WEBVTT - A Quant's Take on Inflation 0:00:13.600 --> 0:00:17.279 Hello and welcome to what goes up a weekly markets podcast. 0:00:17.480 --> 0:00:19.880 My name is Mike Reagan, I'm a senior editor at 0:00:19.880 --> 0:00:23.160 Bloomberg and I'm Aldana hike across acid reporter with Bloomberg 0:00:23.600 --> 0:00:26.600 and this week on the show. Well, the Federal Reserve 0:00:26.680 --> 0:00:31.680 surprised investors this week by simultaneously raising their projections for 0:00:31.760 --> 0:00:36.640 interest rates and lowering their projections for economic growth. The 0:00:36.680 --> 0:00:40.040 consensus seems to be that the nightmare for investors in 0:00:40.120 --> 0:00:43.640 both stocks and bonds this year is far from over, 0:00:43.840 --> 0:00:49.160 unfortunately so. With traditional strategies like the sixty forty portfolio 0:00:49.200 --> 0:00:53.400 allocation under continued pressure, what are the options to investors 0:00:53.400 --> 0:00:56.400 really have? We'll talk to a quant at a major 0:00:56.440 --> 0:01:00.360 asset management firm who has some ideas about that. But first, 0:01:00.480 --> 0:01:04.440 vil Donna, it's been a while, UH, two weeks without you. 0:01:04.720 --> 0:01:08.840 We missed you terribly. You had quite an adventure, I did. 0:01:08.880 --> 0:01:10.960 I went to Spain, as you know you did, and 0:01:11.160 --> 0:01:13.640 when you came back I was delighted to see you 0:01:13.720 --> 0:01:16.640 actually did bring me some of that famous Spanish Ham 0:01:16.880 --> 0:01:21.120 don't tell Bryan Duncan from the Illinois Farm Bureau, but 0:01:21.200 --> 0:01:23.400 I snuck some Hammond for you. You suck some of 0:01:23.400 --> 0:01:27.199 that that delicious Iberico Ham. And but when you brought 0:01:27.200 --> 0:01:30.679 it to me, I was thinking, Vildonna does not look herself. 0:01:30.720 --> 0:01:34.560 I thought either she's jet lagged or she's just so 0:01:34.680 --> 0:01:37.959 disgusted by having to bring this ham to me from 0:01:38.000 --> 0:01:40.679 it was the last all the way across, but it 0:01:40.800 --> 0:01:44.759 was actually the third thing. You had covid and luckily 0:01:44.800 --> 0:01:48.040 covid you cannot catch covid from Ham. I've I've determined, 0:01:48.120 --> 0:01:50.840 thank God, thank God you're okay, even though your covid 0:01:50.840 --> 0:01:53.200 germs were all over. The Ham is delicious. That's what 0:01:53.240 --> 0:01:57.960 I get for around Europe. I was very worried about you, 0:01:58.000 --> 0:02:00.600 but now now that I know you're okay, I uh, 0:02:00.640 --> 0:02:03.280 I feel like you can take a little ribbing. But 0:02:03.720 --> 0:02:05.920 how was the COVID adventure? You were pretty sick. Yeah, 0:02:05.920 --> 0:02:08.000 I was kind of sick. I've never had it before 0:02:08.040 --> 0:02:10.520 and I finally caught up with me. I guess it's 0:02:10.560 --> 0:02:13.840 literally what I get for going to Europe and having fun. 0:02:16.400 --> 0:02:21.600 So well, we're glad, so glad you're back feeling good. 0:02:21.760 --> 0:02:25.919 The Ham was absolutely delicious. I know you're disgusted to 0:02:26.160 --> 0:02:29.360 carry around some some swine for me, and it's very surprised. 0:02:29.360 --> 0:02:31.120 I did not actually expect you to actually bring that. 0:02:31.320 --> 0:02:33.640 I got you the top quality version it was. There 0:02:33.680 --> 0:02:35.360 was like a two dollar version and there was like 0:02:35.360 --> 0:02:37.560 a seven dollar version. I got you the seven dollar one. 0:02:37.720 --> 0:02:39.600 In fact, I think you're probably not the only one 0:02:39.639 --> 0:02:42.200 sick over that hand, because I was so hungry going home, 0:02:42.240 --> 0:02:44.720 I actually opened the package and started eating it on 0:02:44.760 --> 0:02:48.480 the subway and I hate. Everyone hates so many eats 0:02:48.480 --> 0:02:52.720 on them, especially a big pile of ham, but I 0:02:53.120 --> 0:02:55.720 appreciate it. It It was delicious good. Well, I do want 0:02:55.720 --> 0:02:57.600 to bring in our guests. Who who? I don't want 0:02:57.600 --> 0:03:00.320 to keep him waiting too long. It's George Patterson. He's 0:03:00.320 --> 0:03:04.080 a chief investment officer at pgim quantitative solutions. So, George, 0:03:04.120 --> 0:03:07.160 thanks so much for joining us this week. Great to 0:03:07.200 --> 0:03:10.280 be here. Thank you for having me and maybe, uh, 0:03:10.440 --> 0:03:12.920 I can start out with just a quick story, which 0:03:12.960 --> 0:03:14.920 is that I met you over the summer at a 0:03:14.919 --> 0:03:17.160 pigym event and we talked a little bit about you 0:03:17.160 --> 0:03:20.440 and about your background, and you have a very interesting background. 0:03:20.720 --> 0:03:24.040 You actually used to work for NASA right. So I'm 0:03:24.040 --> 0:03:26.919 hoping you can just start out talking about your your 0:03:27.080 --> 0:03:29.359 yourself a bit and how you ended up with Pigym 0:03:29.400 --> 0:03:33.280 considering that background. Sure, yeah, well, I'm one of the 0:03:33.360 --> 0:03:36.360 few quantitative investors that can actually say they were a 0:03:36.360 --> 0:03:42.200 real rocket scientist. I studied physics both undergraduate and Graduate 0:03:42.240 --> 0:03:46.840 School and, uh, after graduating, my first opportunity was as 0:03:46.880 --> 0:03:50.880 a post doc at the Jet Propulsion Laboratory in Pasadena, California. 0:03:51.160 --> 0:03:54.400 So I was there for two years. UH, great, very 0:03:54.440 --> 0:03:57.520 great experience. Learned quite a bit. There are no more 0:03:58.000 --> 0:04:01.640 rockets at the Jet Propulsion Laboratory. It was you know 0:04:01.680 --> 0:04:03.320 at this point, but there was a lot of space 0:04:03.360 --> 0:04:07.360 related uh, you know, science and and physics going on. 0:04:07.720 --> 0:04:10.400 My project was maybe a little bit more tangentially related 0:04:10.440 --> 0:04:13.120 to space, but it was a great experience. However, you know, 0:04:13.320 --> 0:04:17.720 after some soul searching, I became interested in quantitative investments 0:04:18.360 --> 0:04:21.120 and Um found, you know, found an organization up in 0:04:21.160 --> 0:04:25.360 San Francisco. What was then wells Fargo Nico Investment Advisors. 0:04:25.440 --> 0:04:29.280 Became Barclay's global investors and was there for quite a 0:04:29.480 --> 0:04:32.400 large portion of my career. I've been doing the same 0:04:32.440 --> 0:04:37.080 thing quantitative investments, you know, typically, you know, focused on 0:04:37.200 --> 0:04:40.320 serving large institutions, and they've been doing that since the 0:04:40.320 --> 0:04:43.760 mid nineties and a number of different organizations at church. 0:04:43.839 --> 0:04:48.440 It's fascinating to me how many people with physics backgrounds, 0:04:48.560 --> 0:04:51.480 m I t types like yourself, end up in quant investing. 0:04:51.520 --> 0:04:54.039 What what is? Is it just the math background or 0:04:54.080 --> 0:04:57.560 there or there's certain sort of principles of physics that 0:04:57.600 --> 0:05:00.240 are just easily applied to markets? Why is it, uh, 0:05:00.279 --> 0:05:03.760 that connection that we see so often? Yeah, I think 0:05:03.839 --> 0:05:05.560 it's I think part of it is the math and 0:05:05.680 --> 0:05:10.520 Statistics and, Um, you know, not being I think the 0:05:10.560 --> 0:05:13.160 great thing about the physics background is is that they 0:05:13.200 --> 0:05:16.240 really teach you not to be afraid of of digging, 0:05:16.360 --> 0:05:18.800 going into a new field where you you know, you 0:05:18.839 --> 0:05:21.120 don't have anything, and really like taking it apart and 0:05:21.200 --> 0:05:25.000 understanding what drives it. So I've had several people who, 0:05:25.279 --> 0:05:27.800 you know, are economists that have, you know, said to 0:05:27.839 --> 0:05:30.200 me like, you know, I remember them saying to me 0:05:30.200 --> 0:05:32.680 at one point like we're, you know, we're so surprised, 0:05:32.720 --> 0:05:34.640 you know, that you've done so well. And I said, well, 0:05:34.920 --> 0:05:37.000 that's because I don't listen to economists who tell me 0:05:37.040 --> 0:05:39.719 something is impossible, because, you know, I need to prove 0:05:39.760 --> 0:05:42.920 to myself that something can't be done. And, Um, you know, 0:05:43.040 --> 0:05:45.560 a lot of times you you know, like you do, 0:05:45.640 --> 0:05:46.840 you don't want to get in the way of someone 0:05:46.839 --> 0:05:49.080 who's trying to solve something that's not that that everyone 0:05:49.080 --> 0:05:51.640 else says is impossible. So I think it's just that 0:05:51.680 --> 0:05:54.719 mentality you get that you need to you know, you 0:05:54.760 --> 0:05:58.000 need to challenge assumptions. You know, you're always looking to 0:05:58.080 --> 0:06:01.960 disprove something and, Um the thing I like, and I've 0:06:01.960 --> 0:06:03.719 got a number of other physicists who worked for me, 0:06:04.000 --> 0:06:06.360 the thing I really like about hiring, you know, people 0:06:06.360 --> 0:06:10.040 with that background is many times in this in this industry, 0:06:10.600 --> 0:06:13.320 you know there's a particular project that's I need someone 0:06:13.360 --> 0:06:15.120 to work on, and I may say go off and, 0:06:15.240 --> 0:06:17.680 you know, look at look at this problem or or 0:06:17.720 --> 0:06:20.000 look at that problem and and a lot of times 0:06:20.040 --> 0:06:22.400 what you find is that, you know, research is not easy, 0:06:22.440 --> 0:06:26.599 it's it's very challenging. You'll find that maybe whatever you 0:06:26.640 --> 0:06:30.039 set out to do is impossible. But when you hire 0:06:30.120 --> 0:06:33.520 someone with a bit of a science background, they'll always 0:06:33.560 --> 0:06:35.960 find something interesting. So they may they'll always come back 0:06:35.960 --> 0:06:37.640 to me and say, Hey, I didn't, we couldn't solve 0:06:37.680 --> 0:06:39.840 the problem, or we we solve the problem, but there's 0:06:39.839 --> 0:06:42.560 no there's no Alpha in it. But we found several 0:06:42.600 --> 0:06:46.280 other interesting things that might be relevant, and sometimes that's 0:06:46.320 --> 0:06:47.960 an important part of the job. You just have to 0:06:48.040 --> 0:06:50.760 kind of follow your nose to see where you know, 0:06:50.800 --> 0:06:54.360 where the opportunities are. Research is not a linear process. 0:06:54.400 --> 0:06:56.200 You don't say, you know, I'm going to go out and, 0:06:56.560 --> 0:06:59.640 you know find uh, you know, a sharp ratio three 0:07:00.040 --> 0:07:02.520 investment idea. You know, you have to you know it 0:07:02.560 --> 0:07:04.120 may be out there, it may not. Part of it 0:07:04.160 --> 0:07:07.360 is discovering it, Um, and it's you know, you have 0:07:07.440 --> 0:07:09.720 to be you have to be open to sometimes not 0:07:09.760 --> 0:07:14.840 necessarily going, you know, where the specific agenda is leading you. Yeah, 0:07:14.840 --> 0:07:17.600 and of course now anytime, uh, someone wants to make 0:07:17.600 --> 0:07:19.640 a stock go up on social media, they use that 0:07:19.720 --> 0:07:23.200 rocket ship Emoji. So some some more synergy there for 0:07:23.200 --> 0:07:26.760 for the rocket scientists, and a lot of overlape. Yeah, 0:07:26.800 --> 0:07:30.320 but George, Um, I know one area you're interested in 0:07:30.480 --> 0:07:35.480 and I'm sort of fascinated with is, um, natural language processing, 0:07:35.600 --> 0:07:38.720 you know, in other words using computers to sort of 0:07:38.960 --> 0:07:42.760 read text uh and interpret it. Uh. And when we 0:07:42.840 --> 0:07:45.480 got a lot of words from Jerome Pal this week, 0:07:46.480 --> 0:07:49.960 a fed statement and a press conference, Um, I feel 0:07:49.960 --> 0:07:53.720 like the you know, his message was was pretty easy 0:07:53.760 --> 0:07:56.720 to understand. You know, we're we're gonna hike rates, WE'RE 0:07:56.720 --> 0:08:01.160 gonna keep hiking rates aggressively until inflation is tamed. But 0:08:01.480 --> 0:08:06.040 I'm wondering, from UH quant perspective, from a natural language 0:08:06.080 --> 0:08:10.679 processing perspective, is there something more that a computer, uh 0:08:10.840 --> 0:08:15.240 program can, can glean from a press conference like that, uh, 0:08:15.280 --> 0:08:17.200 and the statement, or is it just a matter of 0:08:17.200 --> 0:08:20.400 of being able to react quickly to it, uh, with 0:08:20.440 --> 0:08:24.000 trading algorithms? You know, how does how does UH natural 0:08:24.080 --> 0:08:27.040 language processing fit into an event like that this week? 0:08:28.280 --> 0:08:31.360 So so there's several things, Um, that that I would 0:08:31.360 --> 0:08:34.160 say are relevant. Uh. You know, I'm sure there's a 0:08:34.200 --> 0:08:37.320 lot of people out there that are running, you know, 0:08:37.520 --> 0:08:41.480 very short horizon strategies, looking at what words he chooses 0:08:41.520 --> 0:08:45.240 to use and and like specifically, like the questions and 0:08:45.320 --> 0:08:47.360 answers that come out of that, and are looking to 0:08:47.480 --> 0:08:51.360 kind of uh Um, you know, talk, you know, get 0:08:51.360 --> 0:08:53.240 in or out of the market very quickly to take 0:08:53.280 --> 0:08:55.880 advantage of kind of a short term movement. I think 0:08:55.920 --> 0:08:59.640 the real advantage, however, of language processing is just that 0:09:00.120 --> 0:09:02.320 you can go into depth, you know, you can read 0:09:02.920 --> 0:09:06.280 a ten K and and analyze a lot of aspects 0:09:06.320 --> 0:09:08.240 of it and you could do that for two or 0:09:08.280 --> 0:09:09.840 three of them, but it might take you, you know, 0:09:09.880 --> 0:09:11.440 it could easily take you half a day or a 0:09:11.520 --> 0:09:14.400 day each. The advantage of language processing is that you 0:09:14.400 --> 0:09:17.320 get the breath, so you can do three thousand of these, 0:09:17.440 --> 0:09:19.720 you know, in a matter of, you know, minutes or 0:09:19.760 --> 0:09:22.360 maybe half an hour, depending on what what type of 0:09:22.360 --> 0:09:25.200 models you're running. But it's a combination of the breath 0:09:25.240 --> 0:09:27.640 and the timeliness, I would say, that makes it relevant. 0:09:28.000 --> 0:09:30.440 And if you think about humans, like so much of 0:09:30.440 --> 0:09:34.120 our intelligence, so much of our knowledge, is really encoded 0:09:34.160 --> 0:09:37.640 in writing. You know, we've been collecting numerical data for 0:09:37.720 --> 0:09:41.120 some time, but people have been generating written texts, you know, 0:09:41.200 --> 0:09:44.080 since the beginning of of you know, the beginning of 0:09:44.160 --> 0:09:47.760 kind of putting text down on paper. Um. So there's 0:09:47.800 --> 0:09:50.000 just a huge amount of information that comes out and 0:09:50.000 --> 0:09:51.920 there's a lot of value in there. Is What we 0:09:51.960 --> 0:09:54.400 have found. So it's been one of the most uh 0:09:55.040 --> 0:09:57.120 relevant areas for us, you know, over the past few 0:09:57.240 --> 0:10:01.560 years to extract information. Well, one of the words that 0:10:02.400 --> 0:10:05.320 kept coming up quite a bit during the power press 0:10:05.360 --> 0:10:07.800 conference was the word pain, and I read a bunch 0:10:07.840 --> 0:10:12.200 of notes after after his press conference, pointing this out 0:10:12.520 --> 0:10:16.120 specifically because of the market reaction that we saw on 0:10:16.320 --> 0:10:19.480 Wednesday afternoon. So maybe can you just lay out what, 0:10:19.600 --> 0:10:23.240 in your view, actually transpired with the power press conference 0:10:23.240 --> 0:10:25.160 and what we got from from the F O M 0:10:25.200 --> 0:10:28.880 C and what you make of how the market reacted? 0:10:29.440 --> 0:10:32.240 So my view is is that, you know, it over 0:10:32.280 --> 0:10:36.640 the summer with some earlier with some earlier statements from Powell, 0:10:36.760 --> 0:10:41.880 he he tried to portray a very, you know, serious 0:10:41.960 --> 0:10:45.520 view about taming inflation and he came away saying that 0:10:45.559 --> 0:10:47.440 you know, we're gonna WE'RE gonna do it. But he 0:10:47.520 --> 0:10:51.240 was maybe just a little bit too dubbish and you know, 0:10:51.320 --> 0:10:54.320 we saw a very large rally and markets over the 0:10:54.360 --> 0:10:56.640 summer as the result of that, even though a number 0:10:56.640 --> 0:11:01.400 of other fed speakers came out and and really were Um, 0:11:01.440 --> 0:11:03.760 you know, kind of we're much more pessimistic about things. 0:11:03.920 --> 0:11:06.000 So I think really since then what we've seen is 0:11:06.040 --> 0:11:09.199 he has just had to be extremely clear that they 0:11:09.200 --> 0:11:12.560 are gonna get their job done and you know it's 0:11:12.559 --> 0:11:14.960 gonna it is going to cause some disruption. I think. 0:11:15.000 --> 0:11:17.440 I think some of his earlier statements he was trying 0:11:17.440 --> 0:11:19.800 to be a bit more balanced. But I think now, 0:11:19.920 --> 0:11:22.160 given the market's reaction, he has just he has just 0:11:22.200 --> 0:11:24.800 realized that he has to be extremely clear about where 0:11:25.000 --> 0:11:27.480 things going, where he things are, things are going. I 0:11:27.520 --> 0:11:31.040 don't forget it is a challenging economic outlook, but it 0:11:31.080 --> 0:11:34.720 follows several years of huge gains in the market. So 0:11:35.040 --> 0:11:37.240 you know, if you look over a longer period of time, 0:11:37.640 --> 0:11:39.200 you know we've we've had a lot of gains in 0:11:39.200 --> 0:11:41.480 a short period of time. So it's not unrealistic to 0:11:41.520 --> 0:11:43.400 expect a little bit of give back in the next 0:11:43.720 --> 0:11:46.960 you know, the next year or two. Judge, as I 0:11:47.000 --> 0:11:49.240 said in the Intro, uh, you know, brutal year for 0:11:49.280 --> 0:11:52.960 both stocks and bonds. That sort of traditional sixty forty 0:11:53.040 --> 0:11:57.920 portfolio is uh, has hit hard times. Uh, to say 0:11:57.920 --> 0:12:00.800 the least. I imagine for a guy in your position 0:12:00.840 --> 0:12:03.520 there's uh, you know, a lot of clients out there 0:12:03.520 --> 0:12:05.520 saying get me a rocket, scientists on the phone. We 0:12:05.600 --> 0:12:09.679 gotta figure out something else that works. So so from 0:12:09.720 --> 0:12:12.880 a quand perspective. Um, I know there's some stuff that's 0:12:12.880 --> 0:12:16.400 working spectacularly. This year I did a story on trend 0:12:16.440 --> 0:12:20.679 following and mauntaged futures. Commodity trading advisors who are are 0:12:20.760 --> 0:12:24.679 really doing really well this year just by uh, sort of, 0:12:24.880 --> 0:12:28.040 you know, following the chart down when when, uh, you know, 0:12:28.160 --> 0:12:30.680 stocks are going down, when yields are going up, just 0:12:30.679 --> 0:12:33.760 just following the trends. But what else is is um 0:12:34.040 --> 0:12:37.559 sort of a solution from a quant perspective for a 0:12:37.679 --> 0:12:40.559 challenging environment like this? What are you telling those clients 0:12:40.880 --> 0:12:43.920 looking for something to either, you know, get some kind 0:12:43.920 --> 0:12:46.199 of return this year or at least protect the wealth 0:12:46.240 --> 0:12:50.559 they have? Yeah, so, you know, there are several different things. 0:12:50.640 --> 0:12:53.120 I mean, first of all, we do have several offerings 0:12:53.160 --> 0:12:56.120 that that focus on trend following or kind of global 0:12:56.160 --> 0:12:59.800 macro strategies or tail hedging, and you're right, those have 0:13:00.240 --> 0:13:03.640 very successful. This is kind of the perfect economic environment 0:13:03.679 --> 0:13:06.360 where you do have big movements as well as some 0:13:06.440 --> 0:13:10.040 big inconsistencies across the globe. For example, looking at Japan 0:13:10.120 --> 0:13:12.880 and how you know they're, you know, everyone else's raising 0:13:12.960 --> 0:13:15.280 rates in Japan is really not and you know we're 0:13:15.280 --> 0:13:16.920 we hear a little bit now about trying to have 0:13:16.960 --> 0:13:19.880 to defend the end. However, Um, you know, there's a 0:13:19.880 --> 0:13:23.040 couple of other things. One is commodities and and other 0:13:23.200 --> 0:13:25.840 and the other would be real assets in general. Maybe 0:13:25.880 --> 0:13:27.360 the last one I would talk about would be some 0:13:27.400 --> 0:13:31.200 downside protection. So commodities and real assets are, you know, 0:13:31.240 --> 0:13:33.360 we've seen kind of a big run up in commodities 0:13:33.400 --> 0:13:35.920 and a bit of a retracement, but over the long run, 0:13:36.080 --> 0:13:38.199 you know, there's a lot of research that shows that 0:13:38.240 --> 0:13:42.480 commodities do very well in this type of environment. Um, 0:13:42.520 --> 0:13:44.760 you know, we you know, our view is that the 0:13:44.800 --> 0:13:47.440 fit is going to be successful and taming inflation, but 0:13:47.480 --> 0:13:49.000 it's also going to take a little bit of time. 0:13:49.040 --> 0:13:52.520 It's not going to come down very rapidly and you know, 0:13:52.559 --> 0:13:55.520 we think there's a lot of opportunities for commodities in 0:13:55.559 --> 0:13:59.520 someone in in a portfolio. So that's that's one area. Um, 0:13:59.640 --> 0:14:02.960 commod these, I think, also of real assets, you know, Um, 0:14:03.000 --> 0:14:06.320 you know, whether it's real estate or or other, you know, 0:14:07.040 --> 0:14:11.840 direct real investments that are also typically do very well 0:14:11.880 --> 0:14:14.720 in inflationary times. I think the other thing that we 0:14:14.760 --> 0:14:17.920 see a lot of conversations about his downside protection. How 0:14:17.960 --> 0:14:20.200 do you build a strategy that can either hedge a 0:14:20.360 --> 0:14:23.720 hedge tail risk or just, you know, deliver most of 0:14:23.760 --> 0:14:26.920 the upside while limiting the downside? And there again there's 0:14:26.920 --> 0:14:29.080 a number of different solutions we offer in that area. 0:14:29.120 --> 0:14:32.240 So those that say are the main the main subjects 0:14:32.240 --> 0:14:35.000 that we've been talking about. Two clients we've seen the 0:14:35.040 --> 0:14:38.000 most interest in George. Can you talk a little bit 0:14:38.000 --> 0:14:39.680 more about that, because I know you sent us some 0:14:39.720 --> 0:14:42.280 notes before the podcast. You said, Um, it's important for 0:14:42.320 --> 0:14:46.320 investors to consider defensive strategy. So what specifically? Maybe you 0:14:46.320 --> 0:14:50.800 can just go a little bit more into detail. Yeah. So, so, 0:14:51.040 --> 0:14:53.280 you know, a lot of times if you look at 0:14:53.280 --> 0:14:57.960 a long term investor, a long term success and what 0:14:58.040 --> 0:15:02.240 you'll find is that it's it's it's important to participate 0:15:02.280 --> 0:15:05.680 in the upside, but it's probably more important to avoid 0:15:06.040 --> 0:15:09.320 a large draw down. So you know the draw downs 0:15:09.320 --> 0:15:11.120 are very difficult because if you have like a tem 0:15:11.160 --> 0:15:14.080 per cent draw down, you need more than ten percent 0:15:14.160 --> 0:15:18.640 to recoup the return. Just mathematically, a temper cent draw 0:15:18.680 --> 0:15:21.240 down allowed by temper cent gain doesn't get you back 0:15:21.280 --> 0:15:24.560 to where you're started. So if you have some ability 0:15:24.680 --> 0:15:28.480 to either avoid or limit those draw downs over long 0:15:28.560 --> 0:15:31.960 periods of time, that can be very beneficial to uh, 0:15:32.000 --> 0:15:34.600 to to an investor. And if you think about it, 0:15:34.600 --> 0:15:37.000 there you know it's valuable to an institution, but for 0:15:37.040 --> 0:15:40.360 a person. It's even more important, you know, particularly if 0:15:40.360 --> 0:15:42.760 you get into the you know, kind of like five 0:15:42.840 --> 0:15:46.000 to ten years before and after retirement. Um, you have 0:15:46.080 --> 0:15:48.320 to be very careful because that's kind of the period 0:15:48.360 --> 0:15:51.120 of time when, if you have a draw down, uh, 0:15:51.240 --> 0:15:54.560 it could be very detrimental to like retirement savings. So 0:15:54.560 --> 0:15:56.560 so there's a number of different, you know, number of 0:15:56.600 --> 0:16:00.600 different Um ways that you can get into. You developed 0:16:00.680 --> 0:16:03.400 drawing out your strategies that do well. I mean in 0:16:03.440 --> 0:16:06.520 some occasions people look at low ball strategies. We have 0:16:06.800 --> 0:16:11.040 a different approach that kind of combines Um, you know, 0:16:11.120 --> 0:16:15.240 both market and fixed income exposure with with Um with 0:16:15.400 --> 0:16:19.560 some optionality to basically give you downside protection but at 0:16:19.560 --> 0:16:23.080 the same time participate in most of the upside. So 0:16:23.240 --> 0:16:26.720 it's something that, from our perspective, should have a should 0:16:26.720 --> 0:16:36.760 have a place in in many portfolios. You mentioned, uh, 0:16:37.080 --> 0:16:40.360 real assets. I would mind unpacking that a little bit. 0:16:40.400 --> 0:16:44.280 I mean I think there's this this huge uh, curiosity 0:16:44.440 --> 0:16:48.680 and demand for sort of alternatives, liquid alternatives, you know, 0:16:49.080 --> 0:16:53.800 stuff outside of the traditional stocks and bond markets and 0:16:54.440 --> 0:16:57.320 wherever that takes you. But obviously liquidity can be an 0:16:57.320 --> 0:17:02.080 issue with alternative assets. What looks good to you from 0:17:02.120 --> 0:17:05.399 from that perspective, you know, Um, and is it? Is 0:17:05.400 --> 0:17:07.600 it tough for a quant to sort of apply your 0:17:07.640 --> 0:17:11.400 methods to non traditional markets like that? I don't think 0:17:11.440 --> 0:17:13.960 it's tough to you know, they're different structures, but no, 0:17:14.160 --> 0:17:16.960 I think in many ways, you know, being being, having 0:17:17.000 --> 0:17:19.639 a quantitative approach allows us to put some sort of 0:17:19.680 --> 0:17:24.159 consistency across the you know, the different types of asset classes. 0:17:24.560 --> 0:17:26.600 And when we think about things, we think not about 0:17:26.680 --> 0:17:29.360 just risk and return, but we also think about draw down, 0:17:29.440 --> 0:17:31.800 we think about, you know, kind of skewness, we think 0:17:31.800 --> 0:17:34.720 about liquidity. So I mean, from my perspective, from the 0:17:34.800 --> 0:17:38.920 you know, a quantitative approach, you know, definitely compliments Um, 0:17:38.960 --> 0:17:43.280 you know, more more traditional approaches. So I liquid assets. 0:17:43.320 --> 0:17:46.080 You know, private assets has been extremely hot. You know, 0:17:46.160 --> 0:17:48.760 I'd say the last few decades Um, we've seen a 0:17:48.840 --> 0:17:51.040 huge amount of money go into them and you know 0:17:51.080 --> 0:17:54.120 that those assets have done quite well. Your private assets 0:17:54.119 --> 0:17:57.359 definitely have a place in in an institutional investor's portfolio. 0:17:57.680 --> 0:18:00.440 The challenge really, as you mentioned, is liquid it, because 0:18:00.480 --> 0:18:03.240 some of these investments, you know, not only require you 0:18:03.240 --> 0:18:06.440 to make an investional initial investment, but there's also ongoing 0:18:06.520 --> 0:18:10.120 capital calls. So you know, what we have seen some 0:18:10.160 --> 0:18:12.520 clients experience is that you know, if you have a 0:18:12.520 --> 0:18:16.080 combination of liquid and a liquid investments and the liquids 0:18:16.080 --> 0:18:19.879 are requiring capital, you know if you have that, you 0:18:19.880 --> 0:18:22.640 know if you have that money invested in like equities, 0:18:22.960 --> 0:18:25.000 you might have you might be forced to sell equities 0:18:25.040 --> 0:18:27.119 at the worst possible time because you need to make 0:18:27.160 --> 0:18:30.679 a capital call. So so they're the question is not 0:18:30.800 --> 0:18:33.760 so much about looking at what's the maximum return I 0:18:33.800 --> 0:18:36.000 can get, but how does this fit into my portfolio 0:18:36.040 --> 0:18:37.439 and what is this going to cause me to do 0:18:37.520 --> 0:18:40.280 in a in a period of extreme stress? I mean, 0:18:40.320 --> 0:18:42.840 that's really the case. I mean, liquids are great, it's 0:18:42.880 --> 0:18:44.439 just you need to make you need to kind of 0:18:44.480 --> 0:18:47.040 go in the as I say, Eyes Wide Open in 0:18:47.160 --> 0:18:50.320 terms of looking at the opportunity and understanding how it's 0:18:50.320 --> 0:18:54.000 going to fit into your into your objectives. So we 0:18:54.119 --> 0:18:57.120 all know, Tina, there is no alternative and we've all 0:18:57.119 --> 0:18:58.840 been talking about it for such a long time. But 0:18:58.920 --> 0:19:01.919 the thing that I'm hearing out is Tia, which is 0:19:01.960 --> 0:19:04.959 there is an alternative. Two stocks. I don't know if 0:19:04.960 --> 0:19:07.320 you've also been thinking about this or hearing about this, 0:19:07.400 --> 0:19:09.840 but I'm one of you. What you make of this 0:19:09.920 --> 0:19:13.240 idea that there are alternatives now? And you know, somebody 0:19:13.280 --> 0:19:15.360 I spoke with earlier this week said you can hold 0:19:15.400 --> 0:19:17.800 your nose, for instance, and go into high yields. So 0:19:18.000 --> 0:19:20.000 what do you make of some of these alternatives? Now? 0:19:20.440 --> 0:19:23.640 I think it's unfortunate that people are always comparing everything 0:19:23.640 --> 0:19:26.040 to the SMP, right so that the goal is to 0:19:26.119 --> 0:19:30.520 build a portfolio that gives you alternatives and outperforms the SMP, 0:19:30.720 --> 0:19:33.040 and I think that that's that's a little bit of 0:19:33.080 --> 0:19:36.119 a high bar. I think the goal of alternatives is 0:19:36.160 --> 0:19:40.399 more to provide diversification and stability and is and is 0:19:40.520 --> 0:19:43.879 less about can I specifically outperform the SMP or can 0:19:43.920 --> 0:19:47.439 I specifically outperform a specific target? I mean, obviously you 0:19:47.480 --> 0:19:50.480 want your alternatives not to be, you know, to provide 0:19:50.480 --> 0:19:53.560 the diversification, you want them to be reasonably priced and 0:19:53.640 --> 0:19:57.239 obviously want you want solid performance. But sometimes people, I think, 0:19:57.240 --> 0:19:59.800 are a little myopic just saying okay, I want to alternative, 0:19:59.800 --> 0:20:02.320 but us to do better than then this investment or 0:20:02.320 --> 0:20:04.959 that investment. So you know, I think of alternatives much 0:20:05.000 --> 0:20:09.240 more in terms of risk, risk control and um and 0:20:09.320 --> 0:20:12.000 really it's about figuring out what your investment bowl is 0:20:12.119 --> 0:20:15.080 and designing a program that that's going to get you there, 0:20:15.119 --> 0:20:17.959 as opposed to, you know, what's the what's the highest 0:20:18.000 --> 0:20:20.080 possible return I'm going to get over the next month 0:20:20.160 --> 0:20:23.480 or six months? I mean, the world today is amazing 0:20:23.480 --> 0:20:25.520 in terms of what you can get. I mean you 0:20:25.760 --> 0:20:27.600 you know, when I was growing up it was, you know, 0:20:27.760 --> 0:20:32.040 stocks and bonds. Now you know, there's all kinds of uh, 0:20:32.040 --> 0:20:36.920 you know real estate, you know, publicly traded, privately traded. Um, 0:20:36.960 --> 0:20:40.080 you know fractional assets. You know where you can buy 0:20:40.119 --> 0:20:43.680 fractions of real estate or fractions of a painting. And 0:20:43.920 --> 0:20:46.400 I mean we, we've just like the access to these 0:20:46.400 --> 0:20:50.000 things has become, you know, a little scary in all honesty, 0:20:50.040 --> 0:20:52.159 and that like you can really get into many different 0:20:52.200 --> 0:20:54.720 things that, uh, look, some of this I think is 0:20:54.760 --> 0:20:56.959 probably good, but some of it is is maybe stretching 0:20:56.960 --> 0:21:00.359 a little too far. Bildna got me a fract of 0:21:00.359 --> 0:21:03.480 a Spanish hug. That was that's the best asset I've had. 0:21:03.520 --> 0:21:06.960 That was that was a good, yeah, alternative asset. But, 0:21:07.000 --> 0:21:10.040 George Um, you mentioned something earlier on that. I want 0:21:10.040 --> 0:21:12.720 to sort of rewinding. Get back to and that is 0:21:12.840 --> 0:21:14.600 that you said you do think the Fed is going 0:21:14.640 --> 0:21:18.560 to be successful in taming inflation, but it's gonna take 0:21:18.560 --> 0:21:20.520