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Speaker 1: Wogan trillions. I'm Joel Webber and I'm Eric bel Tunis. Eric,

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Speaker 1: there's a category that we haven't really spent that much

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Speaker 1: time talking about un trillions, which is kind of incredible.

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Speaker 1: But that's alternatives. And why why is that significant right now? Yeah,

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Speaker 1: because the sixty and the forty, the equities and bonds

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Speaker 1: that most people have as the portfolio is not really

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Speaker 1: working like people thought. This year. The forty, which is

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Speaker 1: the bonds, isn't really hedging the sixty. Normally that happens,

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Speaker 1: and that's good and that's why you use bonds. But

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Speaker 1: this year they're both down, and to me, that has

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Speaker 1: opened the door to alternatives, which is literally what the

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Speaker 1: name is. And I define alternatives as investment strategies that

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Speaker 1: have non correlated return streams to stocks and bonds, so

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Speaker 1: like they might have zero correlation or just a very

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Speaker 1: small correlation, and therefore they can sometimes go up or

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Speaker 1: go down less than the sixty and the forty, and

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Speaker 1: they typically are lower vault. And in that category exists

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Speaker 1: a lot of hedge fund strategies. So contrary to popular belief,

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Speaker 1: um not all hedge funds are trying to like crush

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Speaker 1: the market. A lot are trying to deliver something that

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Speaker 1: might be UM have a higher sharp ratio, which means

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Speaker 1: a decent return stream but at lower vall and with

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Speaker 1: non correlative return. So that category has grown a ton

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Speaker 1: this year. It's still small at five point one billion,

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Speaker 1: but the percentage growth is big. And it's been waiting

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Speaker 1: maybe fifteen years for this moment because stocks and bonds

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Speaker 1: have just gone up easily, and it hasn't really been

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Speaker 1: like something people search for, because why bother if you're

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Speaker 1: sixty and forty is doing fine. There's a whole different

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Speaker 1: ball game now, and so I think alternatives are having

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Speaker 1: somewhat of a moment. So we're gonna talk about hedge

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Speaker 1: funds strategies in an e t F rapper this time

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Speaker 1: joining us. It's gonna be Andrew Beer of Dynamic Beta,

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Speaker 1: Bob Elliott of Unlimited, and Cathy Burton, hedge fund reporter

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Speaker 1: with Bloomberg News, this time on Trilliance Hedge Funns. Andrew, Bob, Cathy,

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Speaker 1: Welcome to Trallians. Thank you so much, thanks for having us. Okay, Andrew,

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Speaker 1: I want to start with you, UM, why hedge fund

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Speaker 1: strategy and an ETF wrapper? Why do this at all?

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Speaker 1: So Eric mentioned this idea that we've been waiting fifteen

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Speaker 1: years for this moment. I've actually been working fifteen years

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Speaker 1: for this moment. So I've been doing this incredibly long time. Uh.

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Speaker 1: You know, we we knew that this breakdown of stocks

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Speaker 1: and bonds would come at some point. You know, what

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Speaker 1: we're living through in the two thousand tens was very

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Speaker 1: very unusual. And you know, about seven or eight years ago,

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Speaker 1: we started to focus on the strategy that we thought

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Speaker 1: actually had the most diversification bang for the buck if

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Speaker 1: you're starting with a portfolio, and it's a strategy called

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Speaker 1: managed futures, And the easiest way to describe managed futures

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Speaker 1: is it's like flood insurance where you get paid to wait.

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Speaker 1: That's all you need to know about it from from

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Speaker 1: a portfolio perspective. And so we saw it as one

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Speaker 1: of these areas where you know, previously it had done

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Speaker 1: really really well during the dot Com crisis, it had

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Speaker 1: done really really well during the Great Financial Crisis, and

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Speaker 1: the question was would it do well in another big

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Speaker 1: crisis like that? And now the strategy is up overall

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Speaker 1: around thirty percent this year, and we've been very, very

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Speaker 1: fortunate to manage an et F that's in that area,

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Speaker 1: Drill down what is it, what's in the portfolio? If

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Speaker 1: I pull up the holding screen, what am I going

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Speaker 1: to see? And it's active? So what are you doing?

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Speaker 1: And by the way, the ticker d d m F right, yes, sir,

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Speaker 1: so yeah, so so what what these strategies do is

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Speaker 1: basically there are a bunch of hedge funds that are

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Speaker 1: looking for trying to determine whether an asset is going

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Speaker 1: to go up or down. Is oil, if oil has

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Speaker 1: been going up, is going to keep going up? If

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Speaker 1: rates have been going up, are they going to keep

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Speaker 1: going up? If equities are going down, and are they

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Speaker 1: gonna keep going down? And so the way that they

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Speaker 1: express this is through financial derivitist called futures contracts, because

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Speaker 1: these are very very efficient ways to bet on things

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Speaker 1: going up or down. And so what we do in

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Speaker 1: DBMF is we basically try to piggyback off of the

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Speaker 1: core trades that these largest hedge funds are doing. So

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Speaker 1: when they're betting that oil is going up, we simply

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Speaker 1: expres us. It's the same way through a futures contract.

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Speaker 1: If their betting rates are going to keep going up,

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Speaker 1: we do the same thing, but also through things like

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Speaker 1: treasury futures. So when you look at DBMF, what you

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Speaker 1: basically see as a big pile of cash and cash

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Speaker 1: like instruments and then a handful of derivative contracts through

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Speaker 1: which we express those views. Okay, Bob, what are you doing?

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Speaker 1: That's different because and you have a you came from Bridgewater, right,

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Speaker 1: so I'm curious. You know that's a world's biggest hedge fund,

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Speaker 1: Like what did you pick up there? And what are

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Speaker 1: you doing with your tick HfN D well I I

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Speaker 1: spent the first twenty years of my career basically in

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Speaker 1: two and twenty institutions in two and twenty for those

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Speaker 1: not in the two and twenty being UH. The typical

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Speaker 1: fee structure of a hedge fund so management fee two

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Speaker 1: percent of AUM management fee performance. And what I saw

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Speaker 1: over time was that UM hedge funds UH and two

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Speaker 1: and twenty managers generate great returns. They're they're very good

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Speaker 1: at delivering alpha or sort of returns above of standard

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Speaker 1: index investing. But what they do is they end up

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Speaker 1: charging so many fees that the investor who invest in

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Speaker 1: those products is typically worse off. Plus they're always in

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Speaker 1: structures that are uh typically unaccessible to the everyday investor,

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Speaker 1: and so that got me to thinking about whether there

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Speaker 1: was a way to sort of bring a kind of

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Speaker 1: low cost indexing idea that obviously is totally changed stocks

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Speaker 1: and bonds, but bring it to the hedge fund space. Now,

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Speaker 1: the goal they're being to track the gross of fees

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Speaker 1: returns of the total hedge fund industry and all the

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Speaker 1: different strategies that make up that so not includes things

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Speaker 1: like equity long short, fixed income, arbitrage, global macro managed

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Speaker 1: futures is andrew is highlighted, and basically create an index

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Speaker 1: replication that looks like the hedge fund industry in the

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Speaker 1: same way you might buy an index an index of

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Speaker 1: the SP five under it, or an index that covers

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Speaker 1: the global bond market. And so that's really what HfN

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Speaker 1: D is all about, is is creating that index like

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Speaker 1: product for the hedge fund space. Okay, Kathy, you've been

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Speaker 1: covering hedge funds for a really long time. This feels

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Speaker 1: like an existential crisis almost. It's like these guys have

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Speaker 1: hedge fund industry has this magic formula that only they

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Speaker 1: know they can charge a significant amount of money for

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Speaker 1: have institutional clients with gigantic pools of money that they

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Speaker 1: can drop on. But you know, an et F strategy,

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Speaker 1: this opens the door, like I can invest like a

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Speaker 1: hedge fund now, right, So how does this going over

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Speaker 1: within the hedge fund community? Well, I think right now

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Speaker 1: it's still a pretty small part. But it is a

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Speaker 1: bit more of a threat, I would say, because there

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Speaker 1: although there's some funds that are doing very well this year, uh,

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Speaker 1: there are a lot that have not been able to

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Speaker 1: take advantage of you know, to be short when the

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Speaker 1: market drops. They've just done a pretty poor job overall.

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Speaker 1: So I feel like it is a bit of a

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Speaker 1: moment where we might see more people and just give

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Speaker 1: us the lay the land of the hedge fund world

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Speaker 1: right now, Um, I don't look at it every day,

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Speaker 1: lest I heard it's about three trillion. Has that assets

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Speaker 1: been going up or down? We talk about active mutual

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Speaker 1: funds a lot on here, and they're seeing like eight

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Speaker 1: billion outflows this year. How are hedge funds holding up

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Speaker 1: through the whole sort of rise of passive? I mean,

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Speaker 1: are they maintaining their niche? Our institutions still like is

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Speaker 1: in love with them? Are they maybe forcing their fees down.

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Speaker 1: Are they also getting like some fee compression. What's the

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Speaker 1: state of things over there? Uh, it really varies. I

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Speaker 1: would say overall fees have come down, but for certain

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Speaker 1: funds that have done well, the fees have actually gone

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Speaker 1: up in some instances. Overall, the assets have more or

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Speaker 1: less kind of stabilized at that three trillion dollar level. Uh. Certainly,

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Speaker 1: a lot of strategies like long short equity have lost assets,

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Speaker 1: both because of the market fall and people pulling money.

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Speaker 1: But at the same time, other some of the largest

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Speaker 1: funds have made money this year, so that's helped bring

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Speaker 1: assets up a little bit. So that's the stabilizing aspect

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Speaker 1: of it. Both. You guys are looking to democratize hedge

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Speaker 1: funds in general. I get it. It's clear. Here's the

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Speaker 1: thing and what I you know, I've learned about institutions.

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Speaker 1: I feel like they they want exclusivity. They almost think

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Speaker 1: the e t F is like the the public pool

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Speaker 1: down the street. I want the private pool in my

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Speaker 1: backyard or at least the country club. I'm not I

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Speaker 1: I need to do better things than that. And then

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Speaker 1: on the flip side, you have advisors who may not

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Speaker 1: even understand hedge funds enough to use them. So I

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Speaker 1: sometimes think alts might get caught in the middle of

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Speaker 1: both of those worlds, or have challenges selling two institutions

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Speaker 1: who want exclusivity and advisors who may not totally even

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Speaker 1: understand what you're talking about and get scared of under performance.

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Speaker 1: So back to the point about fees, right, So, so

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Speaker 1: the hedge fund industry is not going away, right In fact,

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Speaker 1: and and and the hedge fund industry serves a very

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Speaker 1: very valuable function for those institutional investors their products. They

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Speaker 1: can assemble their own cars from hundreds of different you

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Speaker 1: know parts, basically to meet their particular risk reward criteria.

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Speaker 1: And most frankly, as much as they talk about it,

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Speaker 1: they really don't care how much they're paying fees. Right,

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Speaker 1: It's just them. Yes, fees have come down, but relative

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Speaker 1: to the net A feed performance of hedge funds, they

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Speaker 1: obviously haven't come down very much, and they're going up

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Speaker 1: in certain circumstances. Our business plan is very different. Right,

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Speaker 1: You've got six or seven trillion dollars of et F

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Speaker 1: assets out there. You have a fifteen year history of

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Speaker 1: pretty bad products, hedge fund products being put into ETFs.

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Speaker 1: One of our competitors launched in the beginning of two

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Speaker 1: thousand eleven, it's down over eleven years, where the hedge

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Speaker 1: funds that it's supposed to be mimicking are up over

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Speaker 1: that period of time. One of Bob's competitors has delivered

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Speaker 1: two percent per anum since two thousand seven or two

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Speaker 1: thousand eight, or to actually the beginning of two thousand nine.

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Speaker 1: So when you talk about democratization, if these are your

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Speaker 1: options for democratization, don't bother. And that was the lesson

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Speaker 1: of the two thousand tents. Let's talk about the competitors.

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Speaker 1: I want to bring up the tickers, but there are

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Speaker 1: some hedge fund ETFs that have an equity bias in them.

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Speaker 1: They're only partially hedged, and I think that was to

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Speaker 1: try to sell them to advisors in the up times

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Speaker 1: that so that you still got you got that like

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Speaker 1: Beta kick, but now Beta is bad and it's maybe

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Speaker 1: making the actual hedge working less. Is that what you're

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Speaker 1: talking about here, whereas yours are more all in hedge.

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Speaker 1: But it's also the complexity of it. Our our mission

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Speaker 1: as advisor education right and in fact, in fact when

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Speaker 1: we built are the two ETFs that we run the

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Speaker 1: ideas that they're supposed to be incredibly simple and elegant

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Speaker 1: building blocks for advisors who want to use them in

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Speaker 1: their portfolio. They're supposed to understand how they work underneath

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Speaker 1: the hood and what it is we're trying to achieve,

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Speaker 1: and we have to build a better language around it

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Speaker 1: because we have to be able to explain it in

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Speaker 1: a way not where somebody gets off the phone understanding

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Speaker 1: what we're talking about, but three weeks later, not having

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Speaker 1: thought about it for three weeks. They've got to be

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Speaker 1: able to sit down with their client who knows nothing

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Speaker 1: about the space and be able to communicate the value

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Speaker 1: proposition why it's there. And so our view has been

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Speaker 1: that there have been a lot of hedge fund like

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Speaker 1: products that have been put into et f rappers that

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Speaker 1: never should have been there. Some of them are designed

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Speaker 1: to as you say, they are almost in a Noman's

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Speaker 1: land between the really really dynamic, thematic type products that

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Speaker 1: people buy and sell every day on a regular basis

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Speaker 1: and the asset allocators who want something where they can

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Speaker 1: say I want this strategy, and I want it in

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Speaker 1: a predictable, simple, straightforward way that I can explain to

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Speaker 1: my clients. I think one of the most interesting things

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Speaker 1: when I talk to advisors is nearly every advisor I

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Speaker 1: talked to is looking for alternatives. They appreciate and recognize

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Speaker 1: the challenges that SIXT has had will have on a

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Speaker 1: forward looking basis, and so they need to have something

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Speaker 1: that gives their clients something better, frankly, than they can

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Speaker 1: do on their own to just invest in in index investing.

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Speaker 1: And the problem those advisors face is when they look

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Speaker 1: at alternatives, they structures that are very unpalatable. So they

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Speaker 1: see traditional LP positions that are highly concentrated, they see

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Speaker 1: those positions that are very tax and efficient. Are those

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Speaker 1: structures are very tax and efficient? And they say to themselves,

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Speaker 1: this is a hard way. It is hard to get

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Speaker 1: access to alternative investment products. And so I think what

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Speaker 1: they're looking for the problem is clear in terms of

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Speaker 1: the need for alternatives and the desire for a simplified,

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Speaker 1: tax efficient structure that the e t F provides. And

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Speaker 1: so they're looking for institutional quality, world class investors coming

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Speaker 1: to the e t F market offering those sorts of products.

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Speaker 1: And I think, you know, Andrew and I both have

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Speaker 1: that sort of pedigree and experience that we know how

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Speaker 1: institutional quality hedge fund strategies work and can put those

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Speaker 1: into the package that that is much more accessible to

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Speaker 1: investors and advised. So I'm curious when you're talking to

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Speaker 1: your advisors, the the idea of a non correlated asset

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Speaker 1: very appealing. Obviously, how do you break down how you

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Speaker 1: achieve that? We've heard, we've heard how how Andrew does it?

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Speaker 1: But how do you do it? Well? What we do

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Speaker 1: is we use machine learning techniques to basically look over

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Speaker 1: the shoulder of the asset managers. There's a lot of

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Speaker 1: information that you can see in uh in what managers

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Speaker 1: are doing from their pattern of returns, and that's reported

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Speaker 1: regularly their teams basically right, No, not their teams thirteen

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Speaker 1: have to have some issues because they only give you

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Speaker 1: a very small slice, a small picture into what they're doing.

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Speaker 1: If you're sophisticated hedge funds, you're doing a lot more

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Speaker 1: than what's in that their team f report. And so instead,

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Speaker 1: what we do is we look at the pattern of returns,

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Speaker 1: and having built proprietary hedge fund strategies across various hedge

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Speaker 1: fund styles, we can look at those pattern of returns.

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Speaker 1: We can compare it to a plausible set of exposures

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Speaker 1: that they might have on or might drive their returns

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Speaker 1: at any point in time, and basically solve for what's

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Speaker 1: that portfolio look like that is generating the returns that

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Speaker 1: we're seeing. So you're like reverse engineering or portfolio using

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Speaker 1: machine learning exactly exactly. And one of the things that's

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Speaker 1: very important is you can obviously solve for any particular

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Speaker 1: point in time with a regression that will give you

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Speaker 1: answers that who knows exactly whether it's right or wrong.

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Speaker 1: What we do with frankly machine learning techniques that didn't

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Speaker 1: exist ten or fifteen years ago, what we're able to

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Speaker 1: do is solve for the path of of positions that

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Speaker 1: that hedge fund manager might have on through time, which

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Speaker 1: then helps us understand more effectively what positions they have

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Speaker 1: on now. And that's what we use to inform what

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Speaker 1: we put on in terms of the assets back in

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Speaker 1: the e t F. So it's really really what we're

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Speaker 1: trying to do is sort of infer the wisdom of

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Speaker 1: the whole hedge fund community. Are they long growth stocks

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Speaker 1: or short growth stocks? Do that? Are they long bonds

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Speaker 1: or are they short bonds? Were trying to infer that

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Speaker 1: from the aggregate hedge fund community and then put that

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Speaker 1: together in something that's simple and easy to access for

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Speaker 1: the everyday investors. How do you decide who's in and

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Speaker 1: out at that index? We look at everybody. Uh. One

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Speaker 1: of the great lessons I think many institutional investors have learned,

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Speaker 1: particularly the most sophisticated, is that it's very hard to

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Speaker 1: predict exactly which manager is likely to be successful and

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Speaker 1: which one isn't. The most successful and sophisticated sovereign wealth

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Speaker 1: funds and other institutional managers, what they do is they

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Speaker 1: build a diversified portfolio of hedge funds, of thirty or

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Speaker 1: fifty hedge funds that are world class and nature and

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Speaker 1: they basically say, we don't know exactly which one is

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Speaker 1: going to perform well or poorly at any particular point

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Speaker 1: in time, but I put together thirty or fifty hedge

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Speaker 1: funds together, and that's going to create a nice diversified

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Speaker 1: portfolio that over time is going to go up into

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Speaker 1: the right it's going to generate pretty good returns. And

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Speaker 1: so that's really we're sort of drawing on that expertise

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Speaker 1: and saying, instead of looking just one strategy or one manager,

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Speaker 1: build an aggregated portfolio, a diversified portfolio, which is likely

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Speaker 1: over time to be more consistent than just focusing on

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Speaker 1: one manager, one strategy. Do you ever hedge over that

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Speaker 1: in any way? What we're doing with HfN D, we

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Speaker 1: we don't apply any of our own proprietary views or

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Speaker 1: or or or other or other strategies on top of it.

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Speaker 1: What we're trying to do is is match the hedge

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Speaker 1: fund index grossive fees to be clear, which is a

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Speaker 1: important consideration because, uh, when you look at hedge fund

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Speaker 1: returns grossive fees, they're pretty good. You know, you you

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Speaker 1: have returns that are better than stocks, a bit better

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Speaker 1: than stocks, and volatility that's about half what you'd see

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Speaker 1: holding stock index return. So that's a that's a pretty

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Speaker 1: good return stream that most investors and advisors were wanting

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Speaker 1: their portfolio. It's just typically they're too expensive to access,

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Speaker 1: uh or or you know, the fees are too high,

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Speaker 1: or you can't access the best the best ones because

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Speaker 1: they won't take your money. And so that's what we're

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Speaker 1: trying to do to really create that democratization of that

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Speaker 1: diversified low cost index fund concept just for the for

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Speaker 1: the hedge fund space. So what's the best way to

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Speaker 1: use your your product, because I guess looking back at

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Speaker 1: ten years, it must have been frustrating. Everything everything everywhere

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Speaker 1: was going up, and yet you had to kind of

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Speaker 1: like wait for a moment, and that moment may have

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Speaker 1: arrived now. And so you're you know, you're selling picks

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Speaker 1: on the way to a gold rush all of a sudden.

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Speaker 1: Um but I'm you know, I'm curious, like now that

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Speaker 1: this is happening, how are you telling investors to think

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Speaker 1: about using the product now and going forward? So um so,

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Speaker 1: to stick with my flood insurance analogies flood not gold rushes.

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Speaker 1: So um so, Look, you can overpay for flood insurance

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Speaker 1: and if a flood doesn't happen for five or six years,

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Speaker 1: you've probably given up your policy when you need it.

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Speaker 1: That happened to a lot of people in this space. Uh.

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Speaker 1: The Manatutre space on the hedge fund side was notorious,

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Speaker 1: and actually Bloomberg wrote an article nearly a decade ago

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Speaker 1: talking about how of all gains in the space had

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Speaker 1: gone to everybody but clients. Um So, obviously it's it's

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Speaker 1: got a lot better since then, and some of the

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Speaker 1: funds we track have actually been leaders in in in

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Speaker 1: making it somewhat more rational, but it's still an area

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Speaker 1: that could be very expensive to invest in. And the

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Speaker 1: other is is the fine print in the policies and

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Speaker 1: you know, so you get it by a flood, but

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Speaker 1: it turns out the flood was from a storm surge um.

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Speaker 1: So there are plenty of funds this year, including some

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Speaker 1: very popular funds that have actually gone down in a

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Speaker 1: year where everybody else has gone up. And so you know,

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Speaker 1: this is an area if you if you pull institutional

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Speaker 1: investors and you say where do I get the most

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Speaker 1: diversification bang for the buck Manachuchers is always at the

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Speaker 1: top of the list, going back to your point zero

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Speaker 1: correlation over time, and it's hit the trifecta of gains

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Speaker 1: during the dot Com crisis, the GFC, and this year.

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Speaker 1: The problem is it's been very very difficult people to access.

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Speaker 1: And we're trying to make it simple and easy, not

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Speaker 1: for the institutional investors who can do it and they've

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Speaker 1: done it successfully, but rather for the trillions of dollars

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Speaker 1: of ETF based model portfolios that have never had an

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Speaker 1: access point to get into this space. So Joel I

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Speaker 1: have kind of trolled Andrew a little bit on Twitter

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Speaker 1: by calling his fund the arc of the fed hiking

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Speaker 1: era um, because you know, Cathy would is obviously like,

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Speaker 1: do you get a commission for that? Sounds it sounds

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Speaker 1: pretty good. Well, if you're on Twitter, not everybody's a

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Speaker 1: Cathy fan. I mean i'd say almost the majority, especially

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Speaker 1: the professionals. They just they she she really gets under

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Speaker 1: their skin. Um. And so obviously she's down in the

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Speaker 1: past like year or two, not having a good time,

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Speaker 1: although the investors are pretty loyal. But the reason I

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Speaker 1: say that is because if you look at ARCS flow

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Speaker 1: chart and dbmfs there they sort of hung in oblivion

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Speaker 1: for a while and then bam, the out performance started.

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Speaker 1: The people came. You had the shiny object moment up

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Speaker 1: this year, which is phenomenal because the markets down or

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Speaker 1: something like that. So that's a fifty percentage point above it.

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Speaker 1: One billion in assets were one point one allion. That

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Speaker 1: doesn't seem like a lot, but relative to alts, that's

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Speaker 1: market share of the category. I don't think I've ever

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Speaker 1: seen a fund go from nothing to market share in

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Speaker 1: a year. So in a way, even though you're a

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Speaker 1: smaller scale, it is an ARC type phenomenon in that category.

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Speaker 1: And the question I would have for you is, now

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Speaker 1: that you've got all this love and people you know,

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Speaker 1: kind of going to that shiny nous, let's say the

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Speaker 1: Fed pivots or they just say we're done hiking, and that,

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Speaker 1: you know, that kind of turns on that whole ARC

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Speaker 1: trade again. Um, do you prepare them for like maybe

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Speaker 1: the fact that it won't be up every year? I mean,

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Speaker 1: how how's that going? And is that like a like

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Speaker 1: a fear of yours that like what goes up comes down?

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Speaker 1: I mean, I don't know. I'm just curious where your

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Speaker 1: heads out on that. Well, there are a couple of

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Speaker 1: differences dark. One is I'm not going to tell people

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Speaker 1: that we're gonna make thirty Okay, let's let's let's get

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Speaker 1: that very straight. Um. The other difference that we're actually

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Speaker 1: an interesting similarity is you know, and you and I

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Speaker 1: have exchanged thoughts on this is that part of the

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Speaker 1: reason ARC started out as a stock picking story, and

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Speaker 1: then over time people realize it really wasn't as much

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Speaker 1: a stock picking story as access to a particular strategy,

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Speaker 1: a thematic strategy that that that people didn't have access

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Speaker 1: to otherwise and you know, as I've also said, I'm

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Speaker 1: I'm a huge respect for the decision that Kathy would

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Speaker 1: made to launch those et f s when she did,

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Speaker 1: although I have also been critical of maybe some of

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Speaker 1: the things she said publicly. Um, but but that's what

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Speaker 1: DBMF is, right. DBMF is supposed to be if instead

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Speaker 1: of thematic play, it's the strategy play. And and now

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Speaker 1: what you're gonna have in the beginning of three the

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Speaker 1: narrative is going to be, it's not stocks bonds in

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Speaker 1: real estate that didn't work. It's probably not gonna be stocks,

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Speaker 1: bonds in private equity that didn't work. It's gonna be stocks,

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Speaker 1: bonds and manner futures. Because that's if you need three

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Speaker 1: legs of the stool, those are the three best legs

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Speaker 1: to have over time. Our play is not too displace

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Speaker 1: hedge funds. You know. In fact, I encourage everybody that

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Speaker 1: I know who runs one of these strategies to set

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Speaker 1: them up in e t F s and to broaden

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Speaker 1: because I think I think E t F allocators should

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Speaker 1: have more opportunities and more options to invest in. But

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Speaker 1: we're supposed to be the easy allocation that you want

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Speaker 1: to start with it. You don't know the space very well.

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Speaker 1: You're supposed to be able to say, all right, boy,

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Speaker 1: I can see how ten percent of this and my

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Speaker 1: portfolio would have made a huge difference this year. And yes,

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Speaker 1: if the world comes back tomorrow, the other is going

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Speaker 1: to do great. But on the other hand, if as

432
00:22:13,400 --> 00:22:15,360
Speaker 1: a lot of hetche ones think today that this could

433
00:22:15,359 --> 00:22:17,280
Speaker 1: go on for a number of years as we try

434
00:22:17,359 --> 00:22:20,080
Speaker 1: to renormalize, this could be a very very valuable part,

435
00:22:20,119 --> 00:22:22,240
Speaker 1: and we're supposed to be the easy way to get access.

436
00:22:22,680 --> 00:22:24,760
Speaker 1: Also similar between you and Cathy as you both go

437
00:22:24,880 --> 00:22:29,680
Speaker 1: where Vanguard doesn't Cathy's active share to say, the SMP

438
00:22:29,800 --> 00:22:33,520
Speaker 1: fire is like meaning only two percent overlap, You're gonna

439
00:22:33,560 --> 00:22:36,119
Speaker 1: have no overlap with Vanguard. Um. I call him vfcs

440
00:22:36,240 --> 00:22:40,239
Speaker 1: Vanguard free zones like and because just talk to an

441
00:22:40,240 --> 00:22:44,160
Speaker 1: active manager support like no taxes like duty for any

442
00:22:44,200 --> 00:22:46,600
Speaker 1: duty free. Yeah, if you can party there a little bit, Yeah,

443
00:22:46,640 --> 00:22:49,520
Speaker 1: it's still fun. Um. So I do think if you're

444
00:22:49,560 --> 00:22:52,439
Speaker 1: serving up something that you can't get that hasn't been

445
00:22:52,520 --> 00:22:55,200
Speaker 1: vanguarded yet, you're also in a good spot as a

446
00:22:55,320 --> 00:22:59,440
Speaker 1: as an active manager or product provider. Because the Vanguard

447
00:22:59,520 --> 00:23:02,440
Speaker 1: really hills the sixty. I mean, they're pushing so many

448
00:23:02,520 --> 00:23:05,480
Speaker 1: people to get cheaper or even out of business. But

449
00:23:05,640 --> 00:23:08,040
Speaker 1: this is something where you can come in here, have

450
00:23:08,160 --> 00:23:12,639
Speaker 1: some creativity. Um. Other firms like Simplify have done option overlays,

451
00:23:13,200 --> 00:23:15,360
Speaker 1: so you can talk a little bit about the sort

452
00:23:15,359 --> 00:23:18,560
Speaker 1: of changing dynamic of Active and the fact that Active

453
00:23:18,680 --> 00:23:20,320
Speaker 1: might have a I don't know, more of a home

454
00:23:20,400 --> 00:23:23,040
Speaker 1: over here in the future versus sort of the traditional

455
00:23:23,600 --> 00:23:25,440
Speaker 1: Let me get mostly like the SNP and try to

456
00:23:25,480 --> 00:23:27,359
Speaker 1: pick a few stocks to outperform it by two percent

457
00:23:27,480 --> 00:23:31,560
Speaker 1: that year. Yeah, I think a lot of investors and

458
00:23:31,640 --> 00:23:35,800
Speaker 1: allocators have looked at ETFs as basically being the low

459
00:23:35,880 --> 00:23:40,199
Speaker 1: cost and ex solution, and they've delivered in spades along

460
00:23:40,280 --> 00:23:43,440
Speaker 1: that dimension. And you know, innovators like Vanguard as well

461
00:23:43,520 --> 00:23:48,159
Speaker 1: as a variety of different producers have created a vast

462
00:23:48,359 --> 00:23:52,200
Speaker 1: set of products that are available that are sort of

463
00:23:52,240 --> 00:23:54,520
Speaker 1: the picks and shovels that you might have have or

464
00:23:54,600 --> 00:23:57,920
Speaker 1: want to build a portfolio. But I think we're really

465
00:23:58,080 --> 00:24:02,119
Speaker 1: we're entering the now next really the next generation, or

466
00:24:02,240 --> 00:24:04,040
Speaker 1: i'd say sort of the third generation. We sort of

467
00:24:04,080 --> 00:24:08,639
Speaker 1: had the index, uh the index ETF generation. Then we

468
00:24:08,800 --> 00:24:14,520
Speaker 1: had uh, maybe the style or the or the thematic

469
00:24:15,280 --> 00:24:18,000
Speaker 1: UH E t F generation, which you know, I think

470
00:24:18,040 --> 00:24:20,399
Speaker 1: it we're sort of closing the book on more and

471
00:24:20,520 --> 00:24:24,000
Speaker 1: more today and now we're going to see sophisticated asset

472
00:24:24,119 --> 00:24:26,920
Speaker 1: strategies in the package of an e t F. That's

473
00:24:26,960 --> 00:24:29,600
Speaker 1: really what where we're going in terms of the et

474
00:24:29,680 --> 00:24:32,119
Speaker 1: F space. And the reason why that is is that

475
00:24:32,880 --> 00:24:36,760
Speaker 1: the E t F is the best structure for the investor,

476
00:24:37,320 --> 00:24:41,560
Speaker 1: hands down, whether it's taxes, liquidity, transparency, it is the

477
00:24:41,600 --> 00:24:44,800
Speaker 1: best structure. And so what we're gonna see is that

478
00:24:45,000 --> 00:24:48,520
Speaker 1: sophisticated asset managers are going to to use that structure

479
00:24:48,920 --> 00:24:52,800
Speaker 1: when they can to to basically create a product which

480
00:24:52,880 --> 00:24:56,600
Speaker 1: is much more investor friendly than UH than products like

481
00:24:57,160 --> 00:25:00,800
Speaker 1: traditional LP positions, which I mean, every advisor we talked

482
00:25:00,840 --> 00:25:06,160
Speaker 1: to just just UH hates an LP structure. Everyone hates

483
00:25:06,160 --> 00:25:09,359
Speaker 1: an LP structure in the paperwork, the taxes, all this stuff.

484
00:25:09,400 --> 00:25:11,920
Speaker 1: It's terrible. When you can get that in the E

485
00:25:12,000 --> 00:25:14,800
Speaker 1: t F structure. Et F are not cheap anymore. They're

486
00:25:15,000 --> 00:25:20,240
Speaker 1: ideal packages for sophisticated strategies, and so you know, I

487
00:25:20,320 --> 00:25:22,960
Speaker 1: think if anything, I mean Andrew was obviously UH on

488
00:25:23,080 --> 00:25:25,560
Speaker 1: the very much the cutting edge of this years ago.

489
00:25:26,119 --> 00:25:29,680
Speaker 1: I think we're starting to see what will be a

490
00:25:29,840 --> 00:25:32,960
Speaker 1: lot of institutional quality folks coming into the e t

491
00:25:33,080 --> 00:25:37,320
Speaker 1: F space, utilizing its efficiencies uh and and offering a

492
00:25:37,400 --> 00:25:40,240
Speaker 1: lot of differentiated products in the way that the vanguards

493
00:25:40,280 --> 00:25:44,359
Speaker 1: and the wisdom trees, etcetera. Cannot. Are you seeing other

494
00:25:44,840 --> 00:25:48,280
Speaker 1: um E t F people trying to follow what you're

495
00:25:48,320 --> 00:25:51,560
Speaker 1: doing at all? Yeah? For sure, I mean, I I

496
00:25:51,720 --> 00:25:56,760
Speaker 1: get UH. It's interesting. When I started Unlimited, I had

497
00:25:56,880 --> 00:25:59,359
Speaker 1: never issued an e t F. I didn't know much

498
00:25:59,359 --> 00:26:01,719
Speaker 1: about the ets base. As you know. I came from

499
00:26:01,800 --> 00:26:05,080
Speaker 1: the from the hedge, the traditional hedge fund space at Bridgewater,

500
00:26:06,000 --> 00:26:10,120
Speaker 1: and I think the e t F community was very important.

501
00:26:10,359 --> 00:26:13,639
Speaker 1: It was very helpful in sort of uh coming and

502
00:26:13,760 --> 00:26:16,720
Speaker 1: letting me ask questions and have the picked their brain

503
00:26:16,760 --> 00:26:19,080
Speaker 1: about what's the best way to set these things up. Uh.

504
00:26:19,119 --> 00:26:21,119
Speaker 1: And I came along way in terms of understanding ETF

505
00:26:21,280 --> 00:26:23,159
Speaker 1: through that process of the course of the last year.

506
00:26:23,720 --> 00:26:26,040
Speaker 1: And now I'm getting the calls from people who I

507
00:26:26,119 --> 00:26:28,720
Speaker 1: knew in the two and twenties space basically calling me

508
00:26:28,840 --> 00:26:31,760
Speaker 1: up and saying, what about having an et F for

509
00:26:31,920 --> 00:26:35,040
Speaker 1: sophisticated structure. Let's talk about that, what do you do,

510
00:26:35,240 --> 00:26:37,640
Speaker 1: how do you structure it? What have you met? HF?

511
00:26:37,720 --> 00:26:40,800
Speaker 1: And well it's you know, it's interesting. Goldman just announced

512
00:26:40,880 --> 00:26:43,440
Speaker 1: last week they're coming up with a white label business,

513
00:26:43,960 --> 00:26:46,919
Speaker 1: which is major because there are small, small white labors

514
00:26:47,320 --> 00:26:50,560
Speaker 1: label issuers on the indie side, but Goldmen doing it.

515
00:26:50,600 --> 00:26:52,159
Speaker 1: And the reason they did it is they said they

516
00:26:52,200 --> 00:26:54,960
Speaker 1: had institutional clients who were talking about converting their s

517
00:26:55,119 --> 00:26:56,760
Speaker 1: M A or their hedge fund into an e t F.

518
00:26:57,160 --> 00:26:58,879
Speaker 1: Now you can just convert it. You don't even need

519
00:26:58,880 --> 00:27:00,879
Speaker 1: to launch a new one. So we could see a

520
00:27:00,920 --> 00:27:03,720
Speaker 1: wave of existing funds convert. My guess is if a

521
00:27:03,760 --> 00:27:06,840
Speaker 1: fund's really successful and still charging two and twenty, they're

522
00:27:06,840 --> 00:27:09,560
Speaker 1: not converting. But I do think some will look at

523
00:27:09,600 --> 00:27:11,840
Speaker 1: this as an option because why, you know, it'd be

524
00:27:11,920 --> 00:27:14,080
Speaker 1: like if you're a band, and why wouldn't you offer

525
00:27:14,160 --> 00:27:18,000
Speaker 1: your music digitally rather than just on CD and and vinyl.

526
00:27:18,080 --> 00:27:20,160
Speaker 1: It just makes sense. I'll tell you what we're seeing

527
00:27:20,160 --> 00:27:22,840
Speaker 1: on our side, which is that so we're, as you mentioned,

528
00:27:22,880 --> 00:27:25,200
Speaker 1: were one point one billion now and with all of

529
00:27:25,240 --> 00:27:27,239
Speaker 1: our competitors in the mannor Tucher space where maybe one

530
00:27:27,240 --> 00:27:30,200
Speaker 1: point seven billion, and simplifying ct A has had great

531
00:27:30,200 --> 00:27:34,879
Speaker 1: success as well. Um, but how big should this space be? Right?

532
00:27:35,040 --> 00:27:38,119
Speaker 1: It's there trillions and trillions of dollars of e t

533
00:27:38,240 --> 00:27:40,639
Speaker 1: F based model portfolios that have zero exposure to the space.

534
00:27:41,000 --> 00:27:44,560
Speaker 1: It's there's four hundred billion dollars maybe five billion dollars

535
00:27:44,600 --> 00:27:48,400
Speaker 1: of hedge fund assets allocated the strategy and essentially zero

536
00:27:48,440 --> 00:27:50,800
Speaker 1: in the e t F world. So I'm getting calls

537
00:27:50,840 --> 00:27:53,119
Speaker 1: from people who are saying, we can see this going

538
00:27:53,160 --> 00:27:55,400
Speaker 1: to a fifty billion dollar space, a hundred billion dollars space,

539
00:27:55,440 --> 00:27:57,520
Speaker 1: at two hundred billion dollars space over the next decade,

540
00:27:58,040 --> 00:27:59,879
Speaker 1: and that all of a sudden changes the calculus for

541
00:28:00,119 --> 00:28:02,840
Speaker 1: because it's cheaper, as we know in the et F land,

542
00:28:02,880 --> 00:28:04,639
Speaker 1: you're not going to make as much money, but if

543
00:28:04,680 --> 00:28:06,720
Speaker 1: you do it right, you can have that that that

544
00:28:06,920 --> 00:28:09,920
Speaker 1: that that massive scalability. So I do I agree with Bob.

545
00:28:09,960 --> 00:28:11,320
Speaker 1: I think, I mean, I think the world has changed

546
00:28:11,359 --> 00:28:13,399
Speaker 1: in a way. I have very very strong views on

547
00:28:13,440 --> 00:28:15,480
Speaker 1: what products I think will succeed in not which is

548
00:28:15,640 --> 00:28:17,600
Speaker 1: a longer conversation. And again, is the money going to

549
00:28:17,680 --> 00:28:21,320
Speaker 1: come from advisors in retail or institutions or both. It

550
00:28:21,320 --> 00:28:23,480
Speaker 1: will come from model portfolios Okay, So which will be

551
00:28:23,560 --> 00:28:26,120
Speaker 1: which will start when? It'll start with the independent areas

552
00:28:26,200 --> 00:28:28,639
Speaker 1: where we've seen demand, Then it will migrate to the

553
00:28:28,960 --> 00:28:31,720
Speaker 1: top tier wealth management platforms, and then once it gets

554
00:28:31,760 --> 00:28:34,200
Speaker 1: big and becomes established, then you'll start to see institutional

555
00:28:34,240 --> 00:28:37,600
Speaker 1: allocas money. For those who don't know, a model would

556
00:28:37,600 --> 00:28:39,560
Speaker 1: be like something an advisor can just buy and has

557
00:28:40,160 --> 00:28:42,440
Speaker 1: the whole portfolio already made. That way, the advisor can

558
00:28:42,480 --> 00:28:46,440
Speaker 1: focus on getting new clients and like tax stuff exactly. Yeah, okay,

559
00:28:46,480 --> 00:28:49,400
Speaker 1: but since you're new to the space, I'm curious, is

560
00:28:49,480 --> 00:28:52,160
Speaker 1: there anything relatively new to the E t F space?

561
00:28:52,200 --> 00:28:55,760
Speaker 1: I guess they should clarify. Is there anything that the

562
00:28:55,960 --> 00:28:58,680
Speaker 1: e t F can't do that you wish it could do?

563
00:28:59,800 --> 00:29:01,760
Speaker 1: I think for what we're trying to do, the E

564
00:29:01,840 --> 00:29:06,640
Speaker 1: t F is a perfect package and rapper. Um, there's

565
00:29:06,760 --> 00:29:11,040
Speaker 1: natural limitations in terms of UH running strategies that are

566
00:29:11,160 --> 00:29:14,480
Speaker 1: particularly high frequency or with a great deal of turnover,

567
00:29:14,720 --> 00:29:17,640
Speaker 1: where the E t F rapper isn't necessarily the the

568
00:29:17,800 --> 00:29:21,000
Speaker 1: best strategy that that you can are the best structure

569
00:29:21,320 --> 00:29:24,160
Speaker 1: that you could use. But I'll tell you the vast,

570
00:29:24,440 --> 00:29:31,160
Speaker 1: vast majority of sophisticated asset strategies are ones that uh

571
00:29:31,440 --> 00:29:35,360
Speaker 1: that fit well into an E t F type structure,

572
00:29:35,920 --> 00:29:38,960
Speaker 1: and frankly, you know would would really benefit from that

573
00:29:39,760 --> 00:29:45,400
Speaker 1: very uh, that very positive investor friendly structure relative to

574
00:29:46,160 --> 00:29:48,040
Speaker 1: the typical things that are out there. Andrew about you.

575
00:29:48,160 --> 00:29:49,840
Speaker 1: Since you've been you've been in the game for a bit.

576
00:29:49,880 --> 00:29:52,760
Speaker 1: Anything that you could add to your wish list of

577
00:29:52,840 --> 00:29:55,400
Speaker 1: things in E t F could do so. So the

578
00:29:55,440 --> 00:29:57,120
Speaker 1: reason we do it the way that we do it,

579
00:29:57,680 --> 00:30:00,400
Speaker 1: which is essentially copying the big trades cheaply with these

580
00:30:00,440 --> 00:30:02,760
Speaker 1: very efficient liquid instruments, is because we don't run into

581
00:30:02,800 --> 00:30:05,840
Speaker 1: those hurdles that you normally run into. Make no mistake,

582
00:30:06,760 --> 00:30:08,720
Speaker 1: hedge fund strategy should never be put into an et

583
00:30:08,840 --> 00:30:11,320
Speaker 1: F right, It's I mean, I wrote probably the seminal

584
00:30:11,360 --> 00:30:13,280
Speaker 1: paper thous in two thousand fourteen on the mutual fund

585
00:30:13,280 --> 00:30:15,720
Speaker 1: space that when you take a hedge fund strategy, you

586
00:30:15,840 --> 00:30:18,000
Speaker 1: often kill it when you try to when you try

587
00:30:18,000 --> 00:30:20,680
Speaker 1: to tie it up with those constraints. Um. So, I

588
00:30:20,760 --> 00:30:24,960
Speaker 1: think you know, our view is that the vehicle itself

589
00:30:25,040 --> 00:30:28,840
Speaker 1: is extraordinarily valuable in part because you've had this exponential

590
00:30:28,880 --> 00:30:32,960
Speaker 1: geometric growth of the space. Um. But um, but you

591
00:30:33,040 --> 00:30:34,800
Speaker 1: have to be very very careful about what you put

592
00:30:34,840 --> 00:30:36,959
Speaker 1: into e t f s because those constraints are very

593
00:30:37,040 --> 00:30:39,080
Speaker 1: very real, and if you have a strategy that doesn't

594
00:30:39,080 --> 00:30:40,680
Speaker 1: fit with it very well, you will lose what you

595
00:30:40,760 --> 00:30:42,920
Speaker 1: wanted in the process. And I think the history of

596
00:30:43,480 --> 00:30:46,120
Speaker 1: head fund products in the ETF has been in general,

597
00:30:46,120 --> 00:30:56,320
Speaker 1: it has been pretty abysmal. I have a question for

598
00:30:56,440 --> 00:31:00,320
Speaker 1: you but about um the fact that hedge fund are

599
00:31:00,480 --> 00:31:04,920
Speaker 1: doing more and more private investments. So how do you

600
00:31:05,120 --> 00:31:09,760
Speaker 1: end up going around replicating those things which you can't well.

601
00:31:09,800 --> 00:31:13,120
Speaker 1: I think most of hedge fund businesses, or what have

602
00:31:13,280 --> 00:31:16,880
Speaker 1: traditionally been hedge fund businesses, are looking to the private

603
00:31:17,000 --> 00:31:22,160
Speaker 1: space to generate returns either most of the time through

604
00:31:22,800 --> 00:31:26,400
Speaker 1: other vehicles or structures that are less sort of traditional

605
00:31:26,480 --> 00:31:29,440
Speaker 1: hedge fund type structures and more private vehicles in a

606
00:31:29,520 --> 00:31:31,760
Speaker 1: variety of different ways. And so a lot of what

607
00:31:31,840 --> 00:31:34,360
Speaker 1: we're doing, we're really focused here with h F n

608
00:31:34,440 --> 00:31:39,280
Speaker 1: D on the traditional hedge fund space, the trading of

609
00:31:39,400 --> 00:31:43,560
Speaker 1: liquid markets to generate alpha, where some of those private

610
00:31:43,640 --> 00:31:46,960
Speaker 1: market elements are are less relevant or or less impactful

611
00:31:47,000 --> 00:31:51,280
Speaker 1: to the to what's generating the returns um So, Bob,

612
00:31:51,360 --> 00:31:53,920
Speaker 1: you know, I have a long history with Bridgewater and

613
00:31:54,000 --> 00:31:56,400
Speaker 1: writing about Bridgewater because a couple interesting things. You talk

614
00:31:56,440 --> 00:31:59,080
Speaker 1: about the E T F being such a great vehicle

615
00:31:59,720 --> 00:32:02,440
Speaker 1: that I would sometimes use Bridgewater thirteen F to sort

616
00:32:02,480 --> 00:32:04,760
Speaker 1: of explain to people, you have the biggest hedge fund

617
00:32:04,800 --> 00:32:06,840
Speaker 1: in the world. You guys must have had four or

618
00:32:06,880 --> 00:32:09,920
Speaker 1: five billion in ETFs, might even been even more. I

619
00:32:09,960 --> 00:32:12,160
Speaker 1: think it was a risk parity strategy, and all Weather

620
00:32:12,240 --> 00:32:14,720
Speaker 1: Fund used E T S four UM And then I

621
00:32:14,760 --> 00:32:19,000
Speaker 1: would say, and guess what the E M or whatever

622
00:32:19,120 --> 00:32:22,800
Speaker 1: ticker they're in. My mom pays the same fee because

623
00:32:22,840 --> 00:32:24,960
Speaker 1: it kills the share class system that the mutual fund

624
00:32:25,000 --> 00:32:27,040
Speaker 1: world has. And I thought that's kind of cool. But

625
00:32:27,160 --> 00:32:29,120
Speaker 1: then I was looking at your thirteen F. This might

626
00:32:29,160 --> 00:32:30,840
Speaker 1: have been ten years ago when I saw you were

627
00:32:30,920 --> 00:32:33,840
Speaker 1: in an e M and I AMG had come out

628
00:32:33,880 --> 00:32:35,920
Speaker 1: like a few years before, and it was getting liquid,

629
00:32:36,280 --> 00:32:38,400
Speaker 1: and I M G is like, I don't know, fifteen

630
00:32:38,440 --> 00:32:42,040
Speaker 1: BIPs and E M was like sixty nine. So I

631
00:32:42,120 --> 00:32:44,200
Speaker 1: did the math and I wrote this article for Bloomberg

632
00:32:44,240 --> 00:32:48,520
Speaker 1: Opinion that said if Bridgewater moved to e M or

633
00:32:48,600 --> 00:32:52,120
Speaker 1: I MG, they would save seventy two million dollars a year.

634
00:32:52,920 --> 00:32:54,600
Speaker 1: I was like, they could even hire like one or

635
00:32:54,600 --> 00:32:57,400
Speaker 1: two people. That was my little joke. Anyway, that's for

636
00:32:57,480 --> 00:33:01,440
Speaker 1: the that's for the people back. So, Um, then you did,

637
00:33:02,200 --> 00:33:06,440
Speaker 1: and I want to ask, was it my article? I

638
00:33:06,760 --> 00:33:11,160
Speaker 1: I was not not involved in in uh in the

639
00:33:11,240 --> 00:33:13,680
Speaker 1: selection of the the et F while I was there.

640
00:33:13,760 --> 00:33:17,000
Speaker 1: So but but let me tell you, we're reading everything

641
00:33:17,080 --> 00:33:20,680
Speaker 1: you guys, right, and you know there's no uh no

642
00:33:20,920 --> 00:33:24,640
Speaker 1: shame in grabbing great ideas from people who are outside

643
00:33:25,120 --> 00:33:28,040
Speaker 1: and using that to make your product better. So I

644
00:33:28,160 --> 00:33:31,200
Speaker 1: want just five of that. That's all I asked. You're

645
00:33:31,240 --> 00:33:34,320
Speaker 1: not gonna get it. Um, let's bring it back to

646
00:33:34,640 --> 00:33:38,160
Speaker 1: investors right now. Um, what are you expecting your products

647
00:33:38,280 --> 00:33:41,360
Speaker 1: to to do and evolve over the course of the

648
00:33:41,440 --> 00:33:45,360
Speaker 1: next few months as we continue to see, um, you know,

649
00:33:45,640 --> 00:33:49,120
Speaker 1: very chaotic moment in the market. So as I've been

650
00:33:49,120 --> 00:33:51,600
Speaker 1: telling people so Ministratus broadly and again, what we do

651
00:33:51,760 --> 00:33:54,760
Speaker 1: is going to be dependent upon what these incredibly smart

652
00:33:54,760 --> 00:33:57,040
Speaker 1: hedgephones we're spending all day, you know, with our computers

653
00:33:57,080 --> 00:33:59,360
Speaker 1: trying to figure this stuff out. Um. But we've been

654
00:33:59,360 --> 00:34:02,080
Speaker 1: in crush protect a moode all year and it's been basically,

655
00:34:02,080 --> 00:34:05,240
Speaker 1: if you had to put it into a sentence hedge funds.

656
00:34:05,880 --> 00:34:08,799
Speaker 1: These hedge funds were perfectly happy in a low inflation world,

657
00:34:08,880 --> 00:34:10,440
Speaker 1: but they saw the bread crumbs and they switched to

658
00:34:10,840 --> 00:34:13,279
Speaker 1: a view that inflation was gonna gonna pick up, and

659
00:34:13,520 --> 00:34:16,160
Speaker 1: and that's played out through their portfolios. The thing about

660
00:34:16,160 --> 00:34:18,040
Speaker 1: these strategies, and what makes it very very different from

661
00:34:18,080 --> 00:34:21,320
Speaker 1: Cathy would is they change over time. They are and

662
00:34:21,400 --> 00:34:23,000
Speaker 1: so you look at this strategy over a very very

663
00:34:23,040 --> 00:34:24,960
Speaker 1: long period of time, they almost never go down more

664
00:34:25,000 --> 00:34:27,759
Speaker 1: than ten from the front peak to a trough. They

665
00:34:27,840 --> 00:34:30,680
Speaker 1: don't hold onto things with the white knuckle grip, and

666
00:34:30,880 --> 00:34:32,640
Speaker 1: so it's going to be depend upon what happens in

667
00:34:32,640 --> 00:34:34,200
Speaker 1: the world. You know, when you talk about as an

668
00:34:34,239 --> 00:34:38,239
Speaker 1: active strategy, what makes the strategy valuable is that it

669
00:34:38,320 --> 00:34:41,160
Speaker 1: will change what it does over time and and for

670
00:34:41,280 --> 00:34:43,760
Speaker 1: from an asset allocator's perspective, you have to be comfortable

671
00:34:43,840 --> 00:34:46,120
Speaker 1: with that that that that the index itself is not

672
00:34:46,280 --> 00:34:49,759
Speaker 1: static exposure. The index itself is what these hedge funds

673
00:34:49,800 --> 00:34:52,239
Speaker 1: are doing and how they're making money over time and

674
00:34:52,920 --> 00:34:54,799
Speaker 1: over the past twenty two years where we have good

675
00:34:54,880 --> 00:34:59,480
Speaker 1: data on it. It's just simply the best diversifier for portfolio.

676
00:35:00,640 --> 00:35:02,960
Speaker 1: And I think my my, my thought is similar to

677
00:35:03,200 --> 00:35:07,600
Speaker 1: to what Andrew saying in terms of uh, we with

678
00:35:07,800 --> 00:35:09,440
Speaker 1: h F and D. Really, what we're trying to do

679
00:35:10,080 --> 00:35:14,120
Speaker 1: is gain the wisdom of the hedge fund community in

680
00:35:14,239 --> 00:35:17,880
Speaker 1: terms of how to navigate through what is, frankly the

681
00:35:17,920 --> 00:35:21,920
Speaker 1: most challenging investing environment that you know, we've seen in

682
00:35:22,040 --> 00:35:26,799
Speaker 1: fifteen plus years. And so how exactly that plays out

683
00:35:27,760 --> 00:35:31,719
Speaker 1: is I think pretty uncertain, and so the question I

684
00:35:31,800 --> 00:35:35,040
Speaker 1: think that should be on most investors minds today is

685
00:35:35,719 --> 00:35:40,440
Speaker 1: do you essentially hold index positions and hope that that

686
00:35:40,520 --> 00:35:44,759
Speaker 1: works out, or do you hire the smartest, most sophisticated

687
00:35:44,800 --> 00:35:49,200
Speaker 1: asset managers in the world to navigate through this environment

688
00:35:49,480 --> 00:35:53,239
Speaker 1: that you know it's very challenging and benefit from that

689
00:35:53,400 --> 00:35:58,440
Speaker 1: dynamic through time. As Andrew says, that positioning, what what

690
00:35:58,640 --> 00:36:02,120
Speaker 1: the positioning is today will inevitably evolved based upon the

691
00:36:02,160 --> 00:36:06,560
Speaker 1: evolving set of economic conditions, and so, uh, really, what

692
00:36:06,680 --> 00:36:08,680
Speaker 1: you're trying to do with these structures is, in a

693
00:36:08,880 --> 00:36:13,080
Speaker 1: very simple way, higher the best to navigate through this environment.

694
00:36:13,320 --> 00:36:15,600
Speaker 1: But as a compliment, I would assume, right you would

695
00:36:15,640 --> 00:36:18,560
Speaker 1: be a portion of a bigger pie which would still

696
00:36:18,560 --> 00:36:22,239
Speaker 1: contain the sixty forty right, because it would be tough

697
00:36:22,280 --> 00:36:24,640
Speaker 1: sell to get everybody to drop every sixty forty come over.

698
00:36:25,480 --> 00:36:26,920
Speaker 1: I mean, are you able to get anybody to do that?

699
00:36:26,920 --> 00:36:30,000
Speaker 1: I mean I would assume that's hard. They're not doing that.

700
00:36:30,280 --> 00:36:33,440
Speaker 1: I think any if you go back to the structuring

701
00:36:33,480 --> 00:36:36,200
Speaker 1: of any portfolio, you want to think about the returns

702
00:36:36,280 --> 00:36:41,000
Speaker 1: that come from beta or passive indexing invests index investing,

703
00:36:41,440 --> 00:36:45,200
Speaker 1: which are pretty reliable over long periods of time, and

704
00:36:45,239 --> 00:36:47,000
Speaker 1: then you want to think about the returns from alpha

705
00:36:47,040 --> 00:36:52,400
Speaker 1: as a compliment. Uh. And you know alpha is less reliable,

706
00:36:52,840 --> 00:36:56,120
Speaker 1: less correlated, and so you certainly want when you think

707
00:36:56,120 --> 00:36:58,839
Speaker 1: about balancing those two things, your beta allocation and your

708
00:36:58,840 --> 00:37:02,279
Speaker 1: alpha allocation, it's not you know, you put all your

709
00:37:02,280 --> 00:37:05,759
Speaker 1: money on alpha and let it go, because beta has

710
00:37:05,800 --> 00:37:08,200
Speaker 1: a real important purpose. I think there's lots of work

711
00:37:08,320 --> 00:37:11,400
Speaker 1: investors could do to create a more balanced beta portfolio

712
00:37:11,560 --> 00:37:14,560
Speaker 1: relative to where they are now. Commodities, gold, things like that.

713
00:37:15,200 --> 00:37:18,719
Speaker 1: But you know, typically a good alts portfolio, if you

714
00:37:18,719 --> 00:37:21,120
Speaker 1: look at the most sophisticated investors in the world, is

715
00:37:21,200 --> 00:37:25,800
Speaker 1: maybe thirty percent of their portfolio of their portfolio looking

716
00:37:25,920 --> 00:37:31,600
Speaker 1: for alpha related to alternative investment strategies or hedge fund strategies. Yeah,

717
00:37:31,800 --> 00:37:35,320
Speaker 1: on the manistutus at the allocations five, it's it's bounder

718
00:37:35,360 --> 00:37:37,680
Speaker 1: than that range. Depends on depends, It depends on your

719
00:37:37,760 --> 00:37:39,440
Speaker 1: view of the world, it depends on what else you have.

720
00:37:39,920 --> 00:37:41,520
Speaker 1: But at all it's always it should always be view

721
00:37:41,560 --> 00:37:45,799
Speaker 1: as a compliment. Okay, last question one that we often

722
00:37:45,800 --> 00:37:49,759
Speaker 1: ask on trillions. Favorite et F ticker other than your own, Bob,

723
00:37:49,840 --> 00:37:52,080
Speaker 1: I'm gonna start with you. I love the tickers that

724
00:37:52,239 --> 00:37:56,080
Speaker 1: give you a little chuckle, so like, uh like an ahoy?

725
00:37:56,600 --> 00:37:59,279
Speaker 1: I like that or honestly the K pop one. I

726
00:37:59,360 --> 00:38:01,879
Speaker 1: thought it was, you know, just you know when you're

727
00:38:01,920 --> 00:38:04,320
Speaker 1: when you're going through this very serious business and so

728
00:38:04,440 --> 00:38:06,560
Speaker 1: it's just every once in a while nice to get

729
00:38:06,920 --> 00:38:10,120
Speaker 1: a little laugh out of it. Yeah, wait a second, ahoy,

730
00:38:10,520 --> 00:38:13,880
Speaker 1: is that like a leveraged shipping e T I forgot

731
00:38:14,239 --> 00:38:18,279
Speaker 1: it's it's it's a recent et F focus done the

732
00:38:18,840 --> 00:38:24,520
Speaker 1: oceans Andrew h without a question, happy h a p

733
00:38:24,719 --> 00:38:29,000
Speaker 1: I which is uh Dan Rli and Harper Capital teamed

734
00:38:29,080 --> 00:38:30,319
Speaker 1: up for that one. I'm a huge fan of Dan

735
00:38:30,440 --> 00:38:34,520
Speaker 1: r Relli, the behavioral finance guru, and uh, I love

736
00:38:34,680 --> 00:38:36,040
Speaker 1: that one. I'll give you I'll give you a second

737
00:38:36,080 --> 00:38:38,520
Speaker 1: one as well, which is one of our competitors, which maybe,

738
00:38:39,000 --> 00:38:42,400
Speaker 1: but our competitors simplified got C T A. And when

739
00:38:42,440 --> 00:38:47,040
Speaker 1: I saw that come, I thought, oh man, it's definitely

740
00:38:47,080 --> 00:38:52,280
Speaker 1: easier them, which is still it was all my chicken scratch,

741
00:38:52,320 --> 00:38:59,239
Speaker 1: but we got it so so simplify. Paul, You are welcome, Andrew, Bob,

742
00:38:59,360 --> 00:39:01,040
Speaker 1: Cathy thinks so much for joining us ly, thank you

743
00:39:01,040 --> 00:39:03,000
Speaker 1: for having us, Thank you, thank you so much great

744
00:39:03,000 --> 00:39:11,200
Speaker 1: being here. Thanks for listening to Trillions Until next time.

745
00:39:11,400 --> 00:39:14,239
Speaker 1: You can find us on the Bloomberg Terminal, Bloomberg dot com,

746
00:39:14,640 --> 00:39:18,479
Speaker 1: Apple Podcast, Spotify, or wherever else you'd like to listen.

747
00:39:19,120 --> 00:39:21,640
Speaker 1: We'd love to hear from you. We're on Twitter, I'm

748
00:39:21,880 --> 00:39:26,880
Speaker 1: at Joel Webber Show. He's at Eric Faltunus. This episode

749
00:39:26,920 --> 00:39:30,160
Speaker 1: of Trillions was produced by Magnus Hendrickson. Bye