WEBVTT - Kenneth Tropin on Quantitative Hedge Fund Strategies 0:00:02.000 --> 0:00:07.160 This is mesters in Business with very Results on Bloomberg Radio. 0:00:08.960 --> 0:00:13.280 This week on the podcast, I have yet another extra 0:00:13.360 --> 0:00:17.360 special guest, and this is really a fascinating, extra special 0:00:17.400 --> 0:00:21.439 guest who you probably never heard of, but you should. 0:00:21.880 --> 0:00:25.040 His name is Ken Tropin. Uh. Where do I even 0:00:25.120 --> 0:00:28.520 begin with him? He's a member of the Futures Hall 0:00:28.560 --> 0:00:32.199 of Fame. Uh. He's the chairman and founder of Graham 0:00:32.280 --> 0:00:36.520 Capital Management, which runs eighteen billion dollars and has amassed 0:00:36.680 --> 0:00:40.320 a quite a track record. Uh. He used to work 0:00:40.360 --> 0:00:43.800 with John Henry, currently the owner of the Boston Red 0:00:43.840 --> 0:00:48.040 Sox and another successful hedge fund manager. He worked with 0:00:48.080 --> 0:00:52.279 Paul Tutor Jones. The list of people he knows and 0:00:52.360 --> 0:00:57.760 has um trained with and under is quite astonishing. Uh. 0:00:57.880 --> 0:01:03.240 The firm that he's built is one of those very quiet, 0:01:04.160 --> 0:01:09.320 very successful um entities that without a whole lot of 0:01:09.360 --> 0:01:13.080 media coverage, without a whole lot of fanfare, just amass 0:01:13.319 --> 0:01:17.160 an enormous amount of capital because they've done so well 0:01:17.200 --> 0:01:21.240 for their clients over time. UM. I found the conversation 0:01:21.480 --> 0:01:26.160 with Ken to be absolutely fascinating, and I think you 0:01:26.280 --> 0:01:30.839 will also if you're at all interested in macro investing 0:01:31.040 --> 0:01:40.600 trend following commodities, currencies, fixed income, various types of quantitative strategies. Uh, 0:01:40.640 --> 0:01:44.960 and most important of all, risk management. You're gonna find 0:01:45.000 --> 0:01:48.640 this conversation to be absolutely fascinating. With no further ado 0:01:48.880 --> 0:01:53.360 my interview of GCMs Ken Tropin, I want to start 0:01:53.880 --> 0:01:57.560 with your background. You began at Sheerson in the nineteen eighties. 0:01:58.120 --> 0:02:01.720 Tell us a little bit about those days. Well, you know, uh, 0:02:02.040 --> 0:02:05.840 here we are um at a very different place and time, 0:02:06.000 --> 0:02:08.440 So it's kind of cool to reflect back on what 0:02:08.480 --> 0:02:13.079 was happening in nineteen eighty like very different universe, right right, Well, 0:02:13.240 --> 0:02:17.840 for example, interest rates were four uh when I started 0:02:17.880 --> 0:02:20.160 at Jeerson, and those were those were treasuries. We're not 0:02:20.200 --> 0:02:22.760 talking jump on yeah, no, no, no no, And and in fact, 0:02:22.800 --> 0:02:25.120 I think we got as high as twenty earlier in 0:02:25.120 --> 0:02:29.240 my career, and so, uh, you know, it was a 0:02:29.360 --> 0:02:32.920 very interesting time to begin, which I did as an 0:02:32.919 --> 0:02:37.079 account executive at Sheerson, and then in night two, Dean 0:02:37.120 --> 0:02:40.960 Winter recruited me to join them and to really start 0:02:41.000 --> 0:02:45.680 managing what was their floodgling hedge fund practice, which was 0:02:45.720 --> 0:02:47.480 really with C T A S back in that year, 0:02:47.560 --> 0:02:51.239 and then it evolved into you know, more macro style funds. 0:02:50.960 --> 0:02:55.720 So you eventually become director of managed Futures at Deanwood Reynolds. 0:02:56.360 --> 0:03:00.960 That's pretty early in the managed futures history. Tell us 0:03:00.960 --> 0:03:03.640 a little bit about that here. Sure, it was a 0:03:03.919 --> 0:03:07.400 you know, uh, it was an era where you know, 0:03:07.440 --> 0:03:10.200 first of all, the markets were really inefficient, right, um, 0:03:10.320 --> 0:03:14.360 So it was it was very fertile, uh to do 0:03:14.840 --> 0:03:17.680 what we do because markets moved a lot. There was 0:03:17.680 --> 0:03:21.760 a lot of volatility. Uh. And I think it's almost 0:03:21.880 --> 0:03:24.760 the polar opposite of where the world has been the 0:03:24.840 --> 0:03:28.480 last few years, where volatility has been somewhat subdued, and 0:03:29.000 --> 0:03:31.520 you know, equities have been such a strong performer. But 0:03:31.560 --> 0:03:35.440 back in two um, you know, stocks were very quiet, 0:03:35.840 --> 0:03:40.160 they were in a trading range. Interestrates are super high, uh, commandity, 0:03:40.240 --> 0:03:43.360 markets were moving a lot, and there wasn't a lot 0:03:43.360 --> 0:03:46.760 of competition if you were a trader in that early 0:03:46.800 --> 0:03:49.600 part of the industry's history. So let's talk about that 0:03:49.680 --> 0:03:53.640 inefficiency for a moment. Today, you wanna hang a shingle 0:03:53.800 --> 0:03:57.320 or you want to open your own proprietary trading, it's 0:03:57.640 --> 0:04:01.560 very difficult to find an edge and consistently make money. 0:04:01.720 --> 0:04:05.560 Back in the eighties, that wasn't necessarily the case. Yeah, 0:04:05.640 --> 0:04:10.320 I mean relatively simple trading systems made money and uh 0:04:10.560 --> 0:04:13.600 and and you know, they had volatility and people were 0:04:13.600 --> 0:04:17.680 okay with volatility because everything was volatile back then. Um 0:04:17.839 --> 0:04:22.080 and so uh you know it was uh, you know, 0:04:22.240 --> 0:04:25.120 relatively I want to say straightforward, because I don't think 0:04:26.000 --> 0:04:29.240 generating consistent profits has ever been something that's so straightforward 0:04:29.320 --> 0:04:32.760 or so easy. But on a relative basis, it was easier. 0:04:33.400 --> 0:04:36.680 And of course, when you have a young industry, that's 0:04:36.680 --> 0:04:38.440 a great time to get involved. You had to say 0:04:38.480 --> 0:04:41.920 the very least. So after Deanwood Reynolds, you end up 0:04:42.000 --> 0:04:44.520 as CEO of John Henry and Company. Tell us a 0:04:44.560 --> 0:04:46.719 little bit about that experience. Yeah, John was one of 0:04:46.720 --> 0:04:50.920 our managers, uh that we had, you know, our clients 0:04:50.920 --> 0:04:57.279 invest in and in um. He and I explored me 0:04:57.400 --> 0:05:00.960 leaving Dean Winder to join his pharmacy CEO. His company 0:05:00.960 --> 0:05:03.279 was in California at the time. I wanted to be 0:05:03.320 --> 0:05:05.560 in the East coast. We moved the firm to Connecticut. 0:05:06.320 --> 0:05:08.800 Uh and uh I was there for about four and 0:05:08.839 --> 0:05:12.320 a half years, and then he and I saw things differently. 0:05:12.360 --> 0:05:17.680 In nine and a part of company and uh, you know, 0:05:17.920 --> 0:05:20.440 UH had a lot of time to think about what 0:05:20.480 --> 0:05:24.560 I wanted to do and ultimately decided I wanted to 0:05:24.560 --> 0:05:27.880 start up my own fund. And uh that's how Graham got, 0:05:28.120 --> 0:05:30.800 uh you know underway in the you know, spring of 0:05:31.880 --> 0:05:34.039 So we're gonna talk a lot more about Graham. But 0:05:34.600 --> 0:05:37.679 John Henry seemed to have done pretty okay for himself. Sure. 0:05:38.120 --> 0:05:42.719 I mean he now owns the Red Sox, and you know, 0:05:42.839 --> 0:05:46.400 he's done very, very very well. He's left the finance world, 0:05:46.440 --> 0:05:48.560 but he's certainly not left the business world. And he 0:05:48.640 --> 0:05:52.320 seemed to have brought the same set of analytical chops 0:05:52.880 --> 0:05:55.680 to owning the Red Sox as he did in his 0:05:55.720 --> 0:05:57.280 own Hedge five. Yeah. I think that's kind of who 0:05:57.320 --> 0:06:02.680 he is, quantitative database and logical decisions, which you know, 0:06:02.839 --> 0:06:06.960 seems to have broken, uh, the curse of the Babe. Well, yeah, 0:06:07.080 --> 0:06:08.840 you know, let's face it, right, I mean, what was it? 0:06:09.040 --> 0:06:11.360 What was a year that every down three and out 0:06:11.360 --> 0:06:13.640 of the Yankees or something, and then they ended up 0:06:13.800 --> 0:06:16.760 prevailing in that World Series. I'm a Yankee fan, so 0:06:16.800 --> 0:06:18.599 I can say I was rooting for that. But that's 0:06:18.600 --> 0:06:21.920 what happened. It's a hundred years was all it took 0:06:22.000 --> 0:06:25.520 to overcome that one mistake alright, so let's talk a 0:06:25.560 --> 0:06:30.160 little bit about founding Graham Capital. In you leave John Henry, 0:06:30.240 --> 0:06:32.479 you have a little time to think about what you 0:06:32.520 --> 0:06:36.159 want to do. What was the process like launching a 0:06:36.200 --> 0:06:40.320 new hedge funds in the early to mid nineties, you 0:06:40.360 --> 0:06:42.360 know it was, I mean, this is not an easy 0:06:42.400 --> 0:06:46.880 thing to do. Ever, I would say it probably somewhat, um, 0:06:46.920 --> 0:06:48.840 you know, easier to do in ninety four than it 0:06:48.880 --> 0:06:52.800 would be today where the world has become so institutional. Uh. 0:06:52.880 --> 0:06:56.960 And you know, I've been longtime close friends with Paul 0:06:57.040 --> 0:07:00.320 Jones and Mark Dalton, president and you know when pulled 0:07:00.560 --> 0:07:04.960 the founder and uh CEO of Tutor and uh, when 0:07:04.960 --> 0:07:08.240 I left Henry, we talked about should I you know, 0:07:08.680 --> 0:07:11.040 a couple of ideas I had about starting my own fund, 0:07:11.080 --> 0:07:15.680 and uh they were kind enough and uh and and 0:07:16.200 --> 0:07:21.360 eager to uh invest and helped me seed Graham, which 0:07:21.440 --> 0:07:23.480 made it a lot easier to get the fund off 0:07:23.480 --> 0:07:26.400 the ground. And I am asking my prop capital alongside 0:07:26.400 --> 0:07:29.360 of their prop capital, and we began trading and you know, 0:07:29.400 --> 0:07:32.600 I guess it was July or something like that. What 0:07:32.720 --> 0:07:35.320 sort of strategies were you using when you first launched 0:07:35.360 --> 0:07:37.520 the farm? Yeah, so it was trend following systems that 0:07:37.560 --> 0:07:42.040 I designed, uh and UH they had some features to 0:07:42.160 --> 0:07:47.600 them that, UH were intended to take advantage of what's 0:07:47.680 --> 0:07:50.080 very good about trend following, which is sort of capturing 0:07:50.120 --> 0:07:53.560 these big right tail moves, but we're also intended to 0:07:53.600 --> 0:07:56.040 not have some of the givebacks the people associate with 0:07:56.080 --> 0:08:01.240 trend falling when trends reverse. And UH. Those were techniques 0:08:01.400 --> 0:08:03.880 that I came up with that I thought would work. 0:08:03.960 --> 0:08:07.640 They ended up being pretty successful. And that's you know, 0:08:07.680 --> 0:08:10.920 in the early days of Graham, Uh, like any new 0:08:10.960 --> 0:08:14.440 hedge fund, I did everything from designing trading systems to 0:08:14.880 --> 0:08:17.560 executing those systems. So so let's talk a little bit 0:08:17.600 --> 0:08:22.160 about trend following because people who are professional traders, or 0:08:22.280 --> 0:08:26.720 especially futures and commodities traders, are fairly familiar with that strategy. 0:08:27.080 --> 0:08:30.239 I don't know if all our listeners are. The basic 0:08:30.320 --> 0:08:35.240 concept is when one of these asset classes starts a 0:08:35.280 --> 0:08:38.640 long move, they tend to go much further and much 0:08:38.679 --> 0:08:42.120 longer than people typically expect, and you want to capture 0:08:42.160 --> 0:08:44.680 as much as that move as possible. Is that too 0:08:44.720 --> 0:08:48.160 much of an order description? And think of it this way, 0:08:48.200 --> 0:08:53.920 that a good trend following system will identify based on 0:08:54.000 --> 0:08:58.280 momentum UH signals that a trend is underway. Let's take 0:08:58.320 --> 0:09:02.360 a recent example, uh, energy prices. Everybody knows energy prices 0:09:02.360 --> 0:09:04.360 gone up in the last six months quite a bit. 0:09:04.800 --> 0:09:09.320 And you know, a simple trend following system is going 0:09:09.360 --> 0:09:12.400 to identify that this is a strong trend, and it's 0:09:12.400 --> 0:09:15.000 going to get you on the right side of that trend. Now, 0:09:15.000 --> 0:09:17.840 at some point, that trend is going to end, and 0:09:18.640 --> 0:09:21.160 that same trend following system is never going to predict 0:09:21.200 --> 0:09:23.320 the exact top, but it's gonna get you out of 0:09:23.320 --> 0:09:27.200 that trend after it's made some amount of profit on 0:09:27.240 --> 0:09:30.600 the way up. And it's it's always gonna expect to 0:09:30.640 --> 0:09:34.400 lose some of those profits when the trend reverses, but 0:09:34.600 --> 0:09:37.560 still end up capturing the meat of the trend. So 0:09:37.920 --> 0:09:39.960 if you could say that the maximum size of a 0:09:40.000 --> 0:09:45.720 trend was say a hundred, maybe you might capture that trend. 0:09:46.200 --> 0:09:49.360 And UH if you're able to do that in a 0:09:49.440 --> 0:09:54.040 diverse uh number of markets and asset classes, UH while 0:09:54.040 --> 0:09:57.120 managing risk and the markets that aren't trending. You know, 0:09:57.200 --> 0:10:01.120 that's in general how trend following works. It's much better 0:10:01.200 --> 0:10:03.440 to be involved in trend following when markets are moving 0:10:03.920 --> 0:10:06.680 and when markets are quiet and sideways, not as easy 0:10:06.720 --> 0:10:10.360 to make money and right, how do you avoid I'm 0:10:10.360 --> 0:10:12.920 thinking about how you catch the reversal at the end. 0:10:13.040 --> 0:10:15.440 Obviously you have to be willing to give back some 0:10:15.520 --> 0:10:19.439 of the profits before it's clear that the trend was broken. 0:10:20.280 --> 0:10:23.720 How do you avoid the false positives, the whip saws. 0:10:23.800 --> 0:10:26.200 I can't count how many times when I was a 0:10:26.280 --> 0:10:29.679 young turk on a trading desk, you would get shaken 0:10:29.679 --> 0:10:31.360 out of a move, and then it would as soon 0:10:31.400 --> 0:10:34.400 as you're gone, immediately go back to the prior trends. 0:10:34.960 --> 0:10:36.480 So there are lots of It's a great question. There 0:10:36.520 --> 0:10:39.439 are a lot of technologies that people use that we use. 0:10:39.840 --> 0:10:43.600 Um you know. Some of those technologies can include having 0:10:44.120 --> 0:10:49.200 multiple signals and multiple time horizons. So maybe your quick 0:10:49.240 --> 0:10:52.720 systems get shaken out on a on a sort of 0:10:52.760 --> 0:10:57.600 minor medium reversal, but you're longer term systems, for example, 0:10:58.000 --> 0:11:02.360 take longer to get knocked out. And so most people 0:11:02.440 --> 0:11:05.360 I know who do this do not have one time horizon. 0:11:05.400 --> 0:11:07.760 They use multiple time rides. That's just an example of 0:11:07.760 --> 0:11:11.960 a technique that's easy to understand. You guys, do everything 0:11:12.040 --> 0:11:15.840 from quantitative analysis to macro. Tell us a little bit 0:11:15.840 --> 0:11:20.120 about your approach to trading the markets. Sure, well, there's 0:11:20.400 --> 0:11:22.920 as you sort of referenced, we do a lot of 0:11:22.960 --> 0:11:27.680 different trading styles of Graham. We do discretiony macro trading, 0:11:27.720 --> 0:11:32.160 which is typically a portfolio manager, and we have um 0:11:32.200 --> 0:11:35.880 some number of portfolio managers fifteen or eighteen different portfolio 0:11:35.920 --> 0:11:41.920 managers that independently manage a book of of you know, 0:11:42.360 --> 0:11:47.720 risk assets, and uh they uh will decide what they're 0:11:47.720 --> 0:11:50.920 going to buy and sell. Uh, and they're going to 0:11:51.000 --> 0:11:54.080 live with certain risk policies and they're going to hopefully 0:11:54.559 --> 0:11:58.280 not be all doing the same thing at the same time. Uh. 0:11:58.360 --> 0:12:00.959 And then we also run a bit large annotative business, 0:12:01.200 --> 0:12:04.880 which is a model driven uh you know, computer uh 0:12:05.240 --> 0:12:10.679 you know, trading system business that uh is also really 0:12:10.679 --> 0:12:13.640 diversified in the types of models that uses. Some are 0:12:13.800 --> 0:12:16.880 pure momentum based models, which people identify with trend following, 0:12:17.200 --> 0:12:19.400 but then there are some models that are value based, 0:12:19.400 --> 0:12:23.160 that are fundamentally based. Uh. Some that uh you know 0:12:23.400 --> 0:12:28.160 are smart systems that are learning systems. So there are 0:12:28.200 --> 0:12:30.760 a lot of different ways to hopefully make money in 0:12:30.800 --> 0:12:33.920 the macro markets that we are involved in. So let's 0:12:33.960 --> 0:12:36.840 talk a little bit about that diversification. If you have 0:12:37.040 --> 0:12:40.640 eighteen different portfolio managers, and I know you're only half 0:12:40.720 --> 0:12:43.160 joking when you say, we hope they're not all doing 0:12:43.160 --> 0:12:46.320 the same things by design, the assumption is each of 0:12:46.360 --> 0:12:51.040 them are bringing a different approach to the assets they're covering, 0:12:51.200 --> 0:12:54.120 or is it possible that some of them are overlapping 0:12:54.200 --> 0:12:57.320 with others. Yeah, well the answer is yes to both. 0:12:57.559 --> 0:13:00.880 So we currently have fifteen different teams, not eighteen, No, 0:13:00.960 --> 0:13:03.440 all other a couple of teams that are pretty close 0:13:03.440 --> 0:13:08.120 to joining us. And uh, many of them are going 0:13:08.160 --> 0:13:10.760 to be trading the most important macro markets, so that 0:13:11.080 --> 0:13:14.680 you know, that's fixed income markets. Uh, that's the equity markets, 0:13:14.920 --> 0:13:17.960 that's the foreign exchange markets, and to some extent, commodities, 0:13:18.320 --> 0:13:21.080 and uh, some of them are gonna have similar views 0:13:21.480 --> 0:13:25.040 when really interesting big moves are happening. Uh. An example 0:13:25.080 --> 0:13:26.520 of that is there was a big move up in 0:13:26.640 --> 0:13:30.439 rates that sort of peaked in May, and a lot 0:13:30.480 --> 0:13:32.760 of our traders got involved in that and benefited from 0:13:32.840 --> 0:13:34.599 rates going up in Germany and rates going up in 0:13:34.640 --> 0:13:39.360 the United States. UM. There are other times where they 0:13:39.360 --> 0:13:42.560 have very different time horizons and so one trader, uh 0:13:42.920 --> 0:13:47.080 might you know, be a long US fixed income and 0:13:47.200 --> 0:13:50.640 a trader right next to them is short, and they 0:13:50.640 --> 0:13:53.080 could both actually be right depending on the time arising. 0:13:53.160 --> 0:13:55.680 So somebody who has a very short term trading style 0:13:56.200 --> 0:13:58.040 could be short for a week and get out and 0:13:58.280 --> 0:14:01.440 make a profit doing that, while the other trader who's long, 0:14:02.080 --> 0:14:04.320 is waiting you know, for six to eight or twelve 0:14:04.320 --> 0:14:07.719 weeks for his position to accomplish what he thinks it 0:14:07.720 --> 0:14:11.840 should accomplish. So different different time horizons, different assets. We 0:14:11.880 --> 0:14:15.200 have traders that are involved in you know, a lot 0:14:15.240 --> 0:14:19.160 of interest rate derivatives, UH swaps, the yield curve, um, 0:14:19.640 --> 0:14:22.560 things that are trading systems don't always get involved in, 0:14:23.600 --> 0:14:26.520 but our traders will. So for example, as you know, 0:14:26.560 --> 0:14:29.320 there's been this giant flattening into the yield curve. That's 0:14:29.320 --> 0:14:31.000 been something that a number of our traders have been 0:14:31.040 --> 0:14:35.840 involved in, something that typically the uh you know, technical 0:14:35.880 --> 0:14:40.600 systems wouldn't be so involved in. And and you sit 0:14:40.680 --> 0:14:44.040 on the risk management committee when you have all these 0:14:44.080 --> 0:14:45.920 teams with a lot of authority and a lot of 0:14:45.960 --> 0:14:50.640 independence trading their own models, how do you manage that? 0:14:50.640 --> 0:14:52.440 That sounds like that's a lot of balls in the 0:14:52.480 --> 0:14:54.800 air at once. It is. But you know, we have 0:14:54.840 --> 0:14:57.640 a lot of technology to support all of that. We 0:14:57.720 --> 0:15:01.240 have UM risk system ms that are live pian L 0:15:01.720 --> 0:15:05.600 reporting models that tell us what every trader's performances every 0:15:05.600 --> 0:15:07.880 minute of the day that the markets are open. And 0:15:07.920 --> 0:15:10.160 then we meet every day at nine thirty and have 0:15:10.560 --> 0:15:14.240 since two thousand and eight to look at every trader's portfolio. 0:15:14.320 --> 0:15:16.720 How has it changed since the previous day. Who's added 0:15:16.760 --> 0:15:19.520 to risk, who's cut risk, what assets are they in? 0:15:19.840 --> 0:15:22.720 We run stress tests on all of their positions. UH. 0:15:22.840 --> 0:15:26.640 We see who's performing well, who's might be struggling. And 0:15:27.040 --> 0:15:30.120 you know, if we have to uh encourage a trader 0:15:30.160 --> 0:15:34.280 to reduce risk or do nothing. Uh, we as the 0:15:34.320 --> 0:15:38.640 senior management UH team of the firm are acutely aware 0:15:38.800 --> 0:15:41.840 of exactly what the firm's risk is at any minute 0:15:42.160 --> 0:15:45.480 of the day. And I think it's that discipline to 0:15:45.720 --> 0:15:50.080 meet and have. You know, total transparency into risk taking 0:15:50.600 --> 0:15:53.440 helps manage uh. You know the outcome quite a bit. 0:15:53.840 --> 0:15:56.640 And you guys have been doing this for almost thirty years, 0:15:56.640 --> 0:16:00.600 so you obviously know a thing or two about risk management. 0:16:01.120 --> 0:16:04.000 I look around this year, I see some quant focus 0:16:04.120 --> 0:16:08.160 head funds blowing up to say nothing of all the 0:16:08.240 --> 0:16:11.680 venture investments into crypto, and some of the crypto funds 0:16:11.720 --> 0:16:17.240 really just losing in some cases their assets. As someone 0:16:17.280 --> 0:16:21.320 who is a professional risk manager, when you look out, 0:16:21.800 --> 0:16:24.440 what do you see when when the world around you 0:16:24.920 --> 0:16:29.640 has these frequent flare ups, Well, you know, it always 0:16:29.720 --> 0:16:32.560 gives you religion about managing risk, right, I mean, at 0:16:32.560 --> 0:16:36.480 the end of the day, Uh, it's it's awfully important 0:16:36.520 --> 0:16:39.200 to make money for our clients and on our proprietect 0:16:39.280 --> 0:16:42.280 capital for ourselves. But the only way you're gonna do 0:16:42.320 --> 0:16:45.280 that is by managing the downside. And so we're just 0:16:45.400 --> 0:16:49.080 really conservative in our risk policies. We're not so conservative 0:16:49.120 --> 0:16:52.360 that there's no breathing room to make money, because if 0:16:52.400 --> 0:16:54.000 you're not willing to lose some money, you can't make 0:16:54.000 --> 0:16:56.320 any money. I mean, it's the age old thing and 0:16:56.280 --> 0:16:59.600 investing in trading. But uh, the question is how much 0:17:00.080 --> 0:17:03.040 and you know, and and and we're just very processed 0:17:03.120 --> 0:17:05.959 driven and how we look at risk, how we analyze it, 0:17:06.440 --> 0:17:09.919 and we we you know, we were we've learned that 0:17:09.960 --> 0:17:12.919 we just have to make some hard decisions, uh fairly 0:17:13.000 --> 0:17:16.800 quickly at certain moments. And we've had moments where we've 0:17:16.800 --> 0:17:19.000 had traders lose more than we would have liked to 0:17:19.080 --> 0:17:22.200 have lost. We've had trading systems that have had bad cycles, 0:17:22.240 --> 0:17:26.000 but we have prevailed over twenty nine years because in general, 0:17:26.640 --> 0:17:30.200 we avoid uh you know, uh, some some really bad 0:17:30.240 --> 0:17:33.200 experiences that sort of as you alluded to, we try 0:17:33.240 --> 0:17:35.480 not to let that happen to us our clients. It's 0:17:35.520 --> 0:17:37.520 pretty clear that a number of the funds that have 0:17:37.560 --> 0:17:40.200 blown up didn't seem to have a whole lot of 0:17:40.320 --> 0:17:43.439 risk controls in place. They just let Uh. It's one 0:17:43.480 --> 0:17:45.960 thing to take a loss, it's another thing to let 0:17:46.000 --> 0:17:49.159 a bad situation become a fatal one. Yeah, well, I 0:17:49.560 --> 0:17:52.200 think that, you know, it kind of speaks to who 0:17:52.320 --> 0:17:54.840 is Graham or a conservative firm. We've been doing this 0:17:54.880 --> 0:17:57.960 for twenty nine years. I've been involved in the markets 0:17:57.960 --> 0:18:00.879 for over forty. Uh. You learn all out over that 0:18:01.000 --> 0:18:03.320 amount of time that you know, you can't be in 0:18:03.320 --> 0:18:06.440 a hurry to try and make a profit. You've got 0:18:06.480 --> 0:18:09.880 to just you know, be a patient investor. You've got 0:18:09.880 --> 0:18:15.520 to be an opportunistic investor. And if you manage conservatively 0:18:15.520 --> 0:18:18.879 your business, I like the odds of you finding the 0:18:18.960 --> 0:18:21.760 moments when it's good for what you do and capitalizing 0:18:21.840 --> 0:18:26.200 on it. You know, I'm gonna editorialize briefly, but I've 0:18:26.280 --> 0:18:32.360 had this conversation countless times about just be long term greedy, 0:18:32.480 --> 0:18:36.520 just be patient. It will come to you. And everybody 0:18:36.560 --> 0:18:39.400 that seems to get into trouble, whether it's a traitor 0:18:39.560 --> 0:18:43.639 or a fund or whatever, it's always that hurry that 0:18:43.760 --> 0:18:48.840 seems to cause their disasters. Yeah, that that's a factor 0:18:48.920 --> 0:18:51.280 for sure. It's not the only one, right, Like, liquidity 0:18:51.320 --> 0:18:55.040 can change, and that is something that can bite you 0:18:55.560 --> 0:18:58.360 when something that was relatively liquid and easy to get 0:18:58.400 --> 0:19:02.119 in and out of becomes illoqui uh. And you know 0:19:02.200 --> 0:19:04.720 we've seen that in some of the situations you described 0:19:04.760 --> 0:19:07.919 earlier of funds having problems, and so one of the 0:19:07.960 --> 0:19:12.280 things we really scrutinize as risk managers is there is 0:19:12.320 --> 0:19:15.159 what's happening with liquidity, How is it changing? And is 0:19:15.200 --> 0:19:19.960 it is there any adverse behavior as relates to liquidity 0:19:20.000 --> 0:19:22.640 that we should be very careful and thoughtful about. And 0:19:22.920 --> 0:19:27.840 last question about the various teams, does everybody have a 0:19:27.880 --> 0:19:31.520 different benchmark? How do you track performance? Is it strictly 0:19:32.160 --> 0:19:38.240 absolute returns or people working towards a specific uh bogey 0:19:38.359 --> 0:19:40.960 that they're they're comparing themselves with. Yeah, it's really an 0:19:40.960 --> 0:19:44.679 absolute return business. And you know, we are trying to 0:19:44.840 --> 0:19:49.600 have our traders, you know, generate uh you know, call 0:19:49.640 --> 0:19:54.560 it high single digits, slow double digit returns with relatively 0:19:55.520 --> 0:19:59.119 moderate volatility, So annual volatility of four percent or something 0:19:59.280 --> 0:20:02.840 like that. And uh, that's a that's a pretty good 0:20:03.160 --> 0:20:07.760 ballpark idea of the parameters that we ask traitors to 0:20:07.800 --> 0:20:12.200 live within. And that's a pretty comfortable place for our clients, uh, 0:20:12.400 --> 0:20:14.639 you know, meaning the amount of risk they're willing to 0:20:14.680 --> 0:20:19.639 assume relative to potential reward correct really really interesting. I 0:20:19.680 --> 0:20:22.520 want to start talking about the current environment with a 0:20:22.600 --> 0:20:25.680 quote of yours that I really like. Uh. You said, 0:20:26.160 --> 0:20:28.960 I can't recall a more interesting time to be a 0:20:29.000 --> 0:20:33.600 macro investor since the financial crisis. Tell us a little 0:20:33.600 --> 0:20:35.680 bit about that. I haven't heard a lot of people 0:20:35.760 --> 0:20:40.919 describe this year two that way. Yeah. Well, you know, 0:20:41.280 --> 0:20:45.720 because we're a macro oriented fund, what we're really concerned 0:20:45.760 --> 0:20:49.679 with is what's happening with interest rates, what's happening with 0:20:49.720 --> 0:20:54.040 foreign exchange, what's happening with commodity prices, uh, and what's 0:20:54.040 --> 0:20:57.320 happening with equity prices and all of those four sectors 0:20:57.359 --> 0:21:00.560 have been moving a lot, and so that's a really 0:21:00.640 --> 0:21:05.359 fertile constructive environment for us to try and generate returns. 0:21:05.680 --> 0:21:09.720 And if they're moving, you finding opportunities exactly what you 0:21:09.760 --> 0:21:14.880 know for us, it's nowhere near as uh productive an 0:21:14.960 --> 0:21:19.000 environment if asset classes are really quiet. Um. If you 0:21:19.040 --> 0:21:22.399 think about interest rates as an example, you know, today 0:21:23.200 --> 0:21:26.440 is a FED meeting, but uh, you know, think about that. 0:21:26.480 --> 0:21:30.840 Germany didn't raise rates for ten years until recently, right, 0:21:30.960 --> 0:21:34.679 So just practically speaking, there's gonna be less to do 0:21:34.720 --> 0:21:37.359 if you're trading German interest rates and the and the 0:21:37.400 --> 0:21:41.359 central banks not moving them for ten years. Now rates 0:21:41.359 --> 0:21:43.439 are moving and they're moving a lot. Um. If you 0:21:43.480 --> 0:21:47.919 think about the US, you know, uh, the Central Bank 0:21:48.920 --> 0:21:52.000 uh started giving us something they never used to do, 0:21:52.000 --> 0:21:55.679 which was forward guidance, saying not only are we not 0:21:55.800 --> 0:21:57.760 changing rates today, but we're telling you we're not going 0:21:57.760 --> 0:22:01.399 to change rates for the foreseeable future. I'm so glad 0:22:01.480 --> 0:22:04.600 you said that, because I remember in the nineties nineties 0:22:05.560 --> 0:22:10.480 CNBC used to have the Greenspan briefcase in the cator. 0:22:10.720 --> 0:22:14.000 How thick or thin the briefcase? He carried into the 0:22:14.080 --> 0:22:17.879 FOMC meeting was their hint as to what was going 0:22:17.920 --> 0:22:21.840 to go on with rates. That's a different world. Now. 0:22:21.880 --> 0:22:26.719 They literally say this is what we're doing. Earlier this 0:22:26.920 --> 0:22:30.479 last week or two weeks ago. Um, somebody at the 0:22:30.480 --> 0:22:33.600 FED said to Nick Timorris at the Wall Street Journal, Hey, 0:22:33.640 --> 0:22:39.240 we're going seventy five basis points. There's no misunderstanding. They 0:22:39.240 --> 0:22:43.760 are not just telegraphing, explicitly telling us what they're gonna do. 0:22:44.240 --> 0:22:49.760 How does that affect your ability to find opportunities? Well, so, here, 0:22:49.840 --> 0:22:52.199 here's the thing. If they're telling us they're going to 0:22:52.240 --> 0:22:55.800 do nothing, that's not so helpful. If they're telling us 0:22:56.040 --> 0:22:58.320 that they're going to be moving interest rates a lot, 0:22:58.520 --> 0:23:00.639 and they're not just gonna do this at one meeting, 0:23:00.720 --> 0:23:04.200 but over some series of meetings and for the next 0:23:04.320 --> 0:23:07.239 year or something, then there's a lot to work with 0:23:07.400 --> 0:23:09.200 in terms of the markets. They're gonna move a lot, 0:23:09.240 --> 0:23:13.439 they're gonna overreact, they're going to give us, uh, you know, 0:23:13.520 --> 0:23:16.639 trading opportunities, both on the long and short side. And 0:23:16.720 --> 0:23:19.520 so when I say that markets are more interesting, they've 0:23:19.560 --> 0:23:22.199 been for a really long time. It's for a variety 0:23:22.200 --> 0:23:25.560 of reasons. Markets are moving. Uh. We've got some banks 0:23:25.600 --> 0:23:29.240 all over the world, uh starting to move. We've got 0:23:29.760 --> 0:23:33.000 equity prices moving a lot. You know, there's a there's 0:23:33.000 --> 0:23:36.480 a big realization of of pe s to lower levels 0:23:36.560 --> 0:23:39.320 right as earning to start to decline on the road. Uh. 0:23:39.359 --> 0:23:42.000 You've got commodity prices that went through the roof in 0:23:42.040 --> 0:23:45.119 the first third of this year because of supply chain issues, 0:23:45.160 --> 0:23:48.320 the Ukraine war and so on. Uh. And then you've 0:23:48.320 --> 0:23:50.639 got the dollar making one of the biggest moves that 0:23:50.680 --> 0:23:52.800 I've seen in a long time, like twenty years. I 0:23:52.800 --> 0:23:55.560 mean we we we've had a move in dollar again, 0:23:55.600 --> 0:23:59.280 it's we haven't seen that in a long time. So 0:23:59.359 --> 0:24:02.640 that that makes euro party is exactly. And so so 0:24:02.960 --> 0:24:06.320 you've had great moves and a lot of markets. And 0:24:06.560 --> 0:24:10.240