WEBVTT - Mike Rockefeller on Launching a New Hedge Fund 0:00:02.040 --> 0:00:06.000 This is Master's in Business with very rid Holds on 0:00:06.240 --> 0:00:08.200 Bloomberg Radio. 0:00:09.280 --> 0:00:12.200 This week on the podcast, I have an extra special guest. 0:00:12.880 --> 0:00:17.239 Mike Rockefeller of Woodline Partners launched what was one of 0:00:17.280 --> 0:00:20.880 the hottest new hedge funds in a long time twenty nineteen. 0:00:20.960 --> 0:00:24.959 He came out of the gate having previously worked at Citadel, 0:00:25.840 --> 0:00:29.600 raising about two billion dollars in the new funds. Since then, 0:00:29.720 --> 0:00:33.360 it's grown to about seven billion dollars. And they are 0:00:33.400 --> 0:00:38.040 not the typical hedge fund. They run a very specific 0:00:38.560 --> 0:00:42.839 sector focused type of fund. There are about thirteen different 0:00:42.880 --> 0:00:48.800 portfolio managers, each focused on a different sub sector. It's 0:00:49.080 --> 0:00:52.720 beta neutral, market neutral. They run long short across each 0:00:52.720 --> 0:00:56.000 of these and they've put up some pretty impressive numbers 0:00:56.000 --> 0:01:00.200 over the past couple of years. It's always interesting to 0:01:00.280 --> 0:01:03.360 speak to a fund manager in the midst of one 0:01:03.400 --> 0:01:08.440 of the craziest macro periods of the markets that we've 0:01:08.480 --> 0:01:12.640 seen and god knows how long who doesn't factor in 0:01:13.200 --> 0:01:18.600 macro events or the overall market because their market neutral 0:01:18.800 --> 0:01:21.720 and hedged, and when they look at a sector, they 0:01:21.800 --> 0:01:24.360 want to be long the very best stocks at the 0:01:24.360 --> 0:01:28.360 best valuations they can and short the worst stocks at 0:01:28.400 --> 0:01:32.039 the worst valuations. It's a fascinating strategy and it's one 0:01:32.080 --> 0:01:36.480 that's been very successful. With no further ado my conversation 0:01:36.760 --> 0:01:40.320 with Woodline Partners, Mike Rockefeller. 0:01:40.120 --> 0:01:42.039 Thanks for having me, Berry, looking forward to the conversation 0:01:42.240 --> 0:01:42.800 same here. 0:01:42.800 --> 0:01:46.280 In fact, we had a conversation at an Emerging Manager's 0:01:46.880 --> 0:01:51.000 panel back at Bloomberg invest earlier this year, and I 0:01:51.000 --> 0:01:54.240 thought you would be great for Masters in Business. So 0:01:54.680 --> 0:01:57.880 let's dive into your background. How did you get here? 0:01:57.960 --> 0:02:00.720 Tell us a little bit about the early days of 0:02:00.760 --> 0:02:01.280 your career. 0:02:01.800 --> 0:02:05.960 Sure, so I was a neuroscience major in undergrad so 0:02:06.120 --> 0:02:10.280 I had no intention of being an investment Yeah, it's 0:02:10.320 --> 0:02:12.440 you know, a study of the brain and spinal cord. 0:02:13.000 --> 0:02:16.160 Pretty specific, and you know, I just I love biology. 0:02:16.200 --> 0:02:19.280 You know, the human body is so complex and will 0:02:19.280 --> 0:02:23.800 never quite understand it. But I had this really unique 0:02:23.840 --> 0:02:28.440 experience in between my junior and senior year of college. 0:02:28.560 --> 0:02:32.840 I got an internship at a investment fund in Baltimore. 0:02:33.360 --> 0:02:35.240 And this was two thousand and two at the time, 0:02:35.320 --> 0:02:39.040 so they were not offering paid internships because the market 0:02:39.080 --> 0:02:43.160 was still recovering from the tech bubble crash. But the 0:02:43.320 --> 0:02:48.120 chief investment officer offered me an unpaid internship. And he said, 0:02:48.160 --> 0:02:49.919 and this is what was interesting, that I could live 0:02:50.000 --> 0:02:52.160 with him and his family for the summer. 0:02:52.880 --> 0:02:53.320 So I. 0:02:54.840 --> 0:02:58.040 Know, I know it's a big risk, but I did. 0:02:58.120 --> 0:03:00.800 I went down there and I spent the summer. And 0:03:01.000 --> 0:03:03.440 you know, I love sports, Barry, and you know, I 0:03:03.480 --> 0:03:05.639 think they teach you so much about life. I was 0:03:05.680 --> 0:03:07.760 not good enough to be a pro athlete, but I 0:03:07.880 --> 0:03:12.760 was amazed how many similarities there were to investing and 0:03:12.800 --> 0:03:16.160 being an athlete. You know, the competition, the practice, the 0:03:16.240 --> 0:03:21.680 hard work, the score and the occasional randomness. Yes, yeah, 0:03:21.840 --> 0:03:25.880 and you know, except in investing, the market is your competitor, 0:03:26.040 --> 0:03:29.920 and your ability to understand businesses and what's priced into 0:03:29.919 --> 0:03:31.839 a stock better than your peers is how you win. 0:03:33.080 --> 0:03:36.600 So what was really amazing about that internship was was 0:03:36.640 --> 0:03:42.200 actually how Eric, the chief investment officer, practiced. So what 0:03:42.200 --> 0:03:44.520 I mean by that is that in the morning, he 0:03:44.520 --> 0:03:47.120 would wake up early, and I saw how he prepared 0:03:47.160 --> 0:03:49.960 for the day. On weekends, I saw how he would 0:03:49.960 --> 0:03:52.560 prepare for the next week. I remember walking into his 0:03:52.640 --> 0:03:56.880 living room on Saturday mornings and there'd be newspapers and 0:03:56.920 --> 0:04:00.840 research reports and articles all over his living room. And 0:04:01.320 --> 0:04:04.440 he said this is where it happens, you know, the learning. 0:04:05.240 --> 0:04:08.440 So I was hooked. I said, this is this is 0:04:08.440 --> 0:04:11.720 what I want my career to be. And I was 0:04:11.800 --> 0:04:14.840 fortunate because I was twenty one years old at the time, 0:04:15.680 --> 0:04:21.120 and from that moment, every step that I took was 0:04:21.160 --> 0:04:24.279 to get to where I am right now, you know, 0:04:24.320 --> 0:04:28.080 sitting with you Berry and and you know, investing and 0:04:28.160 --> 0:04:31.320 being a part of a great investment firm. 0:04:31.720 --> 0:04:34.560 So you start at the healthcare group as an analyst 0:04:34.600 --> 0:04:38.040 in City in the early two thousands. Obviously the background 0:04:38.120 --> 0:04:39.200 in neuro had to help. 0:04:39.600 --> 0:04:42.520 Yeah, So after my experience in Baltimore, I wanted to 0:04:42.560 --> 0:04:45.760 pivot to finance and came back to school and applied 0:04:45.760 --> 0:04:49.880 to every major investment bank. That did not go so well. 0:04:50.640 --> 0:04:53.599 No one called me back. It was late in the process. 0:04:53.960 --> 0:04:56.839 Most most of the kids that were going into banking 0:04:56.880 --> 0:04:59.680 at that time already had their jobs, and I didn't 0:04:59.680 --> 0:05:01.560 have a back around that banks wanted. I had never 0:05:01.600 --> 0:05:06.120 taken an account in our finance class. But finally City 0:05:06.560 --> 0:05:09.520 did call me back and invited me to interview, and 0:05:09.600 --> 0:05:13.600 I had four different interviews there and didn't get any 0:05:13.640 --> 0:05:17.479 of the jobs. And so I went throughout my senior 0:05:17.560 --> 0:05:19.360 year and didn't know exactly what I was going to do. 0:05:20.040 --> 0:05:24.080 And fortunately, at the end of the year a couple 0:05:24.200 --> 0:05:28.800 spots opened up, one in the healthcare division of the 0:05:28.839 --> 0:05:32.320 investment bank, and they invited me in. I interview and 0:05:32.680 --> 0:05:33.360 I got the job. 0:05:33.960 --> 0:05:34.919 What was a job like? 0:05:35.640 --> 0:05:39.880 Well, a couple weeks before I joined banking, someone gave 0:05:39.920 --> 0:05:41.720 me a book called Monkey Business. Have you read that? 0:05:41.880 --> 0:05:42.359 I have not. 0:05:43.279 --> 0:05:47.800 So that book is about bankers at DLJ in the nineties, 0:05:47.839 --> 0:05:52.640 you know, Premier investment bank, and it talks about how 0:05:53.279 --> 0:05:58.159 they worked eighteen hour days, slept under their desk, endless 0:05:58.200 --> 0:06:02.840 pitch books every weekend. And I thought to myself, there's 0:06:02.839 --> 0:06:04.800 no way it could be like this anymore. That was 0:06:04.839 --> 0:06:07.880 back then, and I have to tell you, Barry, it 0:06:07.960 --> 0:06:11.839 was exactly like that. It was brutal. But I was 0:06:11.880 --> 0:06:14.720 so grateful because I knew my life could have been different, 0:06:15.240 --> 0:06:17.560 and so I was so happy to be there. I 0:06:17.640 --> 0:06:20.920 learned a lot of skills, and probably the most important 0:06:21.000 --> 0:06:24.479 skill that I learned was the basic principle of double 0:06:24.800 --> 0:06:27.560 and triple checking your work and if you ever make 0:06:27.640 --> 0:06:29.880 a mistake, don't ever make it again. 0:06:30.320 --> 0:06:34.039 Huh. Really interesting. So you go from City, eventually to 0:06:34.480 --> 0:06:37.600 Millennium and Morgan Stanley. Tell us about what you did 0:06:37.600 --> 0:06:38.320 at those shops. 0:06:39.000 --> 0:06:41.760 So in two thousand and four I joined Morgan Stanley 0:06:41.800 --> 0:06:45.960 Equity Research. That was great. They had a star studded 0:06:46.000 --> 0:06:50.640 cast of research analysts Byron Ween who sadly crossed away 0:06:50.680 --> 0:06:55.520 recently he had retired, but he was still active, Henry 0:06:55.600 --> 0:06:58.360 McVay who's now at KKR. He was the US strategist. 0:06:58.880 --> 0:07:01.680 Katie Huberty, who's still there now, was a young, up 0:07:01.680 --> 0:07:05.279 and coming tech analyst. And I worked for Jamie Rubin, 0:07:05.320 --> 0:07:08.279 who was a top pharma analyst. And it was great 0:07:08.320 --> 0:07:11.320 preparation for the buyside, you know, writing research reports, doing 0:07:11.320 --> 0:07:12.880 the same kind of work that you would do as 0:07:12.880 --> 0:07:16.400 an investor, except you're making recommendations instead of on the 0:07:16.440 --> 0:07:19.560 buy side, you're actually putting those dollars to work and 0:07:19.640 --> 0:07:20.720 structure in portfolio. 0:07:20.600 --> 0:07:23.000 So now let's talk a little bit about the buy side. 0:07:23.040 --> 0:07:26.320 Your next stop is Millennium. What was it like there? 0:07:27.280 --> 0:07:31.240 So in early two thousand and eight, Millennium was looking 0:07:31.320 --> 0:07:33.560 for an analyst at one of their funds out in 0:07:33.600 --> 0:07:38.360 San Francisco, and I jumped at the opportunity. I had 0:07:38.360 --> 0:07:39.360 never been to San Francisco. 0:07:39.600 --> 0:07:40.480 You're working in New York. 0:07:40.560 --> 0:07:42.960 I was working in New York and I jumped on 0:07:43.000 --> 0:07:46.440 a plane and moved to San Francisco. That was my shot, 0:07:46.640 --> 0:07:51.440 you know, So I was I was in. 0:07:50.120 --> 0:07:53.560 Two thousand and eight, the start of the Great Financial Crisis. 0:07:53.600 --> 0:07:57.200 What was it like being at Millennium as everything kind 0:07:57.200 --> 0:07:58.080 of melted down? 0:07:59.320 --> 0:08:04.080 So Millennium employees a market neutral equity strategy long short 0:08:04.200 --> 0:08:07.440 in other words, exactly. And when I joined, I frankly 0:08:07.480 --> 0:08:11.000 didn't appreciate the power of that type of investing. And 0:08:11.040 --> 0:08:13.760 then the fall of two thousand and eight came and 0:08:14.040 --> 0:08:17.480 I learned the power of that type of investing. And 0:08:18.160 --> 0:08:20.120 to the credit of the portfolio manager that I was 0:08:20.160 --> 0:08:22.920 working with, Josh Fisher, we were actually up that year. 0:08:23.200 --> 0:08:26.960 Wow, that's pretty that's pretty impressive. So your next stop 0:08:27.080 --> 0:08:30.559 is Citadel in twenty eleven and you spend six years there. 0:08:30.960 --> 0:08:35.480 Citadel also, like Millennium, has a fantastic reputation. What was 0:08:35.520 --> 0:08:36.880 your Citadel experience like? 0:08:37.679 --> 0:08:41.360 So, during my time at Millennium, as my appreciation for 0:08:41.520 --> 0:08:45.200 proper portfolio construction started to grow, I had heard that 0:08:45.320 --> 0:08:49.080 Citadel was a pioneer in this type of investing. So 0:08:49.320 --> 0:08:52.040 in twenty ten when they were looking for someone to 0:08:52.160 --> 0:08:55.600 start their healthcare team in San Francisco, I jumped at 0:08:55.600 --> 0:08:59.760 the opportunity. Citadel didn't jump as quickly as I did. 0:09:00.400 --> 0:09:05.480 That was an eleven month interview process, Yeah, including in 0:09:05.640 --> 0:09:09.680 all day what you would consider FBI like interview where 0:09:09.679 --> 0:09:12.760 they dig through every piece of your background. It was 0:09:12.880 --> 0:09:16.320 very intense, but fortunately Ken Griffin took a shot on 0:09:16.400 --> 0:09:19.320 me in what turned out to be a life changing 0:09:19.320 --> 0:09:23.160 opportunity to build a business. And by the way, everything 0:09:23.320 --> 0:09:26.120 that I had heard on the outside about the quality 0:09:26.160 --> 0:09:29.200 of people at Citadel and the investment process that they employ, 0:09:29.440 --> 0:09:30.600 it was all true. Wow. 0:09:30.840 --> 0:09:33.200 So that had to be a fun experience. Had to 0:09:33.200 --> 0:09:36.960 be a tough decision to make to leave a shop 0:09:37.040 --> 0:09:38.520 like Citadel. 0:09:38.920 --> 0:09:42.560 It was. My partners and I were incredibly fortunate to 0:09:42.640 --> 0:09:45.600 grow up at Citadel. It was there that we learned 0:09:45.640 --> 0:09:50.400 a unique and differentiated approach to portfolio construction and investing 0:09:50.960 --> 0:09:55.520 where the output was an uncorrelated alpha return stream. 0:09:56.120 --> 0:09:58.720 What made you decide to say, hey, we really need 0:09:58.760 --> 0:10:02.920 to do this as a stands alone outside of a 0:10:02.960 --> 0:10:05.720 big complex fund like Citadel. 0:10:06.000 --> 0:10:09.719 Yeah. So Woodline was founded by myself, Carl Kraaker our 0:10:09.840 --> 0:10:13.680 co chief investment officer, Matt Hooker, our chief operating officer, 0:10:13.880 --> 0:10:15.960 and then a group of us who worked together for 0:10:16.040 --> 0:10:20.240 many years, and we studied the industry leaders of the 0:10:20.280 --> 0:10:24.640 past twenty years, and we believed that we could iterate 0:10:24.720 --> 0:10:28.760 and improve on those learnings and create a durable investment 0:10:28.800 --> 0:10:31.720 firm that would thrive in the future. And our vision 0:10:32.240 --> 0:10:35.280 was to create an investment partnership like you'd find with 0:10:35.320 --> 0:10:39.000 a Wellington or a Capital Group, with the risk management 0:10:39.040 --> 0:10:43.920 expertise of Citadel, wrapped in a specialist structure at Woodline. 0:10:44.280 --> 0:10:47.800 So what was it like when you had to tell Ken, Hey, 0:10:47.920 --> 0:10:51.720 this has been great, but I want to I want 0:10:51.720 --> 0:10:54.959 to hang my own shingle out. How supportive was he? 0:10:56.200 --> 0:11:04.840 The whole process was exciting, occult, scary, wonderful, all of 0:11:04.840 --> 0:11:09.160 those things. And leaving a successful career and starting your 0:11:09.160 --> 0:11:13.400 own business makes no sense on paper. The chance of 0:11:13.400 --> 0:11:16.360 failure is so high, and it was a bad decision 0:11:16.440 --> 0:11:20.920 financially initially, So we had to make a choice between 0:11:21.920 --> 0:11:28.840 comfort and creation. And I remember reading Jeff Bezos's bio 0:11:28.920 --> 0:11:32.120 at the time, and it talks about how Jeff was 0:11:32.160 --> 0:11:34.880 working at d SHAW in the mid nineties, and he 0:11:34.920 --> 0:11:37.199 had a great job, and he had an idea to 0:11:37.240 --> 0:11:40.559 start an internet company. So he goes to David Shaw 0:11:41.160 --> 0:11:44.080 and he tells him about his idea. David Shaw says, Jeff, 0:11:44.120 --> 0:11:46.840 this is a great idea for someone who doesn't already 0:11:46.880 --> 0:11:49.040 have a great job. You know, why don't you take 0:11:49.080 --> 0:11:52.760 the weekend to think about it. So Jeff went home 0:11:53.040 --> 0:11:59.439 and he applied what he coined as the regret minimization theory. Basically, 0:11:59.520 --> 0:12:02.040 when he's a eighty years old, what decision is he 0:12:02.080 --> 0:12:06.559 going to regret less? And he chose out Amazon, which 0:12:06.600 --> 0:12:07.839 worked out very well for him. 0:12:08.120 --> 0:12:10.320 Literally threw all the stuff in a car and drove 0:12:10.360 --> 0:12:12.080 across country that next Monday. 0:12:12.240 --> 0:12:16.040 Yeah, and it was so inspiring. And obviously Amazon is 0:12:16.360 --> 0:12:19.920 a different scale, But I will say I asked myself 0:12:19.920 --> 0:12:22.319 a similar question, which is, do I want to go 0:12:22.440 --> 0:12:25.360 on this journey even if I never get to where 0:12:25.400 --> 0:12:25.800 I'm going? 0:12:26.280 --> 0:12:30.199 Huh? Really really quite fascinating. What was the most surprising 0:12:30.240 --> 0:12:33.360 thing you learned when you were launching your own firm? 0:12:33.400 --> 0:12:36.040 What what kind of struck you as Huh? I didn't 0:12:36.040 --> 0:12:37.199 really expect that to happen. 0:12:39.160 --> 0:12:43.560 I think how difficult it was to raise money you know, 0:12:43.720 --> 0:12:46.800 it was it was a rough first few months. 0:12:46.800 --> 0:12:49.679 Didn't you guys launch with a big chunk of cash though, 0:12:49.760 --> 0:12:50.760 like two billion dollars. 0:12:51.040 --> 0:12:54.319 We did, but we had trouble finding investors in the beginning, 0:12:55.160 --> 0:12:57.920 and we had a lot of people on board who 0:12:58.000 --> 0:13:01.400 left great jobs who were eyeing on us to get 0:13:01.400 --> 0:13:05.760 funding and pressure there, a little bit of pressure, yeah, 0:13:05.800 --> 0:13:07.480 and then you know, it's it's it's a different kind 0:13:07.480 --> 0:13:10.000 of pressure when you when you're now responsible for so 0:13:10.160 --> 0:13:14.760 many people. And so we eventually made the decision to 0:13:14.880 --> 0:13:18.160 fly to the Middle East to meet with a large investor, 0:13:18.360 --> 0:13:22.000 hoping they would partner with us. And on the flight over, 0:13:22.040 --> 0:13:23.600 I remember waking up in the middle of the night. 0:13:24.040 --> 0:13:26.920 I looked up. The whole plane was dark except for 0:13:27.000 --> 0:13:29.400 one light on in the back of coach, and that 0:13:29.600 --> 0:13:34.120 was our COO, Matt Hooker, cranking away. And to say 0:13:34.160 --> 0:13:37.360 we were prepared for that meeting, you know, as an understatement. 0:13:37.880 --> 0:13:40.280 So we get all the way over there, they brought 0:13:40.440 --> 0:13:42.640 they brought us into this huge auditorium to present to 0:13:42.679 --> 0:13:45.800 their team, and you know, we were like, okay, this 0:13:45.880 --> 0:13:48.480 is it, this is our chance. One gentleman comes in, 0:13:48.720 --> 0:13:52.040 he sits down. We waited a few minutes. We then 0:13:52.120 --> 0:13:54.680 asked where everyone else was, and he said he was 0:13:54.679 --> 0:13:58.360 the only one coming. Everyone else was busy so much 0:13:58.559 --> 0:14:01.760 so we ended up presenting to just Tim, and suffice 0:14:01.760 --> 0:14:07.320 to say, we walked away empty handed. But fortunately, a 0:14:07.360 --> 0:14:11.480 couple weeks later, two partners came to the table and 0:14:11.520 --> 0:14:15.240 anchored our launch, and like that we were in business. 0:14:15.280 --> 0:14:18.760 Wow, really really interesting. So let's talk a little bit 0:14:19.000 --> 0:14:23.640 about your launch in twenty nineteen. You come out of 0:14:23.640 --> 0:14:27.239 the gate pretty fast. Not a lot of emerging managers 0:14:27.680 --> 0:14:30.720 start with over a billion dollars. You guys were close 0:14:30.760 --> 0:14:33.560 to two billion. You know you have since really ran 0:14:33.680 --> 0:14:38.080 that up in the ensuing four years to over seven 0:14:38.160 --> 0:14:41.040 billion dollars. Tell us a little bit about how you 0:14:41.080 --> 0:14:43.400 built the firm and how it's structured. 0:14:44.200 --> 0:14:48.800 So we structured Woodline to enable our world class decision 0:14:48.840 --> 0:14:51.280 makers to operate at their very best. And there's a 0:14:51.320 --> 0:14:53.680 few key elements to that. One is we have a 0:14:53.800 --> 0:14:58.400 deep specialist approach, so where our teams are experts in 0:14:58.440 --> 0:15:01.440 the stocks that they cover. We also have a sole 0:15:01.560 --> 0:15:04.680 coverage model, so that means one person or one team 0:15:04.760 --> 0:15:09.040 is responsible for their group of names, no overlap. Our 0:15:09.080 --> 0:15:13.880 teams are also small and autonomous such that they can 0:15:13.920 --> 0:15:17.920 make decisions. Because we believe that people closest to the 0:15:17.960 --> 0:15:22.960 ground can make the best portfolio management decisions. And since 0:15:23.000 --> 0:15:27.480 I mentioned Bezos earlier, he has a great quote. He says, 0:15:27.520 --> 0:15:30.400 great teams should be small enough such that you can 0:15:30.440 --> 0:15:34.360 feed all of them with two pizzas. That's a good concept. 0:15:35.320 --> 0:15:38.200 We believe our senior team should have many years of 0:15:38.240 --> 0:15:43.040 experience perfecting their craft. There's a gentleman named Anders Ericsson. 0:15:43.120 --> 0:15:45.960 He's done great work on Mastery and he says that 0:15:46.120 --> 0:15:50.960 expert performance requires intense and deliberate practice for at least 0:15:51.040 --> 0:15:54.840 ten years. Our pms have eighteen years of experience. 0:15:55.800 --> 0:15:58.640 So you started with about twenty five employees, you have 0:15:58.760 --> 0:16:01.800 since ramped that up to over seventy five people. What's 0:16:01.840 --> 0:16:06.240 it like managing all those people and that degree of growth. 0:16:07.440 --> 0:16:12.760 We set up a Cocio model to deal with that 0:16:12.880 --> 0:16:15.280 vario issue so that we could attract the best talent, 0:16:16.360 --> 0:16:21.200 leverage the skills and capabilities of Carl and myself, allowing 0:16:21.280 --> 0:16:25.560 us to have more time both to invest. And we 0:16:25.600 --> 0:16:29.160 also set up a management structure of Matt, Carl and 0:16:29.240 --> 0:16:33.720 myself where every decision is made with a two thirds vote, 0:16:34.040 --> 0:16:39.080 and that allows us to really delineate our duties to 0:16:39.400 --> 0:16:43.080 where we see fit and has provided us the ability 0:16:43.120 --> 0:16:45.440 to manage a very complex infrastructure. 0:16:45.720 --> 0:16:50.440 So not ties it takes to you to really move 0:16:50.480 --> 0:16:56.800 a decision forward. Carl is your cocio, Metta is running operations. 0:16:57.240 --> 0:16:59.640 So how much does that free you and Carl up 0:16:59.640 --> 0:17:00.560 toll becus on the. 0:17:00.520 --> 0:17:04.840 Investing We get that question a lot, and we tell 0:17:04.960 --> 0:17:10.000 investors that both Carl and I spend more time now 0:17:10.520 --> 0:17:14.719 as cocios of Woodline actually investing in our portfolios than 0:17:14.720 --> 0:17:17.560 we did at Citadel, which is an amazing stat. 0:17:18.280 --> 0:17:20.879 And is that because of the structure where you began 0:17:21.000 --> 0:17:25.080 with someone running operations. It wasn't an afterthought a few 0:17:25.119 --> 0:17:27.080 years down the road exactly. 0:17:27.240 --> 0:17:31.000 Yeah, that structure was thought out so that we could 0:17:31.040 --> 0:17:34.119 focus on investing rather than having to spend all of 0:17:34.119 --> 0:17:35.439 our days managing people. 0:17:35.960 --> 0:17:37.959 So let's talk about some of those people. You have 0:17:38.040 --> 0:17:44.399 thirteen portfolio managers plus including you and Carl. You've talked 0:17:44.440 --> 0:17:47.359 about a player coach model. Explain what that is. 0:17:48.119 --> 0:17:50.960 So that's correct. So thirteen pms, including Carl and myself. 0:17:51.440 --> 0:17:55.320 We also have very seasoned analysts running portfolios, some not 0:17:56.240 --> 0:17:58.400 These are people truly the best at what they do. 0:17:59.320 --> 0:18:01.679 And what we mean player Coach is that Carl and 0:18:01.720 --> 0:18:05.480 I didn't want to just take the traditional chief investment 0:18:05.520 --> 0:18:09.639 officer role of management. We wanted to invest, and so 0:18:09.760 --> 0:18:13.960 Carl and I actually run individual portfolios within Woodline. So 0:18:14.040 --> 0:18:17.760 Carl runs a semi conductor portfolio, myself and my team 0:18:17.840 --> 0:18:20.120 led by a Niche Kapor and Brian Schmidt, run a 0:18:20.119 --> 0:18:23.040 bio pharma portfolio, and we spend most of our days 0:18:23.040 --> 0:18:24.400 on those portfolios. 0:18:24.840 --> 0:18:28.000 And then how much time do you devote to managing 0:18:28.119 --> 0:18:31.359 the other eleven or so pms. 0:18:32.240 --> 0:18:35.840 I would say we spend about seventy five percent of 0:18:35.880 --> 0:18:39.760 our time on our existing portfolios that we're running, and 0:18:39.920 --> 0:18:44.359 the remainder of our time managing others and thinking about 0:18:44.600 --> 0:18:45.680 the business strategically. 0:18:45.800 --> 0:18:49.520 So let's talk about your investment process. You come from 0:18:49.640 --> 0:18:56.520 a biotech background, Carl has a semiconductor background. Tell us 0:18:56.520 --> 0:19:00.480 a little bit about a process that has a dozen 0:19:00.600 --> 0:19:04.040 or so different pms, each with a different focus. 0:19:05.600 --> 0:19:07.720 We each have a different focus, but we all have 0:19:07.840 --> 0:19:12.280 the same bottoms up fundamental research process. The teams spend 0:19:12.320 --> 0:19:15.360 the majority of their time on research and learning about 0:19:15.400 --> 0:19:18.640 the companies that they cover. Each team covers a small 0:19:18.760 --> 0:19:21.600 group on average of about fifty to seventy names, so 0:19:21.680 --> 0:19:24.800 they can understand them better and they come up with 0:19:24.960 --> 0:19:28.320 unique insights on those stocks in their universe that may 0:19:28.320 --> 0:19:31.639 not be appreciated by the market, and then structure portfolios 0:19:31.640 --> 0:19:32.719 around those ideas. 0:19:33.080 --> 0:19:36.680 So when we think of the typical bottoms up stockpicker, 0:19:37.760 --> 0:19:41.840 it seems like there's a whole lot of variation, But 0:19:42.400 --> 0:19:46.560 lots of funds tend to look like other funds. You 0:19:46.600 --> 0:19:51.600 guys seem to look very different than the typical either 0:19:51.680 --> 0:19:57.200 sector focused or bottoms up stockpicking focused fund. What makes 0:19:57.200 --> 0:20:00.000 Woodline a little different, a little more unique. 0:20:00.920 --> 0:20:05.280 It really comes down to our portfolio construction. We hedge 0:20:05.320 --> 0:20:11.760 out not just market beta, but any factors that we 0:20:11.880 --> 0:20:16.280 can't predict. We focus solely on what is predictable, and 0:20:16.400 --> 0:20:20.520 we construct portfolios around that so that we don't succumb 0:20:20.600 --> 0:20:23.160 to factors that are moving the market on a day 0:20:23.240 --> 0:20:25.440 in and day out basis. That's a key differentiation. 0:20:25.560 --> 0:20:28.320 Give us some examples of those factors that you're looking 0:20:28.359 --> 0:20:29.159 to hedge out. 0:20:29.640 --> 0:20:32.320 Yes, So in addition to beta, you know, there's many 0:20:32.359 --> 0:20:35.800 factors that are moving stocks outside of what is idiosyncratic 0:20:35.840 --> 0:20:38.920 to a particular company. In fact, you can model these 0:20:38.920 --> 0:20:44.240 factors and their influence on stocks, so momentum, value, growth, 0:20:44.640 --> 0:20:49.240 short interest, and like other macro cross currents, we don't 0:20:49.240 --> 0:20:51.919 have a unique advantage in predicting these factors, so we 0:20:52.000 --> 0:20:52.560 hedge them out. 0:20:52.920 --> 0:20:58.160 Huh. So you describe your key overwriting strategy as market 0:20:58.240 --> 0:21:03.200 neutral equity focus on the global healthcare sector. Let's break 0:21:03.200 --> 0:21:06.760 that down. Market neutral means most of the time you're 0:21:06.840 --> 0:21:10.360 running long short. Is it long short against the market 0:21:10.520 --> 0:21:12.240 or long short within the sector? 0:21:13.040 --> 0:21:17.520 We run neutral to the market and to the sub 0:21:17.600 --> 0:21:19.119 sector that we're in both. 0:21:19.320 --> 0:21:22.720 Yes, So that's got to be a challenging strategy to 0:21:23.280 --> 0:21:25.960 create for hedging both at the same time. 0:21:26.920 --> 0:21:29.879 And that's why we have a specialist structure. So we 0:21:30.400 --> 0:21:33.439 instead of having a healthcare PM or a tech PM, 0:21:33.880 --> 0:21:37.719 we have a semiconductors PM, we have a medical device PM. 0:21:38.320 --> 0:21:42.000 Just focusing on those fifty to seventy names within those 0:21:42.040 --> 0:21:45.600 sub sectors and then structuring portfolios within those sub sectors. 0:21:45.640 --> 0:21:49.520 So you have to be a specialist to take this approach. 0:21:49.600 --> 0:21:53.359 And a lot of funds that have found success seem 0:21:53.440 --> 0:21:57.480 to have run some pretty concentrated portfolios they hit a 0:21:57.480 --> 0:22:01.240 couple of big winners and it's worked out. You don't 0:22:01.240 --> 0:22:04.920 take that approach. Woodline has about twelve hundred positions. That 0:22:05.119 --> 0:22:09.439 seems almost like a closet index, but your performance doesn't 0:22:09.560 --> 0:22:13.159 track an index. You guys are absolutely not closet indexers. 0:22:13.800 --> 0:22:15.320 Why so many positions? 0:22:16.320 --> 0:22:19.920 The reason why it exists is because of our twenty 0:22:20.160 --> 0:22:24.680 individually constructed subsector portfolios that feed up into a master 0:22:24.800 --> 0:22:27.680 fund and the end result of that is over one 0:22:27.680 --> 0:22:30.760 thousand unique positions. 0:22:31.320 --> 0:22:36.480 So less concentrated exposure. What does that big of a 0:22:36.560 --> 0:22:40.000 set of holdings? Due to the funds of volatility and 0:22:40.480 --> 0:22:42.240 return patterns. 0:22:42.800 --> 0:22:48.639 So we offer investors and uncorrelated diversified return stream. Investors 0:22:48.640 --> 0:22:51.080 can expect us to be up or down one percent 0:22:51.320 --> 0:22:58.720 a month and our vall is around five percent annually. 0:22:58.960 --> 0:23:02.720 Huh, not too bad. What do you do in terms 0:23:02.760 --> 0:23:04.919 of risk management? How do you stay on top of 0:23:06.200 --> 0:23:08.920 Obviously you don't have a whole lot of concentration risk, 0:23:09.359 --> 0:23:12.320 but just generally speaking, what's the risk management process like? 0:23:13.359 --> 0:23:19.000 So each of the portfolios are running a high idiosyncratic 0:23:19.160 --> 0:23:22.840 ball portfolio on their own, and it all feeds up 0:23:22.840 --> 0:23:28.639 into the master fund, which creates a great product, but 0:23:28.720 --> 0:23:32.640 we also monitor that from a top level, both Carl 0:23:32.880 --> 0:23:37.359 and Matt and myself. You know, we'll meet weekly and 0:23:37.680 --> 0:23:40.719 look daily at our exposures and make any adjustments so 0:23:40.760 --> 0:23:43.320 that we continue to make sure that we are completely 0:23:43.359 --> 0:23:45.600 neutral to any macro factors. 0:23:45.800 --> 0:23:49.200 H quite intriguing. So let's talk about some of those 0:23:49.200 --> 0:23:55.520 sectors you focus on, tech, healthcare, industrials, energy, and consumer. 0:23:56.200 --> 0:23:59.240 Why these sectors they almost seem unrelated. 0:24:00.040 --> 0:24:03.639 Well, the primary driver in deciding where to invest is 0:24:03.680 --> 0:24:07.840