well known

334
00:16:38,240 --> 00:16:42,680
Speaker 2: names has done really well. You're talking to institutional allocators

335
00:16:43,240 --> 00:16:45,800
Speaker 2: other than I guess the fact that the top line

336
00:16:45,840 --> 00:16:48,760
Speaker 2: performance is good and everyone likes making money, what is

337
00:16:48,800 --> 00:16:52,560
Speaker 2: the general pitch? And we've seen this trend obviously from

338
00:16:52,720 --> 00:16:56,680
Speaker 2: allocation to single fund managers. You know your traditional guys

339
00:16:56,680 --> 00:16:58,560
Speaker 2: who would like go on TV and they unveil their

340
00:16:58,600 --> 00:17:01,680
Speaker 2: long or whatever. As a digression. I always think it's

341
00:17:01,680 --> 00:17:04,760
Speaker 2: funny when you see these pod managers on TV and

342
00:17:04,760 --> 00:17:07,400
Speaker 2: they get asked about their thoughts about the market, because

343
00:17:07,400 --> 00:17:09,800
Speaker 2: it's clearly that's not really even what their focus is

344
00:17:09,920 --> 00:17:12,359
Speaker 2: on in terms of business structure design. So I'm always

345
00:17:12,359 --> 00:17:15,480
Speaker 2: sort of raise an eyebrow when I see these conversations.

346
00:17:15,800 --> 00:17:18,800
Speaker 2: Talk to us about what it is about these entities

347
00:17:18,800 --> 00:17:21,639
Speaker 2: in general that holds so much an appeal for an

348
00:17:21,640 --> 00:17:22,720
Speaker 2: institutional allocator.

349
00:17:23,000 --> 00:17:26,080
Speaker 6: They hold appeal for a variety of different reasons, and

350
00:17:26,119 --> 00:17:28,879
Speaker 6: obviously it will depend on the individual mandate of the allocator,

351
00:17:29,280 --> 00:17:31,880
Speaker 6: but there's a couple of fundamental things that really hold

352
00:17:31,960 --> 00:17:34,880
Speaker 6: true across all multi threats. The first one is that

353
00:17:35,880 --> 00:17:38,640
Speaker 6: it's interesting that we talk about pods like there's something new,

354
00:17:38,640 --> 00:17:40,679
Speaker 6: But if you actually if all three of us decided

355
00:17:40,680 --> 00:17:43,719
Speaker 6: to go out and invest into twenty individual hedge funds,

356
00:17:44,560 --> 00:17:47,320
Speaker 6: we'd have the same issue. A. They would be paid

357
00:17:47,560 --> 00:17:49,919
Speaker 6: on what they eat, what they kill. Yeah, B we

358
00:17:50,000 --> 00:17:52,200
Speaker 6: would have to hire and fire people. By the way,

359
00:17:52,600 --> 00:17:55,240
Speaker 6: hiring and firing people. Hiring is fun, Firing sucks.

360
00:17:55,400 --> 00:17:57,920
Speaker 5: Yeah, But the point, but the.

361
00:17:57,880 --> 00:18:00,800
Speaker 6: Overall thing is that each individual pe in that set

362
00:18:00,840 --> 00:18:04,280
Speaker 6: of single strategy hedge funds is allocating according to what

363
00:18:04,520 --> 00:18:07,440
Speaker 6: two things, what they think in their set of investors

364
00:18:07,480 --> 00:18:10,159
Speaker 6: want and be what they're willing to bear because it's

365
00:18:10,160 --> 00:18:13,600
Speaker 6: their only job and their name on the above the door.

366
00:18:14,119 --> 00:18:15,960
Speaker 6: And so what you end up is is your set

367
00:18:16,000 --> 00:18:19,640
Speaker 6: of allocations that when you're roll them up together, are

368
00:18:19,840 --> 00:18:24,080
Speaker 6: individually way under risked, right, and you're not making as

369
00:18:24,160 --> 00:18:25,920
Speaker 6: much money as you should given the talent that you're

370
00:18:25,920 --> 00:18:28,280
Speaker 6: paying for and the amount of fees you're paying. So

371
00:18:28,320 --> 00:18:30,639
Speaker 6: when you hire a multistrats, and part of the thesis

372
00:18:30,680 --> 00:18:33,320
Speaker 6: of multi strats, which which is true, is that because

373
00:18:33,359 --> 00:18:36,399
Speaker 6: they're a unitary portfolio with somebody atop in charge of

374
00:18:36,440 --> 00:18:39,720
Speaker 6: it driving the risk of the individual pms, not the

375
00:18:39,720 --> 00:18:43,239
Speaker 6: individual pms themselves, you can and you really should end

376
00:18:43,320 --> 00:18:45,879
Speaker 6: up with a better return stream because you've coalested all

377
00:18:45,880 --> 00:18:49,240
Speaker 6: together under a single unitary authority and they can put

378
00:18:49,280 --> 00:18:50,920
Speaker 6: them to you know, they put leverage to work, risk

379
00:18:51,000 --> 00:18:54,280
Speaker 6: to work, so that the individual PM might be more

380
00:18:54,359 --> 00:18:56,400
Speaker 6: risky than they really really want to be or maybe

381
00:18:56,440 --> 00:18:58,879
Speaker 6: it's probably obscured from them usually, but at the end

382
00:18:58,880 --> 00:19:01,280
Speaker 6: of the day, that rolls up into an appropriately risk

383
00:19:01,359 --> 00:19:04,280
Speaker 6: portfolio return. Right, And you know, having somebody who worked

384
00:19:04,320 --> 00:19:05,960
Speaker 6: in fund of funds, one of the issues of fund

385
00:19:05,960 --> 00:19:08,360
Speaker 6: of funds is just that you had fantastic sharp ratios,

386
00:19:08,440 --> 00:19:09,400
Speaker 6: but the returns were low.

387
00:19:10,880 --> 00:19:13,520
Speaker 3: That's a really important point. One other thing I wanted

388
00:19:13,520 --> 00:19:17,240
Speaker 3: to ask just on the why allocators are interested in

389
00:19:17,320 --> 00:19:20,879
Speaker 3: multi strats. Point One thing you sometimes hear is that, well,

390
00:19:21,119 --> 00:19:24,440
Speaker 3: multistrats or pod shops they can dip in and out

391
00:19:24,480 --> 00:19:27,280
Speaker 3: of positions really really fast, and they can react to

392
00:19:27,320 --> 00:19:30,080
Speaker 3: the market very very quickly. How true is that?

393
00:19:31,040 --> 00:19:33,720
Speaker 6: So let's go back to two and twenty funds versus

394
00:19:33,760 --> 00:19:35,880
Speaker 6: pod shops, because it's differently.

395
00:19:35,440 --> 00:19:36,520
Speaker 5: True for both of them.

396
00:19:36,880 --> 00:19:39,840
Speaker 6: Let's talk about pod shops first, right in the kind

397
00:19:39,840 --> 00:19:42,040
Speaker 6: of the stylized pod shop, you get to set up,

398
00:19:42,080 --> 00:19:44,440
Speaker 6: you get money, you ale, you invested as a PM,

399
00:19:44,520 --> 00:19:47,040
Speaker 6: and you get paid on that. If you get cut,

400
00:19:47,320 --> 00:19:49,800
Speaker 6: if your capital you get cut substantially. Even with the

401
00:19:49,800 --> 00:19:52,000
Speaker 6: best will in the world and the promises from above

402
00:19:52,000 --> 00:19:54,160
Speaker 6: saying it'll come back to you, your pay has been cut.

403
00:19:55,119 --> 00:19:57,560
Speaker 6: And I mean we're all professionals here. If your pay

404
00:19:57,600 --> 00:20:01,199
Speaker 6: is cut by fifty percent, your updated your CV and

405
00:20:01,240 --> 00:20:04,639
Speaker 6: you're checking the job market. Okay, So in the context

406
00:20:04,640 --> 00:20:08,560
Speaker 6: of responding to opportunities in the market, it's hard to

407
00:20:08,720 --> 00:20:11,040
Speaker 6: move too much too quickly in the context of a

408
00:20:11,080 --> 00:20:14,800
Speaker 6: pod shop, why because of that reason, and be because

409
00:20:14,840 --> 00:20:16,920
Speaker 6: that person may not be there to do when it's

410
00:20:16,920 --> 00:20:20,640
Speaker 6: an opportunity there. So it's kind of hard. They do

411
00:20:20,640 --> 00:20:22,200
Speaker 6: do it, They absolutely do do it. They will lever

412
00:20:22,280 --> 00:20:25,160
Speaker 6: up into opportunity. But when you think about what people's

413
00:20:25,320 --> 00:20:27,439
Speaker 6: kind of perception in their heads of what it is,

414
00:20:27,760 --> 00:20:31,600
Speaker 6: it's completely more static than you'd imagine. In the context

415
00:20:31,680 --> 00:20:36,120
Speaker 6: of a traditional fee structure, the two and twenty, it's different, right,

416
00:20:36,680 --> 00:20:39,480
Speaker 6: everybody is incentivized to get the top line to be

417
00:20:39,480 --> 00:20:42,240
Speaker 6: the highest number it can be. And so if I'm

418
00:20:42,280 --> 00:20:45,560
Speaker 6: a convert manager and your merger art manager, I'm cool

419
00:20:46,119 --> 00:20:48,040
Speaker 6: with being my capital be given away. I assume I

420
00:20:48,040 --> 00:20:50,520
Speaker 6: get it back eventually. But if it makes the overall

421
00:20:50,560 --> 00:20:53,040
Speaker 6: proibly larger, I can benefit in the long run too.

422
00:20:53,720 --> 00:20:57,119
Speaker 6: So the ability and then quite frankly, the willingness to

423
00:20:57,280 --> 00:21:02,560
Speaker 6: move capital in size around it is really that's where

424
00:21:02,600 --> 00:21:04,359
Speaker 6: camp comes in. Camp has now led us to the

425
00:21:04,400 --> 00:21:07,359
Speaker 6: situation where it's hard to move capital right, and you

426
00:21:07,359 --> 00:21:09,080
Speaker 6: think about, like we talked about it, kind of the

427
00:21:09,080 --> 00:21:11,720
Speaker 6: theme of this for me is comp kind of drives everything.

428
00:21:11,720 --> 00:21:14,160
Speaker 6: How you structure your camp is one of the principal

429
00:21:14,840 --> 00:21:17,400
Speaker 6: underlying features or a and how multi strategies work.

430
00:21:18,000 --> 00:21:21,080
Speaker 2: I think this is such an important point because again

431
00:21:21,160 --> 00:21:23,320
Speaker 2: I think, like comp structure.

432
00:21:23,880 --> 00:21:25,520
Speaker 7: You hear about it like people love.

433
00:21:25,400 --> 00:21:29,639
Speaker 2: Reading stories about bonuses, et cetera. And people love reading

434
00:21:29,680 --> 00:21:32,399
Speaker 2: stories about people getting paid a lot of money, or

435
00:21:32,600 --> 00:21:35,440
Speaker 2: maybe they hate read these stories about people love getting

436
00:21:35,480 --> 00:21:38,360
Speaker 2: mayde but this idea that no, this is the business

437
00:21:38,600 --> 00:21:40,959
Speaker 2: you know people. I think when people hear bonuses, they're like, oh,

438
00:21:40,960 --> 00:21:43,199
Speaker 2: you get some extra money. But the business is design.

439
00:21:43,280 --> 00:21:46,199
Speaker 2: I mean, to hear you describe it. The business is

440
00:21:46,240 --> 00:21:48,879
Speaker 2: the design of the bonus. The business is the design

441
00:21:48,960 --> 00:21:49,760
Speaker 2: of the comp.

442
00:21:50,000 --> 00:21:52,360
Speaker 6: It kind of is you know, it drives so much

443
00:21:52,440 --> 00:21:54,320
Speaker 6: if you just think about, like we talked about, how

444
00:21:54,320 --> 00:21:58,520
Speaker 6: a capital allocation is basically held back or you know,

445
00:21:58,560 --> 00:21:59,960
Speaker 6: you're the way you can do it is changed by

446
00:22:00,040 --> 00:22:02,639
Speaker 6: how you compensate people, you know, or constrained is the

447
00:22:02,640 --> 00:22:05,400
Speaker 6: better world. There's other things like I mean you think

448
00:22:05,440 --> 00:22:08,439
Speaker 6: about in the context I going back to like the

449
00:22:08,600 --> 00:22:11,000
Speaker 6: story about the single strategy hedge funds, you also have

450
00:22:11,040 --> 00:22:14,840
Speaker 6: the similar problems. Were given too much leeway in an

451
00:22:14,840 --> 00:22:17,040
Speaker 6: e EQ what you kill environment, pms will start to

452
00:22:17,080 --> 00:22:19,560
Speaker 6: set risk to suit themselves than they do for the

453
00:22:19,600 --> 00:22:23,119
Speaker 6: overall portfolio, because after all, why should they care, you know,

454
00:22:23,160 --> 00:22:25,720
Speaker 6: why should they care about the overall portfolio performance? If

455
00:22:25,800 --> 00:22:28,600
Speaker 6: if I can you know, if I've made money for

456
00:22:28,680 --> 00:22:31,560
Speaker 6: the first nine months of the year, you know, the

457
00:22:31,600 --> 00:22:34,879
Speaker 6: temptation is a lockdown risk and have Christmas, you know,

458
00:22:35,400 --> 00:22:37,199
Speaker 6: enjoy Christmas rather than take more risks where at the

459
00:22:37,200 --> 00:22:40,560
Speaker 6: portfolio at the top level may not want that, you know,

460
00:22:40,600 --> 00:22:43,520
Speaker 6: So you have all these other things that drive others,

461
00:22:43,760 --> 00:22:47,480
Speaker 6: drive these decisions of people, you know, across so many

462
00:22:47,480 --> 00:22:49,959
Speaker 6: different dimensions. It's one of the most fascinating things because

463
00:22:50,359 --> 00:22:53,119
Speaker 6: you know, at Albourn we've done a huge amount of

464
00:22:53,119 --> 00:22:54,080
Speaker 6: work trying to understand this.

465
00:22:54,200 --> 00:22:59,040
Speaker 5: But I learned Python to do this. God help me. Yeah,

466
00:22:59,160 --> 00:23:00,000
Speaker 5: it's just one of those things.

467
00:23:00,480 --> 00:23:02,280
Speaker 7: How does the what.

468
00:23:02,320 --> 00:23:08,080
Speaker 2: You kill environment solve for the problem of the PM

469
00:23:08,440 --> 00:23:10,560
Speaker 2: who's made money for nine months of the year and

470
00:23:10,600 --> 00:23:13,160
Speaker 2: then want to lock it down? What types of risk

471
00:23:13,240 --> 00:23:16,639
Speaker 2: controls or I guess controls for under risk because in

472
00:23:16,640 --> 00:23:19,040
Speaker 2: a way, the thing that they don't want is someone

473
00:23:19,119 --> 00:23:22,600
Speaker 2: taking some risk or you know, getting too conservative. What

474
00:23:22,640 --> 00:23:26,400
Speaker 2: are the approaches that they have to align those incentives

475
00:23:26,400 --> 00:23:28,080
Speaker 2: so that you have to keep going for those final

476
00:23:28,119 --> 00:23:30,160
Speaker 2: three months of the year, even if it means risking

477
00:23:30,200 --> 00:23:30,800
Speaker 2: your great year.

478
00:23:31,119 --> 00:23:34,800
Speaker 6: I mean, sometimes it's very simple minimum amounts of capital

479
00:23:34,840 --> 00:23:38,320
Speaker 6: deployment requiring. You know, it's kind of hard, right because

480
00:23:38,320 --> 00:23:39,680
Speaker 6: at the end of the day, if you've got successful

481
00:23:39,720 --> 00:23:41,840
Speaker 6: PM on the year, yeah, and you want to keep

482
00:23:41,880 --> 00:23:45,399
Speaker 6: them or her, it's not an easy question to answer.

483
00:23:45,560 --> 00:23:47,800
Speaker 6: And like there are more hybrid approaches to these what

484
00:23:47,840 --> 00:23:51,520
Speaker 6: you kill right for example, partnership so you know, many

485
00:23:51,560 --> 00:23:54,440
Speaker 6: funds offer partnership to the pms where they do participate

486
00:23:54,440 --> 00:23:57,680
Speaker 6: in the overall fund fund profits. You know, there's other

487
00:23:57,800 --> 00:24:00,439
Speaker 6: kind of you know, fancier trade ways to make you know,

488
00:24:00,640 --> 00:24:03,040
Speaker 6: increase say the payoffs to the PM depending on the

489
00:24:03,359 --> 00:24:04,200
Speaker 6: fund's performance.

490
00:24:04,640 --> 00:24:06,000
Speaker 5: It fun's overall performance.

491
00:24:06,400 --> 00:24:09,000
Speaker 6: But yeah, it's a really hard problem because it's a camp.

492
00:24:09,040 --> 00:24:13,160
Speaker 6: It's a personal relations problem, you know. I mean sometimes

493
00:24:13,440 --> 00:24:15,160
Speaker 6: you just got to accept it. You got a guy

494
00:24:15,200 --> 00:24:17,000
Speaker 6: who's up coming to the end of the year and

495
00:24:17,040 --> 00:24:19,520
Speaker 6: they're just going to de risking. Look, the thing beyond

496
00:24:19,520 --> 00:24:21,760
Speaker 6: camp is really culture, right, and you can say comp

497
00:24:21,840 --> 00:24:22,760
Speaker 6: drives culture.

498
00:24:22,480 --> 00:24:24,120
Speaker 5: But it's not quite that simple.

499
00:24:24,280 --> 00:24:26,240
Speaker 6: You couldn't just hire the sort of individual who won't

500
00:24:26,320 --> 00:24:28,040
Speaker 6: do that, you know, and a lot of funds will

501
00:24:28,040 --> 00:24:30,959
Speaker 6: talk about we talked about the war for talent. I

502
00:24:31,040 --> 00:24:34,600
Speaker 6: often call it the war on talent. But people go

503
00:24:34,760 --> 00:24:36,520
Speaker 6: to places they want to work with, people who they

504
00:24:36,520 --> 00:24:38,639
Speaker 6: want to work for, and you do try to just

505
00:24:38,680 --> 00:24:42,080
Speaker 6: hire professionals, regular people like us who work through the holidays,

506
00:24:42,080 --> 00:24:43,359
Speaker 6: you know, and stuff like that, you know, just to

507
00:24:43,359 --> 00:24:45,719
Speaker 6: finish off top for the year. You know, you've got

508
00:24:45,760 --> 00:24:46,520
Speaker 6: to hire the right people.

509
00:25:03,040 --> 00:25:07,879
Speaker 3: So listening to talk on pass throughs versus traditional fees

510
00:25:07,960 --> 00:25:10,480
Speaker 3: the two and twenty, I'm kind of wondering why would

511
00:25:10,560 --> 00:25:13,879
Speaker 3: you ever invest in a pass through because when you

512
00:25:13,960 --> 00:25:18,320
Speaker 3: describe the downsides, it's like you don't have as much cooperation.

513
00:25:18,640 --> 00:25:22,119
Speaker 3: Maybe it's harder to move capital around. It seems like

514
00:25:22,200 --> 00:25:25,680
Speaker 3: the traditional fee structure might be the better choice here.

515
00:25:25,800 --> 00:25:27,439
Speaker 3: But tell me why I'm wrong.

516
00:25:27,640 --> 00:25:30,480
Speaker 6: Well, we've been taking I mean that this is partially

517
00:25:30,480 --> 00:25:33,040
Speaker 6: my training, taking the side of the alligator here and

518
00:25:33,080 --> 00:25:36,400
Speaker 6: you're right, like superficially at the top level, a pass

519
00:25:36,440 --> 00:25:38,520
Speaker 6: through it seems like a bad idea for the allocator,

520
00:25:38,720 --> 00:25:41,639
Speaker 6: but there's kind of three people, three entities getting commed.

521
00:25:41,680 --> 00:25:45,840
Speaker 6: Here is the alligator, they're the manager and they're the PM.

522
00:25:46,520 --> 00:25:48,159
Speaker 6: And the thing is one of the one of the

523
00:25:48,160 --> 00:25:51,640
Speaker 6: standout features phychologically of most pms is they all think

524
00:25:51,640 --> 00:25:53,679
Speaker 6: they're really good. That's how you become a PM. You

525
00:25:53,720 --> 00:25:57,119
Speaker 6: become ambitious, you press yourself to test yourself against the market.

526
00:25:57,840 --> 00:26:01,280
Speaker 6: A pass through manager will give you the max compensation

527
00:26:01,880 --> 00:26:04,679
Speaker 6: if you're a good PM, right, And at the end

528
00:26:04,680 --> 00:26:07,359
Speaker 6: of the day, what we're describing is an industry that

529
00:26:07,600 --> 00:26:10,479
Speaker 6: relies on pms to do good work and who are

530
00:26:10,480 --> 00:26:13,000
Speaker 6: really smart. And if you have a situation where they're

531
00:26:13,040 --> 00:26:15,199
Speaker 6: going to get paid in a particular entity more than

532
00:26:15,320 --> 00:26:18,760
Speaker 6: another sort, they will gravitate towards that. So the answer

533
00:26:18,800 --> 00:26:21,320
Speaker 6: to your question is, if alligators had their way, they

534
00:26:21,359 --> 00:26:22,400
Speaker 6: probably wouldn't.

535
00:26:22,040 --> 00:26:23,200
Speaker 5: Want to invest in pass throughs.

536
00:26:23,200 --> 00:26:26,560
Speaker 6: But the fact is that they don't have a choice,

537
00:26:26,880 --> 00:26:28,879
Speaker 6: and pass throughs are you know. The other thing to

538
00:26:28,920 --> 00:26:31,560
Speaker 6: remember is past throughs are good for pms. But the

539
00:26:31,640 --> 00:26:34,600
Speaker 6: interesting thing and people do forget about. This is in

540
00:26:34,640 --> 00:26:38,640
Speaker 6: a past through situation in a pod shop, the PM

541
00:26:38,760 --> 00:26:41,439
Speaker 6: is getting paid from their own P and L. The

542
00:26:41,520 --> 00:26:45,480
Speaker 6: manager themselves is fully aligned with the investor, with the

543
00:26:45,520 --> 00:26:48,840
Speaker 6: allocator because they're only getting paid off the netted of

544
00:26:48,880 --> 00:26:51,280
Speaker 6: all the pass throughs. They're paying off the same P

545
00:26:51,400 --> 00:26:54,600
Speaker 6: and L at the top line as the investor. So

546
00:26:55,160 --> 00:26:57,560
Speaker 6: there is somebody and I mean people do talk about

547
00:26:57,560 --> 00:26:59,399
Speaker 6: how much has been paid, how much they make and whatever.

548
00:26:59,600 --> 00:27:02,080
Speaker 6: It's a an like I've heard it described as the

549
00:27:02,200 --> 00:27:05,560
Speaker 6: worst best job in the world, but it's an incredible

550
00:27:06,320 --> 00:27:09,359
Speaker 6: thing of coordination and getting people together. But they're actually

551
00:27:09,359 --> 00:27:12,239
Speaker 6: incentivized and in aligned within allocator and to give them

552
00:27:12,280 --> 00:27:13,960
Speaker 6: their due. They do their best to do that because

553
00:27:13,960 --> 00:27:16,479
Speaker 6: they are conscious of keeping costs under control because that's

554
00:27:16,520 --> 00:27:18,960
Speaker 6: their profit margin that's eating into I mean the other

555
00:27:19,040 --> 00:27:20,520
Speaker 6: I mean, the other thing is which is kind of

556
00:27:20,520 --> 00:27:22,760
Speaker 6: scary for allocators is the extra layer of.

557
00:27:22,720 --> 00:27:24,960
Speaker 5: Fees, right, and it does cost money.

558
00:27:25,240 --> 00:27:28,280
Speaker 6: And fundamentally speaking, the other thing that camp is driving

559
00:27:28,320 --> 00:27:32,000
Speaker 6: in that case is risk. Right, they're driving leverage. We've

560
00:27:32,000 --> 00:27:36,119
Speaker 6: done simulations and a pass through manager has to be

561
00:27:36,240 --> 00:27:39,520
Speaker 6: around one third more leverage than then the two layer

562
00:27:39,560 --> 00:27:42,160
Speaker 6: of fees two and twenty manager. I mean they have

563
00:27:42,280 --> 00:27:44,199
Speaker 6: to be because they have to make more money to

564
00:27:44,240 --> 00:27:46,880
Speaker 6: pay that extra cache out and it costs.

565
00:27:46,600 --> 00:27:47,600
Speaker 5: Real money to do that.

566
00:27:48,320 --> 00:27:51,200
Speaker 6: And you know, you know, in one sense, price is

567
00:27:51,240 --> 00:27:53,080
Speaker 6: what you pay, values what you get. Returns have been

568
00:27:53,119 --> 00:27:55,760
Speaker 6: really good because of the pass through manager has been

569
00:27:55,760 --> 00:27:59,320
Speaker 6: a really effective business model investing side. Yeah, but yeah,

570
00:27:59,400 --> 00:28:01,520
Speaker 6: I mean alecators do complain about the cost.

571
00:28:02,760 --> 00:28:05,639
Speaker 2: It's something I'm curious about with the very traditional hedge

572
00:28:05,640 --> 00:28:09,800
Speaker 2: fund model, which you described very a good articulation. If

573
00:28:09,800 --> 00:28:13,520
Speaker 2: I'm an institutional allocator, I'm diversified. Therefore, I want my

574
00:28:13,600 --> 00:28:17,760
Speaker 2: allocations to take max risk. The individual hedge fund manager

575
00:28:18,160 --> 00:28:21,080
Speaker 2: might not want to take mask max risk because it's

576
00:28:21,080 --> 00:28:24,000
Speaker 2: their whole career and name on the line. What is

577
00:28:24,240 --> 00:28:28,200
Speaker 2: actually the expectation in the sort of traditional hedge fund

578
00:28:28,200 --> 00:28:31,400
Speaker 2: model for like, how much of the manager's net worth

579
00:28:31,480 --> 00:28:33,280
Speaker 2: is in the fund and how do you establish that?

580
00:28:33,480 --> 00:28:35,240
Speaker 2: And by the way, if I were a hedge fund

581
00:28:35,280 --> 00:28:37,600
Speaker 2: manager had done really well, I would buy a lot

582
00:28:37,640 --> 00:28:40,560
Speaker 2: of mansions and yachts and stuff so that if my

583
00:28:40,600 --> 00:28:43,440
Speaker 2: fund ever went to zero, I still have a lot

584
00:28:43,480 --> 00:28:43,920
Speaker 2: of wealth.

585
00:28:44,600 --> 00:28:48,720
Speaker 6: You've thought this through, jah, Yeah, mentions where in particular.

586
00:28:48,640 --> 00:28:54,840
Speaker 2: Miami, Aspen, the Golf States, New York City and anyway.

587
00:28:55,560 --> 00:28:57,960
Speaker 2: But like, how do they like, how do you how

588
00:28:57,960 --> 00:29:01,760
Speaker 2: do they actually establish that the man is fully aligned

589
00:29:01,880 --> 00:29:03,040
Speaker 2: with the performance of their fund.

590
00:29:03,240 --> 00:29:07,200
Speaker 6: So that is a really really good question because opinions

591
00:29:07,240 --> 00:29:11,840
Speaker 6: really vary there, right, And the standard answer to that

592
00:29:11,920 --> 00:29:15,080
Speaker 6: question is the majority of the manager's liquid net worth

593
00:29:15,520 --> 00:29:17,480
Speaker 6: and you can define that whichever way you want.

594
00:29:18,320 --> 00:29:21,480
Speaker 1: Is their way to audit there. I mean, I say, hey, look,

595
00:29:21,480 --> 00:29:22,560
Speaker 1: I have it all on my fund.

596
00:29:22,960 --> 00:29:24,000
Speaker 5: You can, you can have to admin.

597
00:29:24,480 --> 00:29:27,640
Speaker 6: The manager can authorize the administrator of the fund to

598
00:29:27,680 --> 00:29:30,160
Speaker 6: disclod their investment in the fund to you if you

599
00:29:30,200 --> 00:29:30,840
Speaker 6: ask them nicely.

600
00:29:31,040 --> 00:29:32,240
Speaker 1: They don't know that I have.

601
00:29:32,400 --> 00:29:34,680
Speaker 2: They wouldn't know if I had a billion dollars in

602
00:29:34,720 --> 00:29:36,120
Speaker 2: bitcoin on a private wallet.

603
00:29:36,160 --> 00:29:37,840
Speaker 1: That's not any any key.

604
00:29:37,880 --> 00:29:41,280
Speaker 2: I'm just saying I would when I hear this, I

605
00:29:41,320 --> 00:29:43,560
Speaker 2: saw this in your notes. When I hear this, my

606
00:29:43,640 --> 00:29:46,560
Speaker 2: first mind goes to how can I pocket net worth

607
00:29:46,600 --> 00:29:49,040
Speaker 2: and places that aren't easily visible, and so I'm not

608
00:29:49,080 --> 00:29:50,360
Speaker 2: fully exposed to my own fund.

609
00:29:50,760 --> 00:29:55,560
Speaker 5: Sorry, look, I mean they actually big They's a bigger question.

610
00:29:55,400 --> 00:29:58,040
Speaker 6: There, okay, In which you mentioned at the starter your

611
00:29:58,120 --> 00:30:00,160
Speaker 6: question before you went on about the nice mansion an

612
00:30:00,160 --> 00:30:02,280
Speaker 6: aspect which is kind of distracting me right now. But

613
00:30:02,400 --> 00:30:05,240
Speaker 6: to be clear, the fact is that if you have

614
00:30:05,320 --> 00:30:08,160
Speaker 6: all your money in a fund, yeah, you're kind of

615
00:30:08,160 --> 00:30:10,480
Speaker 6: going to mind it differently, yeah right.

616
00:30:10,560 --> 00:30:12,720
Speaker 5: Yeah. And if I'm an investor who's got a hundred

617
00:30:12,720 --> 00:30:14,240
Speaker 5: of funds like that, I don't want.

618
00:30:14,400 --> 00:30:16,120
Speaker 6: Yeah, yeah, you're going to be You're going to under

619
00:30:16,160 --> 00:30:18,560
Speaker 6: risk it relative what I want as an investor, and

620
00:30:19,080 --> 00:30:21,080
Speaker 6: so it's a real dance.

621
00:30:21,200 --> 00:30:21,400
Speaker 2: Right.

622
00:30:21,520 --> 00:30:23,720
Speaker 6: Again, it goes back to the character the person you're hiring,

623
00:30:24,160 --> 00:30:26,000
Speaker 6: which we talked about earlier on about the pad shot

624
00:30:26,000 --> 00:30:30,120
Speaker 6: with the similar scenario. It really depends on how you

625
00:30:30,160 --> 00:30:33,080
Speaker 6: want to risk manage your investments as an alligator, right

626
00:30:33,120 --> 00:30:35,680
Speaker 6: because at the end of the day, when you're asking

627
00:30:35,680 --> 00:30:37,880
Speaker 6: a manager to put their own capital in the fund,

628
00:30:38,440 --> 00:30:40,479
Speaker 6: you're signing them a certain role as a risk manager

629
00:30:40,760 --> 00:30:45,000
Speaker 6: because and you have to assess honestly, my answer is,

630
00:30:45,120 --> 00:30:46,960
Speaker 6: it really depends on the person who I'm dealing with

631
00:30:47,280 --> 00:30:49,000
Speaker 6: and the sort of person who I think we're dealing with.

632
00:30:49,080 --> 00:30:49,240
Speaker 4: Right.

633
00:30:49,280 --> 00:30:52,480
Speaker 6: If I think it's somebody who is just really professional

634
00:30:52,480 --> 00:30:55,200
Speaker 6: and good, I'm not so sure. That having all their

635
00:30:55,200 --> 00:30:58,160
Speaker 6: money in the fund is necessary, you know, if I

636
00:30:58,200 --> 00:30:59,440
Speaker 6: think it's somebody where.

637
00:30:59,600 --> 00:31:02,240
Speaker 2: They see other funds too, you know, big fund managers

638
00:31:02,280 --> 00:31:03,080
Speaker 2: see they do.

639
00:31:03,160 --> 00:31:04,440
Speaker 6: Yeah, I mean I used to see that at my

640
00:31:04,480 --> 00:31:06,760
Speaker 6: former job, you know, and it was a real issue

641
00:31:06,760 --> 00:31:08,959
Speaker 6: because you did have people who, you know, they had

642
00:31:09,000 --> 00:31:12,040
Speaker 6: made decent money. But like, what we really wanted to

643
00:31:12,040 --> 00:31:14,840
Speaker 6: see at the time that PAMCO was people putting their

644
00:31:14,880 --> 00:31:18,120
Speaker 6: money into the business, you know, paying for Bloomberg, paying

645
00:31:18,160 --> 00:31:20,960
Speaker 6: for office space, you know, all that over over putting

646
00:31:20,960 --> 00:31:23,640
Speaker 6: money in the fund, because that was commitment to the business. Interesting, right,

647
00:31:23,720 --> 00:31:25,800
Speaker 6: I mean that's something that we're you know, we were

648
00:31:25,800 --> 00:31:29,680
Speaker 6: comfortable more as comfortable with them putting working capital into

649
00:31:29,680 --> 00:31:30,560
Speaker 6: a functioning business.

650
00:31:30,680 --> 00:31:31,040
Speaker 5: Interesting.

651
00:31:31,240 --> 00:31:33,960
Speaker 6: We then maybe putting more an extra five hundred thousand,

652
00:31:34,000 --> 00:31:35,960
Speaker 6: a million, two million million dollars into a fund.

653
00:31:36,080 --> 00:31:36,640
Speaker 1: Very interesting.

654
00:31:37,000 --> 00:31:40,880
Speaker 3: So much of what you're describing it sounds very very granular,

655
00:31:41,080 --> 00:31:43,640
Speaker 3: like the idea of looking at individual talent to see

656
00:31:43,640 --> 00:31:47,800
Speaker 3: how they operate, looking at something like culture, which tends

657
00:31:47,840 --> 00:31:52,000
Speaker 3: to be difficult to define. If I'm an allocator, how

658
00:31:52,080 --> 00:31:56,000
Speaker 3: much transparency or how much information am I actually getting

659
00:31:56,200 --> 00:31:59,160
Speaker 3: from one of these funds? And I realized allocators will

660
00:31:59,240 --> 00:32:02,080
Speaker 3: hire your company Albourne to actually do a lot of

661
00:32:02,080 --> 00:32:05,080
Speaker 3: this due diligence for them. But if Albourne was out

662
00:32:05,080 --> 00:32:08,440
Speaker 3: of the picture, what would I be seeing if I'm

663
00:32:08,440 --> 00:32:09,640
Speaker 3: a potential allocator.

664
00:32:10,840 --> 00:32:13,120
Speaker 6: So that's a a long there's a long answer to

665
00:32:13,120 --> 00:32:15,840
Speaker 6: that question, and it really does depend on a if

666
00:32:15,880 --> 00:32:17,600
Speaker 6: you're a certain size of an alligator.

667
00:32:18,320 --> 00:32:19,600
Speaker 5: There's there's kind of the fast lane.

668
00:32:19,720 --> 00:32:22,480
Speaker 3: Ah so if I'm PIMCO or something, if.

669
00:32:22,360 --> 00:32:24,600
Speaker 6: You're in you get in the executive lounge, you know,

670
00:32:24,720 --> 00:32:27,080
Speaker 6: you'll get treated more, you know, get more access. You

671
00:32:27,080 --> 00:32:29,200
Speaker 6: know that, and there's nothing wrong with that because simply

672
00:32:29,240 --> 00:32:31,960
Speaker 6: these people have limited time, you know, and somebody who's

673
00:32:31,960 --> 00:32:33,440
Speaker 6: going to be a larger client will get more in

674
00:32:33,480 --> 00:32:36,880
Speaker 6: almost any line of business, you know, in terms of access,

675
00:32:37,080 --> 00:32:39,960
Speaker 6: it does vary, I think, you know if I you know,

676
00:32:40,080 --> 00:32:43,600
Speaker 6: speaking of an allocator's shoes. You know, basic stuff is

677
00:32:43,680 --> 00:32:48,040
Speaker 6: regular meetings, good substantial risk reports, helping me understand where

678
00:32:48,040 --> 00:32:52,000
Speaker 6: and how risk is our plays, you know, updates when necessary,

679
00:32:52,400 --> 00:32:55,000
Speaker 6: and then you know, just it's really it is granular.

680
00:32:55,160 --> 00:32:59,000
Speaker 6: It's multi strategies are a combination of both zooming out

681
00:32:59,200 --> 00:33:01,720
Speaker 6: and taking the big But we talked about what camp

682
00:33:01,760 --> 00:33:03,560
Speaker 6: means in the global scale and how it's all that,

683
00:33:03,680 --> 00:33:06,800
Speaker 6: but it's also super super granular, so understanding you really

684
00:33:06,840 --> 00:33:09,160
Speaker 6: want to understand, like where their real competency is as

685
00:33:09,160 --> 00:33:12,840
Speaker 6: the multi strated, because many places start off with a

686
00:33:12,840 --> 00:33:13,920
Speaker 6: particular kind of thing.

687
00:33:13,920 --> 00:33:14,560
Speaker 5: They're good at.

688
00:33:14,920 --> 00:33:17,640
Speaker 6: Equities, Yeah, right, you know, at the end of the day,

689
00:33:17,880 --> 00:33:20,920
Speaker 6: most multi strategies make most of their money from kind

690
00:33:20,920 --> 00:33:23,440
Speaker 6: of I would call it equity alpha for lack of

691
00:33:23,480 --> 00:33:26,280
Speaker 6: a better word, which can include traditional long short equity,

692
00:33:26,680 --> 00:33:30,120
Speaker 6: quant equities index rebaal. We've heard about that a couple

693
00:33:30,160 --> 00:33:32,000
Speaker 6: of times. You know, all this sort of stuff that's

694
00:33:32,040 --> 00:33:33,840
Speaker 6: kind of equity alpha. Then you have other ones who

695
00:33:33,880 --> 00:33:36,240
Speaker 6: have more focused on kind of fixed income and credit,

696
00:33:36,440 --> 00:33:38,280
Speaker 6: you know, and you've got to understand what you're getting.

697
00:33:38,360 --> 00:33:40,920
Speaker 6: And I mean, then you've got to think about, given

698
00:33:40,960 --> 00:33:43,760
Speaker 6: what I think that my heuristic or my mental map

699
00:33:43,800 --> 00:33:47,240
Speaker 6: of what these guys are, does each incremental change what

700
00:33:47,280 --> 00:33:50,280
Speaker 6: they do. Does that makes sense because you know, I

701
00:33:50,280 --> 00:33:52,480
Speaker 6: mean one of the things I like to think about

702
00:33:52,600 --> 00:33:54,440
Speaker 6: is making sure that the stories are aligned.

703
00:33:54,920 --> 00:33:55,720
Speaker 5: Very simple stuff.

704
00:33:55,760 --> 00:33:57,760
Speaker 6: Right, Let's say I'm a pod shot manager, you're an

705
00:33:57,760 --> 00:33:59,680
Speaker 6: allocator in here, and.

706
00:33:59,600 --> 00:34:02,000
Speaker 5: I go on you know to ask a constructure, Well,

707
00:34:02,080 --> 00:34:02,800
Speaker 5: my pms.

708
00:34:03,000 --> 00:34:05,400
Speaker 6: You know, we put them in a room, give them Bloomberg,

709
00:34:05,440 --> 00:34:07,239
Speaker 6: We give them all the facility they need.

710
00:34:07,280 --> 00:34:09,319
Speaker 5: We charge them for that, and they just get paid

711
00:34:09,320 --> 00:34:10,560
Speaker 5: on their own P and L. Yeah.

712
00:34:10,719 --> 00:34:13,479
Speaker 6: Oh okay, you say, I find good And then you say, okay,

713
00:34:13,520 --> 00:34:15,200
Speaker 6: well talk to me about you know what sort of

714
00:34:15,239 --> 00:34:17,200
Speaker 6: culture you have? Oh yeah, well, actually you know what

715
00:34:17,239 --> 00:34:19,360
Speaker 6: we also, you know, we have a real cooperative culture

716
00:34:19,480 --> 00:34:22,279
Speaker 6: becomes loved here. You know, they all get back massages

717
00:34:22,480 --> 00:34:24,919
Speaker 6: and we all work together as across the team as well,

718
00:34:25,320 --> 00:34:28,680
Speaker 6: you know, and you're kind of going answer one and

719
00:34:28,800 --> 00:34:31,600
Speaker 6: answer to don't make sense together, right, And you see

720
00:34:31,600 --> 00:34:33,160
Speaker 6: this in all sorts of sort of ways, you know,

721
00:34:33,200 --> 00:34:35,840
Speaker 6: And the thing is that what happened is that people

722
00:34:35,880 --> 00:34:38,399
Speaker 6: have you know, the successful funds are the ones who's

723
00:34:38,440 --> 00:34:41,520
Speaker 6: answered made answer one and answer to come I line

724
00:34:41,600 --> 00:34:44,319
Speaker 6: up together, you know, in whichever way it needs to be.

725
00:34:44,560 --> 00:34:45,840
Speaker 5: They've worked on ways.

726
00:34:45,600 --> 00:34:48,520
Speaker 6: That makes sense that they're kind of I hate to

727
00:34:48,520 --> 00:34:50,880
Speaker 6: say about like a narrative alignment and how they do things.

728
00:34:51,080 --> 00:34:53,759
Speaker 6: They know what they're good at, you know, like what

729
00:34:53,840 --> 00:34:56,440
Speaker 6: for example, you don't have somebody who's really really got

730
00:34:56,480 --> 00:35:00,480
Speaker 6: an equities background to suddenly decide to hire some you know,

731
00:35:00,560 --> 00:35:04,200
Speaker 6: rockstar and allocate forty percent into commodities. You know, that

732
00:35:04,239 --> 00:35:05,399
Speaker 6: would be kind of a weird thing.

733
00:35:05,960 --> 00:35:08,359
Speaker 2: Well, so I know you're not going to like name

734
00:35:08,719 --> 00:35:11,960
Speaker 2: any specific names. I will name some names, but you

735
00:35:11,960 --> 00:35:14,719
Speaker 2: don't have to talk about them directly, you know, like

736
00:35:14,800 --> 00:35:19,080
Speaker 2: I mentioned someone like Ken Griffin or in Izy England

737
00:35:19,160 --> 00:35:23,160
Speaker 2: or at Millennium. When you look at the managers who

738
00:35:23,239 --> 00:35:26,440
Speaker 2: have done really well in this space, what are they

739
00:35:26,480 --> 00:35:27,640
Speaker 2: good at?

740
00:35:27,840 --> 00:35:31,240
Speaker 6: They are good at what I said, kind of bringing

741
00:35:31,480 --> 00:35:34,880
Speaker 6: alignment to finding that align, finding that solvement for align,

742
00:35:34,960 --> 00:35:38,480
Speaker 6: you know, solving for kind of the business issues, the

743
00:35:38,600 --> 00:35:41,640
Speaker 6: risk issues, the investment issues, and the personnel issues, and

744
00:35:41,680 --> 00:35:43,160
Speaker 6: making sure that they all work together.

745
00:35:43,719 --> 00:35:45,440
Speaker 5: You know, they're really successful.

746
00:35:45,520 --> 00:35:48,520
Speaker 6: People are just not that they are in it for

747
00:35:48,560 --> 00:35:51,280
Speaker 6: the money, but now they're in it for the competition

748
00:35:51,760 --> 00:35:54,560
Speaker 6: to improve because like I said, it's the best worst

749
00:35:54,600 --> 00:35:55,200
Speaker 6: job in the world.

750
00:35:55,239 --> 00:35:56,160
Speaker 5: You know, I would like.

751
00:35:56,200 --> 00:35:57,680
Speaker 1: To try it out at least for a little bit

752
00:35:57,760 --> 00:35:58,680
Speaker 1: see how good it is.

753
00:35:59,040 --> 00:35:59,760
Speaker 7: I have a question.

754
00:36:00,040 --> 00:36:02,520
Speaker 2: Part of the appeal of any multi strategy hedge fund

755
00:36:02,680 --> 00:36:06,719
Speaker 2: is the internal diversification. Obviously, whether we're talking about the

756
00:36:06,760 --> 00:36:08,800
Speaker 2: two and twenty or whether we're talking about the pure

757
00:36:09,000 --> 00:36:14,480
Speaker 2: pod model. You have these periods where one trade more

758
00:36:14,560 --> 00:36:16,520
Speaker 2: or less works out very well for a long time.

759
00:36:16,800 --> 00:36:20,200
Speaker 2: In the twenty tens, it was the disinflationary trade, which

760
00:36:20,280 --> 00:36:23,319
Speaker 2: represented in rates, and it was the tech trade or

761
00:36:23,800 --> 00:36:26,680
Speaker 2: various flavors of that. What do you see when you

762
00:36:26,719 --> 00:36:30,160
Speaker 2: do due diligence on a fund? What do you look for?

763
00:36:30,680 --> 00:36:31,680
Speaker 7: Because I would just.

764
00:36:31,640 --> 00:36:34,560
Speaker 2: Think, yeah, here's a bunch of people, but all you

765
00:36:34,600 --> 00:36:36,640
Speaker 2: all want to make money, so y'all put on the

766
00:36:36,680 --> 00:36:39,720
Speaker 2: same trade in different clothing, right, and there's different ways

767
00:36:39,760 --> 00:36:42,200
Speaker 2: to play the same trade. How do the good funds

768
00:36:42,280 --> 00:36:44,160
Speaker 2: actually establish diversification?

769
00:36:46,320 --> 00:36:50,440
Speaker 6: So there's actually April is a really good example of

770
00:36:50,520 --> 00:36:53,440
Speaker 6: the versification at work and what it means for how

771
00:36:53,520 --> 00:36:57,600
Speaker 6: funds work. And I'm going to loosely describe April very loosely,

772
00:36:57,880 --> 00:37:00,720
Speaker 6: and I'm sure somebody in your audience will go completely wrong,

773
00:37:01,239 --> 00:37:05,000
Speaker 6: but loosely, April was mostly in equity story, right, And

774
00:37:06,160 --> 00:37:09,480
Speaker 6: what we had, what we saw was equity only focused

775
00:37:09,480 --> 00:37:11,279
Speaker 6: managers had a much tougher time of it than the

776
00:37:11,320 --> 00:37:15,680
Speaker 6: diversified managers. Okay, so diverse fight I being cross commodities

777
00:37:16,040 --> 00:37:17,760
Speaker 6: rates converts other stuff.

778
00:37:17,800 --> 00:37:18,680
Speaker 5: And why is that important?

779
00:37:18,719 --> 00:37:21,239
Speaker 6: Because last year one of the biggest trades that worked

780
00:37:21,239 --> 00:37:25,359
Speaker 6: with equities, right, And so the way you stay and

781
00:37:25,600 --> 00:37:29,120
Speaker 6: so the way you stay diversified is really disciplined, right.

782
00:37:29,640 --> 00:37:31,800
Speaker 6: And you know, in the context of what you're trying

783
00:37:31,840 --> 00:37:35,040
Speaker 6: to do. One of the interesting things about running simulations

784
00:37:35,040 --> 00:37:38,160
Speaker 6: around multistrats, right is you actually don't need to have

785
00:37:38,200 --> 00:37:40,120
Speaker 6: such great pms or great trades to have a really

786
00:37:40,120 --> 00:37:43,560
Speaker 6: good multi strat if you risk manage it right. Okay,

787
00:37:44,000 --> 00:37:45,719
Speaker 6: if you actually have a set of people who are

788
00:37:45,880 --> 00:37:48,720
Speaker 6: very lowly correlated with each other and you put them together,

789
00:37:49,040 --> 00:37:51,719
Speaker 6: you lever them up, you can have a very good business.

790
00:37:51,880 --> 00:37:54,160
Speaker 6: So to your question is, like, the answer is, you

791
00:37:54,239 --> 00:37:57,520
Speaker 6: got to be disciplined, You got to have like you

792
00:37:57,600 --> 00:37:59,719
Speaker 6: put the right amount of risk into your twenty ten

793
00:37:59,719 --> 00:38:02,319
Speaker 6: different inflationary trade, put the right amount of risk into

794
00:38:02,600 --> 00:38:06,120
Speaker 6: fundamental fundamental equity market neutral last year. But you make

795
00:38:06,160 --> 00:38:08,600
Speaker 6: sure that you're not over the limit, right, and you

796
00:38:08,680 --> 00:38:09,640
Speaker 6: stay disciplined so.

797
00:38:09,600 --> 00:38:11,360
Speaker 7: That our equity market neutral.

798
00:38:11,480 --> 00:38:13,359
Speaker 2: I would still find a way to make it long

799
00:38:13,440 --> 00:38:15,280
Speaker 2: tech and disguise there.

800
00:38:14,840 --> 00:38:16,000
Speaker 5: Well, people totally do. Yeah.

801
00:38:16,000 --> 00:38:18,760
Speaker 6: I mean, look, we haven't even got into factor factor

802
00:38:18,760 --> 00:38:21,839
Speaker 6: controls and stuff like that, and so on and so forth. Look,

803
00:38:21,920 --> 00:38:25,719
Speaker 6: the fact is that and there's multiple answers to that

804
00:38:25,800 --> 00:38:28,319
Speaker 6: question across how multi strates have implemented this in terms

805
00:38:28,360 --> 00:38:29,880
Speaker 6: of what they're willing to take in terms of factor

806
00:38:29,960 --> 00:38:32,560
Speaker 6: risk or sector risk and stuff like that and when.

807
00:38:32,640 --> 00:38:35,160
Speaker 6: But when you get down to it, look, the job

808
00:38:35,880 --> 00:38:39,440
Speaker 6: of an investor, any investor is to take risk in

809
00:38:39,480 --> 00:38:43,080
Speaker 6: the way they're supposed to. And multi strategy funds they

810
00:38:43,120 --> 00:38:45,959
Speaker 6: take risk. You know, there's no getting around that. Key

811
00:38:46,120 --> 00:38:48,080
Speaker 6: is is how you take it, how disciplined you stay

812
00:38:48,120 --> 00:38:50,120
Speaker 6: with it, the quality of the people, the quality of

813
00:38:50,120 --> 00:38:54,000
Speaker 6: the structure around that, and just you know, sometimes some

814
00:38:54,080 --> 00:38:54,640
Speaker 6: look as well.

815
00:38:55,400 --> 00:38:57,920
Speaker 3: Just on the risk management side, it sounds like a

816
00:38:57,960 --> 00:39:02,160
Speaker 3: lot depends on historical core correlations when it comes to diversification,

817
00:39:02,760 --> 00:39:06,320
Speaker 3: and what we've seen in recent years and in April

818
00:39:06,480 --> 00:39:09,680
Speaker 3: is some of those historic correlations breaking down, So for instance,

819
00:39:09,800 --> 00:39:13,759
Speaker 3: bonds not being a good hedge for equities, or more

820
00:39:13,840 --> 00:39:16,480
Speaker 3: recently the dollars selling off at the same time that

821
00:39:16,520 --> 00:39:20,239
Speaker 3: bonds were selling off. How are people managing or judging

822
00:39:20,400 --> 00:39:23,800
Speaker 3: that correlation risk because that seems to be a potential

823
00:39:23,800 --> 00:39:25,600
Speaker 3: area of weakness for multi strats.

824
00:39:25,880 --> 00:39:28,800
Speaker 6: It's a weakness for everybody, potential area weakness for everybody.

825
00:39:28,840 --> 00:39:33,600
Speaker 6: I think, look, management of correlation is super fundamental to

826
00:39:33,680 --> 00:39:35,920
Speaker 6: management of risk. In the context of any multi strategy

827
00:39:35,960 --> 00:39:40,520
Speaker 6: hedge fund. There's tremendous benefits to keeping your correlation low

828
00:39:40,520 --> 00:39:43,560
Speaker 6: between your strategies, in terms of risk management, in terms

829
00:39:43,600 --> 00:39:45,800
Speaker 6: of how much you can lever, in terms of everything.

830
00:39:46,040 --> 00:39:48,359
Speaker 6: When I look at managers, when I test managers, when

831
00:39:48,400 --> 00:39:51,040
Speaker 6: they you know, when I simulate managers, I look at

832
00:39:51,120 --> 00:39:53,960
Speaker 6: kind of two regimes, low and high correlation, and everything

833
00:39:53,960 --> 00:39:57,040
Speaker 6: that works in low is punishes you in high correlation. Right.

834
00:39:57,120 --> 00:40:01,120
Speaker 6: For example, when you're creating diversified portfolio of really cool

835
00:40:01,120 --> 00:40:03,240
Speaker 6: trades that have nothing to do with each other, is great.

836
00:40:03,280 --> 00:40:06,160
Speaker 6: When it works in a high correlation environment is a

837
00:40:06,239 --> 00:40:09,000
Speaker 6: nightmare because it's things you've never heard of blowing up.

838
00:40:09,080 --> 00:40:10,680
Speaker 6: Because I mean, there's a limited amount of things that

839
00:40:10,760 --> 00:40:13,760
Speaker 6: any any one person can know, right, So every choice

840
00:40:13,760 --> 00:40:16,600
Speaker 6: you make at a low correlation environment will come back

841
00:40:16,600 --> 00:40:20,080
Speaker 6: to bite you in a high correlation environment. Correlations between

842
00:40:20,120 --> 00:40:22,920
Speaker 6: asset classes is a fundamental part of that. But the

843
00:40:23,000 --> 00:40:26,480
Speaker 6: critical thing around that is the and this is one

844
00:40:26,520 --> 00:40:28,480
Speaker 6: of my managers said to this, it's like, when you're

845
00:40:28,480 --> 00:40:31,960
Speaker 6: sufficiently diversified, each individual line it him you ad makes

846
00:40:32,000 --> 00:40:34,279
Speaker 6: no difference to the portfolio risk or innd like that,

847
00:40:34,880 --> 00:40:38,640
Speaker 6: except what you're actually looking to allocate when you're at

848
00:40:38,640 --> 00:40:41,279
Speaker 6: that diversified is how much of a loss you can

849
00:40:41,320 --> 00:40:43,520
Speaker 6: make in that high correlational environment, how much of a

850
00:40:43,520 --> 00:40:46,120
Speaker 6: loss you're willing to bear, And so if that individual

851
00:40:46,200 --> 00:40:48,480
Speaker 6: component is something that's additive to that loss or makes

852
00:40:48,520 --> 00:40:51,400
Speaker 6: it worse, that's where you judge it. Right, when you're

853
00:40:51,400 --> 00:40:54,600
Speaker 6: sufficiently diversified, so you try to insulate yourself from breakdown

854
00:40:54,640 --> 00:40:57,840
Speaker 6: and correlation by having a budget for that breakdown and

855
00:40:57,880 --> 00:41:00,840
Speaker 6: correlation and making sure that you're individ you a components.

856
00:41:01,400 --> 00:41:03,640
Speaker 6: You know what each individual component for portfolio is going

857
00:41:03,640 --> 00:41:06,000
Speaker 6: to do for that and if you do that, then

858
00:41:06,040 --> 00:41:07,880
Speaker 6: you're kind of that's how you kind of figure that

859
00:41:07,920 --> 00:41:08,239
Speaker 6: one out.

860
00:41:08,400 --> 00:41:08,560
Speaker 1: Look.

861
00:41:08,600 --> 00:41:11,080
Speaker 6: You can buy hedges as well, and people do explicitly

862
00:41:11,120 --> 00:41:13,839
Speaker 6: do tail hedging to provide kind of return and cash

863
00:41:13,880 --> 00:41:16,919
Speaker 6: in those sorts of scenarios. But allocating that tail risk,

864
00:41:17,080 --> 00:41:19,680
Speaker 6: especially in a pod shot because they're more diversified, is

865
00:41:19,719 --> 00:41:22,239
Speaker 6: probably the most important job that these guys have.

866
00:41:23,120 --> 00:41:25,680
Speaker 2: One of the things that I'm interested in is you know,

867
00:41:25,719 --> 00:41:30,160
Speaker 2: there's still new multistrats being launched. A lot of them

868
00:41:30,239 --> 00:41:32,399
Speaker 2: continue to make a lot of money, but there has

869
00:41:32,480 --> 00:41:38,279
Speaker 2: to be some limit to the alpha generated capacity of

870
00:41:38,320 --> 00:41:42,120
Speaker 2: these vehicles. I would think, and I'm trying to wrap

871
00:41:42,120 --> 00:41:44,560
Speaker 2: around my head about what happened. Does more and more

872
00:41:44,600 --> 00:41:47,840
Speaker 2: funds launch and what is the capacity? And based on

873
00:41:47,880 --> 00:41:49,279
Speaker 2: this conversation, if I had to.

874
00:41:49,239 --> 00:41:51,400
Speaker 1: Guess about what degrades alpha over.

875
00:41:51,280 --> 00:41:54,640
Speaker 2: Time, it would be something to do with compensation, where

876
00:41:54,760 --> 00:41:57,960
Speaker 2: just like all the money accruise at the PM level

877
00:41:58,040 --> 00:42:01,160
Speaker 2: because there's such competition with more talk to us about

878
00:42:01,200 --> 00:42:04,360
Speaker 2: like how you would articulate the source of alpha and

879
00:42:04,360 --> 00:42:08,640
Speaker 2: how much can realistically be captured as more and more

880
00:42:08,680 --> 00:42:11,080
Speaker 2: people and more and more money flows into this space.

881
00:42:12,080 --> 00:42:15,840
Speaker 6: Okay, so articulating a source of alpha, that's probably the

882
00:42:15,880 --> 00:42:17,200
Speaker 6: biggest question there is.

883
00:42:17,120 --> 00:42:19,959
Speaker 5: An investing for hedge funds. Can I cope with a metric?

884
00:42:20,000 --> 00:42:22,840
Speaker 6: I probably could in terms of just volatility and markets extract,

885
00:42:22,880 --> 00:42:25,520
Speaker 6: you know, you know, alpha extraction from that, you know,

886
00:42:25,680 --> 00:42:27,799
Speaker 6: I mean for me that they're kind of critical things

887
00:42:27,800 --> 00:42:30,480
Speaker 6: in terms of understanding what alpha is. Is most of

888
00:42:30,520 --> 00:42:34,600
Speaker 6: the time in most markets there's a large number of

889
00:42:34,640 --> 00:42:38,279
Speaker 6: people with different mandates, different things going on their head,

890
00:42:38,320 --> 00:42:41,680
Speaker 6: different things going on their institutions. As long as there's

891
00:42:41,680 --> 00:42:46,880
Speaker 6: a sufficient ecosystem of time horizons, capital constraints, there's always

892
00:42:46,880 --> 00:42:48,919
Speaker 6: going to be the alpha. And the interesting thing about

893
00:42:49,040 --> 00:42:53,279
Speaker 6: you know, certain markets, for example, is like alpha and

894
00:42:53,320 --> 00:42:56,720
Speaker 6: this may sound a little bit of philosophical, alpha can

895
00:42:56,800 --> 00:42:59,719
Speaker 6: be something other than money. For example, if you take

896
00:42:59,760 --> 00:43:02,520
Speaker 6: a tap simple tail edging situation, buying puts on the

897
00:43:02,600 --> 00:43:07,440
Speaker 6: S and P, right, they're notoriously expensive, right, But the

898
00:43:07,520 --> 00:43:09,279
Speaker 6: alpha that the people who buy puts get is the

899
00:43:09,360 --> 00:43:10,799
Speaker 6: kind of the alpha of a peace of mind for

900
00:43:10,840 --> 00:43:11,800
Speaker 6: the rest of their portfolio.

901
00:43:12,360 --> 00:43:12,600
Speaker 5: Right.

902
00:43:12,680 --> 00:43:15,000
Speaker 6: So I mean, if you're a hard edged to hedge funds,

903
00:43:15,000 --> 00:43:17,600
Speaker 6: you're monetizing the alpha by doing a dispersion trade. But

904
00:43:17,800 --> 00:43:20,520
Speaker 6: like for people who are like feel can they can

905
00:43:20,520 --> 00:43:23,640
Speaker 6: sleep at night by buying puts, that's fine. You know

906
00:43:23,640 --> 00:43:25,960
Speaker 6: they're taking their alpha and kind of non manatory form.

907
00:43:26,080 --> 00:43:29,279
Speaker 6: Now that I said that's philosophical. In other cases, you know,

908
00:43:30,320 --> 00:43:33,319
Speaker 6: the hedge fund space, they're the pushing the pull going

909
00:43:33,360 --> 00:43:36,200
Speaker 6: on here, right, And so you talk about multi strategies

910
00:43:36,280 --> 00:43:37,960
Speaker 6: hedge funds, but they're not the only sort of hedge

911
00:43:37,960 --> 00:43:41,760
Speaker 6: funds the whole set of other hedge funds doing other things.

912
00:43:42,360 --> 00:43:44,560
Speaker 6: And so you know, if you just what's been happening,

913
00:43:44,600 --> 00:43:46,439
Speaker 6: and that's why we're talking about multi strategy hedge funds.

914
00:43:46,480 --> 00:43:50,160
Speaker 6: Is broadly speaking, hedge fund investing is more or less

915
00:43:50,160 --> 00:43:52,840
Speaker 6: the same size for the past couple of years. But

916
00:43:52,920 --> 00:43:55,080
Speaker 6: this share of multi strategies have gone up because, like

917
00:43:55,120 --> 00:43:57,040
Speaker 6: as I said, they kind of offer a pretty good

918
00:43:57,080 --> 00:43:58,799
Speaker 6: deal to a PM. You know, they take away all

919
00:43:58,800 --> 00:44:00,319
Speaker 6: the business risks that they have to deal with. They

920
00:44:00,320 --> 00:44:02,920
Speaker 6: don't talk to me, you know, they just get to

921
00:44:02,960 --> 00:44:07,120
Speaker 6: INVESTI trade, thank you. But you know, they take away

922
00:44:07,160 --> 00:44:08,879
Speaker 6: all that sort of risk, and so the pms they

923
00:44:08,920 --> 00:44:11,000
Speaker 6: kind of have a different maybe better life, depending on

924
00:44:11,040 --> 00:44:13,080
Speaker 6: what their admissions are and stuff. And as I said,

925
00:44:13,080 --> 00:44:17,839
Speaker 6: for investors, the underlying risk taking inside of a multi

926
00:44:17,880 --> 00:44:19,719
Speaker 6: strat makes for a better kind of return and level

927
00:44:19,760 --> 00:44:22,440
Speaker 6: at the top level. You know, I think this will reverse,

928
00:44:22,719 --> 00:44:25,560
Speaker 6: you know, over time, but like for the moment, like multistrats,

929
00:44:25,600 --> 00:44:27,719
Speaker 6: and you ask about how big individual multi strats can

930
00:44:27,800 --> 00:44:30,239
Speaker 6: get it as well, which is an interesting question. Empirically,

931
00:44:30,520 --> 00:44:33,560
Speaker 6: kap is around fifty fifty to seventy billion dollars right

932
00:44:33,600 --> 00:44:36,560
Speaker 6: now you know, whether that's liquidit in markets, whether that's

933
00:44:36,800 --> 00:44:41,280
Speaker 6: share of Wall Street's bank's credit book, you know that's

934
00:44:41,480 --> 00:44:43,719
Speaker 6: or where it's just organizational sites because you know they're

935
00:44:43,760 --> 00:44:47,960
Speaker 6: hard to manage, you know, hundreds of pms right, physically

936
00:44:48,000 --> 00:44:49,600
Speaker 6: and mathematically different to do that.

937
00:44:50,239 --> 00:44:53,440
Speaker 3: Is prime brokerage a factor as well, because I imagine,

938
00:44:53,520 --> 00:44:55,520
Speaker 3: you know, if you have a multi strat that suddenly

939
00:44:55,560 --> 00:44:59,640
Speaker 3: becomes as big as JP Morgan or something that's unrealistic,

940
00:44:59,680 --> 00:45:02,680
Speaker 3: but just as an extreme example, I can't imagine the

941
00:45:02,760 --> 00:45:04,360
Speaker 3: prime brokers.

942
00:45:04,360 --> 00:45:07,440
Speaker 5: Are going to be okay with that, with what exactly.

943
00:45:07,360 --> 00:45:11,240
Speaker 3: With the size and the risk of a giant multi

944
00:45:11,360 --> 00:45:14,080
Speaker 3: of having a relationship with a giant multi strat.

945
00:45:14,600 --> 00:45:17,839
Speaker 6: They would not love it because you know it just

946
00:45:17,880 --> 00:45:20,439
Speaker 6: put it's this famous story. If a few ten dollars

947
00:45:20,480 --> 00:45:22,719
Speaker 6: to the bank, it's your problem. Yeah, billion dollars the bank,

948
00:45:22,760 --> 00:45:26,000
Speaker 6: it's their problem. So you know, banks across the world

949
00:45:26,160 --> 00:45:29,040
Speaker 6: avoid try to avoid having customers so large that they

950
00:45:29,120 --> 00:45:30,480
Speaker 6: it becomes their problem.

951
00:45:30,680 --> 00:45:32,719
Speaker 5: So yes, the answer is yes.

952
00:45:33,200 --> 00:45:35,759
Speaker 3: Ronan Cosgrave, thank you so much for coming on all

953
00:45:35,800 --> 00:45:38,640
Speaker 3: thoughts and explaining to us why comp is important.

954
00:45:38,800 --> 00:45:41,719
Speaker 2: That was fantastic come back on the podcast again for

955
00:45:41,760 --> 00:45:42,719
Speaker 2: a further conversation.

956
00:45:42,880 --> 00:45:43,880
Speaker 1: But that's great, Thank.

957
00:45:43,760 --> 00:45:57,239
Speaker 8: You guys, Joe.

958
00:45:57,320 --> 00:45:57,960
Speaker 3: That was fun.

959
00:45:58,160 --> 00:45:59,040
Speaker 7: That was great. Yeah.

960
00:45:59,080 --> 00:46:01,880
Speaker 3: I like digging in to the business model of these things.

961
00:46:02,160 --> 00:46:05,960
Speaker 3: One thing I hadn't come to appreciate is the idea

962
00:46:06,120 --> 00:46:09,240
Speaker 3: of how difficult it might be to actually move around

963
00:46:09,320 --> 00:46:13,239
Speaker 3: capital because no one wants to be firing pms that

964
00:46:13,320 --> 00:46:16,160
Speaker 3: you fought like tooth and nail to actually hire in

965
00:46:16,200 --> 00:46:17,320
Speaker 3: a competitive environment.

966
00:46:17,800 --> 00:46:20,440
Speaker 2: I mean, so this gets to something that actually I

967
00:46:20,560 --> 00:46:23,200
Speaker 2: thought about after we did that recent episode with Scott

968
00:46:23,200 --> 00:46:25,400
Speaker 2: back on boutique investment banks.

969
00:46:25,480 --> 00:46:27,759
Speaker 7: Which is the idea of where.

970
00:46:27,520 --> 00:46:31,799
Speaker 2: Does franchise value come in in a talent driven business? Yeah,

971
00:46:32,160 --> 00:46:35,880
Speaker 2: in boutique investment banking, there's another area where it's like, Okay,

972
00:46:35,920 --> 00:46:38,920
Speaker 2: you build this talent, but is there any franchise value

973
00:46:38,960 --> 00:46:41,560
Speaker 2: external that? And so it was really interesting to hear

974
00:46:41,719 --> 00:46:45,040
Speaker 2: Ronan talk about at any hedge fund, not just the

975
00:46:45,160 --> 00:46:48,759
Speaker 2: degree to which the manager has actual money tied to

976
00:46:48,800 --> 00:46:52,080
Speaker 2: the investments in this space, but to which they're invested

977
00:46:52,200 --> 00:46:54,960
Speaker 2: in the business as a business, as opposed to just

978
00:46:55,000 --> 00:46:58,000
Speaker 2: the fund. I thought that was a super fantastic Yeah.

979
00:46:57,760 --> 00:47:00,359
Speaker 3: And also like the idea of looking at over head

980
00:47:00,560 --> 00:47:04,279
Speaker 3: spending as like an indication how much people care about

981
00:47:04,320 --> 00:47:04,880
Speaker 3: the business.

982
00:47:05,080 --> 00:47:07,640
Speaker 2: Yeah, I hadn't thought of that. You know, I would

983
00:47:07,680 --> 00:47:10,000
Speaker 2: like to be in this space one day. That's never

984
00:47:10,040 --> 00:47:13,560
Speaker 2: going to happen for obvious reasons. But it's very fun

985
00:47:14,160 --> 00:47:17,839
Speaker 2: thinking about ways in which, depending on what seat we have,

986
00:47:18,160 --> 00:47:19,600
Speaker 2: we're gaming the system.

987
00:47:19,719 --> 00:47:19,920
Speaker 1: You know.

988
00:47:20,040 --> 00:47:23,080
Speaker 2: So it's like, if I'm at the manager level, I'm

989
00:47:23,080 --> 00:47:26,480
Speaker 2: thinking about how I can have personal wealth that is

990
00:47:26,600 --> 00:47:27,319
Speaker 2: visible to me.

991
00:47:27,520 --> 00:47:30,000
Speaker 3: But is it not that your mind immediately goes to

992
00:47:30,040 --> 00:47:30,760
Speaker 3: gaming the system.

993
00:47:30,800 --> 00:47:33,560
Speaker 2: It's not visible to the LPs. I think about how

994
00:47:33,640 --> 00:47:36,880
Speaker 2: if I were at the PM level, I was like, yeah,

995
00:47:36,920 --> 00:47:39,759
Speaker 2: of course I'm taking a market neutral long short book,

996
00:47:39,800 --> 00:47:42,560
Speaker 2: but I'm really just finding a closet way to go

997
00:47:42,719 --> 00:47:46,239
Speaker 2: long in video. During the AI bull market, it does

998
00:47:46,320 --> 00:47:49,600
Speaker 2: feel though that like part of the entire game is here.

999
00:47:49,680 --> 00:47:52,440
Speaker 2: You have these parameters and risk constraints and so forth,

1000
00:47:52,719 --> 00:47:55,919
Speaker 2: and this cat and mouse game between those who want

1001
00:47:56,040 --> 00:47:59,640
Speaker 2: to essentially find a way out of the constraints and

1002
00:47:59,680 --> 00:48:01,400
Speaker 2: those who want to put them back in the box.

1003
00:48:01,560 --> 00:48:04,120
Speaker 3: Yeah, that seems to be a fundamental tension, although I

1004
00:48:04,120 --> 00:48:07,560
Speaker 3: imagine it exists, you know, in some other funds as well.

1005
00:48:07,440 --> 00:48:09,680
Speaker 2: And I just like the fact that all this bonus

1006
00:48:09,719 --> 00:48:12,120
Speaker 2: money is the business itself. I think that's a really

1007
00:48:12,160 --> 00:48:15,560
Speaker 2: important idea when you hear about bonuses, et cetera. This

1008
00:48:15,600 --> 00:48:17,800
Speaker 2: is not just like someone getting their Christmas bonus.

1009
00:48:17,880 --> 00:48:20,800
Speaker 1: This is the business. This is the business.

1010
00:48:20,880 --> 00:48:21,640
Speaker 3: Shall we leave it there?

1011
00:48:21,719 --> 00:48:22,479
Speaker 1: Let's leave it there.

1012
00:48:22,719 --> 00:48:25,239
Speaker 3: This has been another episode of the Odd Lots podcast.

1013
00:48:25,320 --> 00:48:28,800
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.

1014
00:48:28,520 --> 00:48:31,240
Speaker 1: And I'm Jill Wisenthal. You can follow me at the Stalwart.

1015
00:48:31,520 --> 00:48:34,960
Speaker 2: Follow our producers Carmen Rodriguez at Carmen Ermint, dash Ol

1016
00:48:34,960 --> 00:48:38,479
Speaker 2: Bennett at Dashbot and kill Brooks at Kilbrooks. More Odd

1017
00:48:38,480 --> 00:48:41,000
Speaker 2: Lots content, go to Bloomberg dot com slash odd Lots,

1018
00:48:41,000 --> 00:48:43,320
Speaker 2: where we have a daily newsletter and all of our episodes,

1019
00:48:43,600 --> 00:48:45,520
Speaker 2: and you can chat about all of these topics twenty

1020
00:48:45,560 --> 00:48:49,640
Speaker 2: four seven in our discord Discord dot gg slash od Loots.

1021
00:48:49,760 --> 00:48:52,239
Speaker 3: And if you enjoy odd Lots, if you like it

1022
00:48:52,280 --> 00:48:55,399
Speaker 3: when we talk about why bonuses are the business, then

1023
00:48:55,440 --> 00:48:58,920
Speaker 3: please leave us a positive review on your favorite podcast platform.

1024
00:48:59,200 --> 00:49:01,840
Speaker 3: And remember, if if you are a Bloomberg subscriber, you

1025
00:49:01,880 --> 00:49:05,080
Speaker 3: can listen to all of our episodes absolutely ad free.

1026
00:49:05,120 --> 00:49:07,280
Speaker 3: All you need to do is find the Bloomberg channel

1027
00:49:07,320 --> 00:49:11,160
Speaker 3: on Apple Podcasts and follow the instructions there. Thanks for listening.