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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Add Thoughts podcast.

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Speaker 2: I'm Tracy Alloway and I'm Jill. Why isn't thal so Joe?

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Speaker 2: You know what I realized two months ago? Just two

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Speaker 2: months ago, we were still getting a bunch of headlines

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Speaker 2: about how private credit was the hot new thing on

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Speaker 2: Wall Street and how multi strategy hedge funds pod shops

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Speaker 2: were huge and growing. And we've done quite a few

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Speaker 2: episodes on these respective topics. But you know, just a

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Speaker 2: couple months later, the headlines are starting to look very different. Yeah,

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Speaker 2: and there's concern that if we get a substantial economic slowdown,

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Speaker 2: you're going to get some sort of big blow up

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Speaker 2: in private assets and things like private credit, private equity.

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Speaker 2: You know, a lot of people have been predicting that

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Speaker 2: might happen for a while. And then when it comes

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Speaker 2: to multi strats, we've already seen a lot of talk

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Speaker 2: about pain the pod shops given all the recent market volatilities.

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Speaker 2: So everything is feeling a little different right now.

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Speaker 3: Well, we are recording this on April twenty second, and

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Speaker 3: we got a headline this has been in the news

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Speaker 3: for a few days, but I guess it's just been confirmed.

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Speaker 3: So speaking of you know, the asset allocators, where's there, Like,

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Speaker 3: real money come in from right, and they're like, yeah,

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Speaker 3: wealthy families and wealthy, but the real big money is

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Speaker 3: in these huge pots of money that we're talking about teachers,

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Speaker 3: which if those in the know, the Ontario Teachers Pension

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Speaker 3: or of course university endowments. We got a headline today

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Speaker 3: again it's been out in the news for a few days,

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Speaker 3: Yale considering selling in the secondary market some of its

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Speaker 3: private equity stakes. So these huge pools of money that

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Speaker 3: are really upstream from the private credits of the world

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Speaker 3: and upstream from the hedge fund multi strands of the world.

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Speaker 3: They're in a new era for all kinds of different reasons.

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Speaker 3: And so to even understand these various alts, we have

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Speaker 3: to understand how the people who fund the alts are thinking.

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Speaker 3: Right now.

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Speaker 2: I am so glad that you mentioned all of that,

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Speaker 2: because that was a perfect intro, but also Yale specifically,

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Speaker 2: because we all know that the emphasis on alts was

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Speaker 2: pioneered by David Swanson over at Yale, and since then,

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Speaker 2: you know, alts have been a big thing, not just

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Speaker 2: in university endowments, but in lots of different types of

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Speaker 2: institutional investing. So I'm very pleased to say that we do,

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Speaker 2: in fact have the perfect guests to talk about all

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Speaker 2: of this. We're going to be speaking with Joe Dowling,

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Speaker 2: Blackstone's global head of multi asset investing. He previously ran

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Speaker 2: Brown University's endowment and this was one of the best

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Speaker 2: performing endowments at that time. He did that for a

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Speaker 2: decade before he joined Blackstone about four years ago. He's

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Speaker 2: been called the King of hedge funds in some of

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Speaker 2: our own Bloomberg coverage. So really, who better to talk

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Speaker 2: about things like alternative investing, university endowments, and what's going

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Speaker 2: on right now in private assets than Joe. So Joe,

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Speaker 2: Joe d Welcome to the show.

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Speaker 3: Thank you, Tracy and Joe, thanks for having me. Can

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Speaker 3: we make this a four hour episode? I already have

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Speaker 3: so many questions.

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Speaker 2: Anyway, go Tracy, Uh, okay, So first off, I'm going

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Speaker 2: to have to be very careful in how I address

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Speaker 2: each Joe respectively. But other than that, okay. So one

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Speaker 2: of the things, you know, Joe and I have kind

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Speaker 2: of nibbled at the edges of the university endowment model.

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Speaker 2: And one of the things that we know for sure

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Speaker 2: right now is that they are very large pools of capital,

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Speaker 2: you know, worth billions and billions of dollars. And for

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Speaker 2: that reason, we often see them compared to things like

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Speaker 2: pension funds, maybe sovereign wealth funds. In your experience, are

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Speaker 2: there differences between you know, running a university endowment, investing

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Speaker 2: for an endowment versus investing for you know, traditional large

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Speaker 2: institutional funds.

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Speaker 4: Absolutely, But let's set the table with just how big

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Speaker 4: the universe is, because I think that'll help us. Please,

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Speaker 4: There's six hundred and fifty US endowments with a combined

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Speaker 4: assets of eight hundred and seventy five billion. That's from Nikubo.

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Speaker 4: I'm using Nakubo data. But the average endowment is only

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Speaker 4: one point three billion in assets under management, and the

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Speaker 4: median is two hundred and thirty five million.

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Speaker 2: I appreciate that you came prepared with numbers.

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Speaker 3: When you see a headline Yale considering a private equity

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Speaker 3: stake IMiD, it's funding turmoil. Some reports have set it's

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Speaker 3: up to six billion dollars. How big of a deal

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Speaker 3: is this? Like how how much of an earthquake? Is

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Speaker 3: that this entity which we associate with long term willingness

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Speaker 3: to hold onto ill liquid stakes, timber so forth. How

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Speaker 3: big of a deal is this.

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Speaker 4: I think it's a big deal because it's showing stress

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Speaker 4: in the system. And the six billion dollar number is

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Speaker 4: also a number that I've heard from outside investors who

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Speaker 4: are actually looking at the portfolio. And what it signals

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Speaker 4: to me is that Yale, who's been a pioneer, is

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Speaker 4: being proactive. They have a new CIO. Remember David Swinson,

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Speaker 4: who you quoted in the beginning, was the person who

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Speaker 4: really pioneered the endowment model. But they have a new CIO,

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Speaker 4: and I think it's a sign that he's going to

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Speaker 4: put his own stamp on the Yale endowment. Not surprising

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Speaker 4: with what's happening in the political environment with the endowment tax,

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Speaker 4: which is currently at one point four percent being considered

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Speaker 4: to go to up to twenty percent. So that's a yeah,

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Speaker 4: that's a big, big number. So with regards to taxes,

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Speaker 4: you might remember during Trump's first administration, under the Tax

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Speaker 4: Cuts and Jobs Act of twenty seventeen, they introduced the

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Speaker 4: first endowment tax, and it was a one point four

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Speaker 4: percent excise tax on net investment income for really the

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Speaker 4: wealthiest endowments, And how did they define that. What they

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Speaker 4: did was they took the total value of the endowment

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Speaker 4: and divided it by the number of students, and if

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Speaker 4: it was over five hundred thousand dollars, then you were

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Speaker 4: subject to that tax. And now what's been proposed is

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Speaker 4: an increase from one point four percent to twenty one percent. Now,

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Speaker 4: what that would result in is seventy billion of extra

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Speaker 4: revenue over ten years. And I'm assuming they're the average

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Speaker 4: endowment return is seven and a half percent to get

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Speaker 4: to those figures, so call it seven billion a year

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Speaker 4: of additional taxes. And it's going to change really the

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Speaker 4: way endowments are managed. They're going to need to be

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Speaker 4: more tax conscious, They're going to need to target higher

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Speaker 4: rates of return, and I think they're going to have

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Speaker 4: to continue to use the private markets.

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Speaker 2: Huh. So talk to us about how important was that

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Speaker 2: special tax status to returns over the years, because also,

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Speaker 2: if I look at returns, you know recently, over the

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Speaker 2: past three years or so, they've they've already been lackluster.

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Speaker 2: So I imagine with the additional tax pressure, that's going to

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Speaker 2: be pretty painful. And then when you say endowments are

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Speaker 2: going to have to be more tax conscious, what does

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Speaker 2: that actually mean? Is that like investing in munis I

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Speaker 2: guess you already mentioned private credit. But what can endowments

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Speaker 2: actually do here?

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Speaker 4: Yep, So a couple things. One I want to address performance,

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Speaker 4: because you're entirely right. If you look at short term performance.

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Speaker 4: Over the last three years, a global sixty forty portfolios

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Speaker 4: out performed US endowments. The average US endowment return okay,

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Speaker 4: underperformed the global sixty forty by six point eight percent,

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Speaker 4: or three hundred and forty basis points per annum. The

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Speaker 4: top coretile endowment returns underperformed by two hundred and fifty

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Speaker 4: basis points annually. Now that's over three years, and we

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Speaker 4: all know investors tend to be short term. If you

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Speaker 4: look at the five year number, okay, the average endowment

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Speaker 4: has returned eight point three percent and has outperformed a

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Speaker 4: global sixty forty by one hundred and seventy basis points,

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Speaker 4: and the top core tile has outperformed by two hundred

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Speaker 4: and fifty basis points. Over ten years, the numbers are

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Speaker 4: even more consistent with those figures. So over the past

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Speaker 4: ten years, the top core tile has outperformed the global

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Speaker 4: sixty forty by one hundred and sixty basis points and

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Speaker 4: even ready for this, the bottom core tile okay, has

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Speaker 4: outperformed a sixty forty poortfolio by thirty basis points annually. Okay,

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Speaker 4: let's translate that though. Okay, So let's say you have

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Speaker 4: a billion dollar portfolio. If you have top quartal performance

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Speaker 4: versus a global sixty forty over the ten year period,

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Speaker 4: that's a two hundred and eighty eight million dollar difference.

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Speaker 4: So we're talking big numbers here.

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Speaker 3: And this is the nice thing about being an endowment

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Speaker 3: is that you don't have an LP that's going to withdraw.

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Speaker 3: You have one captive LP, and so you know, in theory,

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Speaker 3: this is why they have the capacity to make these

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Speaker 3: long term, relatively ill liquid alpha generating investments strictly because

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Speaker 3: there's just none of that sort of like short term

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Speaker 3: demand for withdrawals.

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Speaker 4: Absolutely, and I think that's the advantage of the endowment

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Speaker 4: model is that you're able to think really long term

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Speaker 4: about asset allocation and basically to take advantage of force

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Speaker 4: selling and dislocations in the market. And that's really what

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Speaker 4: separates the top quartile from really the median and the

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Speaker 4: bottom quartile.

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Speaker 2: But when you were at Brown, for instance, did you

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Speaker 2: ever feel some sort of short term pressure maybe, you know,

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Speaker 2: maybe not just because you had to report returns I

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Speaker 2: think on a yearly basis, but maybe because the university

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Speaker 2: needed a bunch of money suddenly for some big project

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Speaker 2: I don't know, a new building or something. I get

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Speaker 2: the point that endowments are investing on a very long

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Speaker 2: time horizon, But on the other hand, I feel like

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Speaker 2: there must be moments where you do have to come

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Speaker 2: up with the money.

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Speaker 4: You know, you're pointing out something that a lot of

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Speaker 4: people don't think about, which is that there's a fundamental

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Speaker 4: conflict between the administration and then the management of the endowment. Obviously,

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Speaker 4: the administration would like to spend the money to work

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Speaker 4: on projects, and there are a lot of important projects

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Speaker 4: out there. But as a steward of the endowment, you

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Speaker 4: actually have to work with your investment committee to show

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Speaker 4: them exactly what we were just talking about, which is

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Speaker 4: small differences in compounding over long periods of time add

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Speaker 4: up to huge, huge numbers. So what I did, and

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Speaker 4: with my team, we would constantly show them over ten,

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Speaker 4: twenty and thirty years what taking a higher distribution would

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Speaker 4: cost the endowment, and that really allowed us to sort

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Speaker 4: of do our job long term and think long term.

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Speaker 4: But the answer to your question is yes, it's the

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Speaker 4: performance derby every year. It's like college sports, and everyone's

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Speaker 4: waiting for that those numbers to come out.

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Speaker 3: You know so much in finance and these questions, whether

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Speaker 3: we're talking about the university's board having a manager or

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Speaker 3: having an endowment manager, whether we're talking about the endowment

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Speaker 3: manager allocating to multi strategy hedge funds, when we're talking

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Speaker 3: about the hedge funds compensating the pms. It's like principal

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Speaker 3: agent problems all the way down. And even though you

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Speaker 3: have that captive LP and you don't have to worry

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Speaker 3: about withdrawals, you still have to worry about career risk,

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Speaker 3: right like because an endowment manager can get and so

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Speaker 3: it's like it's really like at every chain, it's like

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Speaker 3: this constant puzzle of trying to get each link in

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Speaker 3: the chain aligned and for some sort of you know,

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Speaker 3: everyone's optimal optimal performance.

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Speaker 4: But it's interesting in my new seat, I get to

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Speaker 4: meet all of the CIOs across the country, and I

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Speaker 4: will tell you the talent pool is extremely, extremely deep,

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Speaker 4: and so many of them. When I go in and

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Speaker 4: talk to them, I'm actually learning just as much as

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Speaker 4: I hope i'm educating. It's it's really amazing the level

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Speaker 4: of sophistication of these endowments. I've been super impressed. And

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Speaker 4: I didn't get that at Brown because you don't have

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Speaker 4: that much interaction because you're competing with people.

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Speaker 1: Yeah.

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Speaker 4: Right, I didn't think David Swinson was going to call

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Speaker 4: me up and give me his best, best manager. That

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Speaker 4: just is not going to happen.

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Speaker 2: Since you brought up Swinson, talk to us, you know,

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Speaker 2: let's just go back in time in history and talk

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Speaker 2: to us about the rise of all investing at university endowments.

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Speaker 2: Is it really just as simple as you know, endowments

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Speaker 2: have long term investing horizons, and so illiquid assets that

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Speaker 2: need to be held onto for a long time are

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Speaker 2: a really good match. Is that? Is that the story that's.

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Speaker 4: At the heart of it, which is if you have

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Speaker 4: long term money, you should be able to use the

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Speaker 4: illiquidity premium and you should be able to earn more.

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Speaker 4: And I think that's what David and many of the

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Speaker 4: CIOs realized, and they had the long term capital to

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Speaker 4: do that, and it's worked. And what's also amazing is

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Speaker 4: the percentage of alternatives that these firms own so that

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Speaker 4: the endowments invest in. So the average high performing endowment

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Speaker 4: has fifty five percent of their assets and alternatives. Wow,

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Speaker 4: the top cortile and the IVY leagues all have over

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Speaker 4: sixty five percent in alternatives. And they've worked. And I

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Speaker 4: think people are trying to call the demise of alternatives

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Speaker 4: and especially even the endowment model, and I don't think

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Speaker 4: we have the evidence yet that it's broken.

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Speaker 2: One thing I all always wanted to ask someone who

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Speaker 2: actually works at an endowment, and in fact you led

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Speaker 2: the endowment, But do you just have like hedge funds

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Speaker 2: and private equity just knocking at your door and constantly

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Speaker 2: pitching new things to you? How do you make that

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Speaker 2: initial connection between you know, a potential not client or

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Speaker 2: a manager between a potential manager.

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Speaker 4: That's a great question. So I think that you have

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Speaker 4: a choice when you're an allocator and an investor, which

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Speaker 4: is you can lead or you can be led. And

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Speaker 4: so the answer is we always had people coming and

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Speaker 4: trying to pitch us. But what I always encourage my

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Speaker 4: team to do was to research deeply markets or big

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Speaker 4: deep alpha poonds. So let me give you a specific

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Speaker 4: example biotechnology. So what I would say to the team is, wow,

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Speaker 4: biotech stocks twenty five percent, some of them are trading

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Speaker 4: under cash right now, Let's go do some research on

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Speaker 4: that segment. And then they would go out and market

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Speaker 4: map biotechnology, giving us all the different types of players

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Speaker 4: in their approach. And that's how you get context. How

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Speaker 4: you end up being a mediocre investor is just getting

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Speaker 4: the flavor of the day, and usually the flavor of

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Speaker 4: the day is traveling around the country, and as contrarians,

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Speaker 4: what we like to do is to pick things that

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Speaker 4: were sort of off consensus, not loved. One of my

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Speaker 4: favorite expressions I used to say to my team was

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Speaker 4: what would make you really uncomfortable to recommend in front

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Speaker 4: of an investment committee. If it makes you really uncomfortable,

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Speaker 4: go research it.

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Speaker 3: One of the things you mentioned is that, you know,

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Speaker 3: one of the nice things about endowment is they can

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Speaker 3: be the ones who buy when everyone is selling. And

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Speaker 3: typically there's true So let's you know this Yale headline

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Speaker 3: that we got and you said, it's a big deal.

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Speaker 3: We're in this sort of confluence of events where universities

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Speaker 3: are they're you know, they're anxious about their money that's

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Speaker 3: coming from the federal government. They're anxious about foreign students

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Speaker 3: continuing to come to the US. There's obviously the market

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Speaker 3: decline itself. So are we in a moment where there

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Speaker 3: is some like inability or some constraints on the endowments

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Speaker 3: to be I don't have buyers of last resort, but

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Speaker 3: the opportunistic investors of the moment, like, is this actually

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Speaker 3: a moment where that's under a threat? And the endowment

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Speaker 3: taxes you mentioned.

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Speaker 4: Well, I think it's endowment tax I think it's a

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Speaker 4: lot of the NIH funding at these schools combined with

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Speaker 4: the perfect storm of markets receding, and so these models

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Speaker 4: are being challenged, right, So I think the people who

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Speaker 4: are playing offense and are being proactive, and I would

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Speaker 4: probably put Yale in that category, are going out and

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Speaker 4: testing the market and saying, you know, where is my liquidity.

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Speaker 4: I just take a step back on private equity because

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Speaker 4: that's what they've They've gone out and are trying to sell.

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Speaker 4: If you look at the asset class, I think it

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Speaker 4: is a fantastic asset class. And I want I want

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Speaker 4: to just talk about this. I don't work in private

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Speaker 4: equity at Blackstone, so I'm have my endowment hat on.

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Speaker 4: But I want you to think about the value proposition.

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Speaker 4: The value proposition is that I'm investing in the largest

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Speaker 4: universe of companies out there, which are private companies with

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Speaker 4: experts who I'm lending money to in terms of a

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Speaker 4: management fee, because that management fee comes back to me,

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Speaker 4: the investor, and then we calculate an eight percent preferred

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Speaker 4: return before the manager makes any money. And if you

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Speaker 4: think about it, eight to ten percent is about what

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Speaker 4: the stock market has done over the last fifty years.

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Speaker 4: So the value proposition is I, the manager, until I

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Speaker 4: add value over that public market, will not earn any

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Speaker 4: incentive fees, and I will pay you back. That structure

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Speaker 4: in itself protects investors. And even in the fourth coretile

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Speaker 4: and I'm quoting Cambridge and Associate's data now, even in

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Speaker 4: the fourth coretile of buyout managers, and the Cambridge database

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Speaker 4: changes every you know month, but call it over twelve

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Speaker 4: hundred managers. Even the fourth coretile is positive over a

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Speaker 4: rolling ten year basis. It's a good asset class. But

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Speaker 4: what I always hear is the doubters and they want

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Speaker 4: to say there's too much dry powder and things, you

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Speaker 4: know things. Capital is not being returned, no pot.

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Speaker 2: It's hard to deploy, it's hard to deploy.

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Speaker 4: And the reality is it has been hard to get

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Speaker 4: capital back for the last three years. Public markets are closed,

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Speaker 4: mergers are not accelerating like we thought they were. So

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Speaker 4: the longer this goes on, the more this endowment model, Joe,

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Speaker 4: to your point, is going to be challenged. It is

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Speaker 4: definitely challenging. But I think the smart endowments are already

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Speaker 4: taking action to grab for that liquidity. And think about it,

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Speaker 4: ten years ago, there was no deep secondary market. The

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Speaker 4: thought that you could sell, okay, six billion dollars of

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Speaker 4: private equity assets, it's pretty amazing.

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Speaker 2: It's definitely different to how it used to be. But

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Speaker 2: just on the pe point. You described your sort of

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Speaker 2: research process earlier, and you gave an example in the

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Speaker 2: case of biotech. But if you're researching those ideas, your

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Speaker 2: team is trying to find alpha itself. What's the benefit

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Speaker 2: of investing in a third party like private equity or

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Speaker 2: like hedge fund a hedge fund, versus just investing directly.

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Speaker 4: Yeah, it would be almost impossible to recreate the type

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Speaker 4: of competitive advantage that the managers that we invested in

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Speaker 4: Brown had, and I think that trying to do it

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Speaker 4: direct at an endowment, you have a smaller team, you

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Speaker 4: have less resources, you have one investment committee. At Blackstone,

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Speaker 4: you're constantly iterating, you have multiple investment committees, you have

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Speaker 4: multiple oversight, you have a risk committee, and you have

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Speaker 4: just so much more data, so much more information. That's

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Speaker 4: why it's such a competitive advantage. The concept of scale

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Speaker 4: is so powerful. So when I transitioned from Brown to Blackstone,

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Speaker 4: I was overwhelmed at the power of the scale, the data,

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Speaker 4: the manager access. If I could have run the Brown

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Speaker 4: endowment portfolio on the Blackstone platform, I would have really

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Speaker 4: made money.

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Speaker 2: Oh you did make real money. I mean while you

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Speaker 2: were a Brown, even without the Blackstone platform.

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Speaker 3: Let's talk about hedge funds real big picture. How would

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Speaker 3: you describe the reasons for the rise of the multi

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Speaker 3: strategy model. Why has that model even more than the

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Speaker 3: single manager, How would you characterize it? Why that particular

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Speaker 3: flavor of hedge fund has become so popular.

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Speaker 4: Sure, I think that when I think about the multi

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Speaker 4: strap world, I think about a tiering of talent, and

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Speaker 4: it's clear to me that that Millennium, Citadel and the

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Speaker 4: top players have really distinguished themselves. And they've done that

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Speaker 4: by providing a very, very consistent return with a high

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Speaker 4: sharp that is completely uncorrelated to stocks and bonds, which

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Speaker 4: is nirvana for a manager because what people realized and Joe,

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Speaker 4: the wake up call was in twenty twenty two when

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Speaker 4: stocks and bonds were both down high teens and the

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Speaker 4: Millenniums and Citadels of the world earned their you know,

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Speaker 4: standard returns, which are you know, call it twelve percent plus.

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Speaker 4: That is what you want in your portfolio as a

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Speaker 4: true diversifier and something that provides a ballast. So they

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Speaker 4: have unlimited tomas.

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Speaker 3: Results have spoke for themselves.

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Speaker 4: Results have spoke for themselves, and you know, these are

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Speaker 4: not easy things to recreate. If you look at Millennium,

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Speaker 4: it has more employees than Blackstone.

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Speaker 2: Wow, that's crazy. Okay, then give us some give us

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Speaker 2: some color on the past couple of weeks. I can't

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Speaker 2: believe it's only been twenty days since Liberation Day on

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Speaker 2: April second, But what's your impression of what it was

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Speaker 2: like at the multi strats over the past month or so.

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Speaker 4: Yeah, it's interesting thing. Obviously it's in the headlines that

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Speaker 4: they're down, but they're really not down that much. If

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Speaker 4: being down one percent is a crime in this environment,

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Speaker 4: I'll take that asset class all day long. But what

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Speaker 4: has happened is it's been the fastest growing asset class

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Speaker 4: among hedge funds. Goldman Sachs quotes that that multistrat universe

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Speaker 4: has been growing sixteen percent year over year, and their

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Speaker 4: data is pretty good at matches ours pretty closely. But

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Speaker 4: what's happened is that there's been a lot of new entrants.

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Speaker 4: And the new entrants are the area that I worry

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Speaker 4: about because in order to get the type of diversification

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Speaker 4: that you need, you need amazing technology, You need a

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Speaker 4: lot of teams. Okay, let me be specific. There's over

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Speaker 4: three hundred teams at Millennium Trading. That is a very

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Speaker 4: hard thing to recreate. Risk management systems and a culture

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Speaker 4: of performance and excellence, they're really hard to recreate. So

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Speaker 4: I think if there's a problem, it's going to be

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Speaker 4: in these new emerging managers, it's not going to be

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Speaker 4: with the top tier.

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Speaker 3: Can you talk a little bit more about the due

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Speaker 3: diligence process on a multistrat because okay, you have the

401
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Speaker 3: top line returns, and there's a line, and as you said,

402
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Speaker 3: it's been a really good line, and it's extraordinary. Even

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Speaker 3: outside of the Veria leads, it's been just extremely impressive.

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Speaker 3: And then you could point to okay, even in twenty

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Speaker 3: twenty two when stocks and bonds were both down, they

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Speaker 3: produced good returns, So again further impressive. Is there a

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Speaker 3: further level where when you're probing a multistret manager that

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Speaker 3: you can look to discover whether the pods themselves are

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Speaker 3: truly uncorrelated and can be expected to deliver uncorrelated returns

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Speaker 3: in the future.

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Speaker 4: Yes, and that's our job. And I mean, when you

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Speaker 4: think about the quality of earnings of a company, let's say, uh,

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Speaker 4: you know, the the average S and P company that reports.

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Speaker 4: The analysts all focus on quality of earnings. We focus

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Speaker 4: on quality of return. How diversified is that return, what

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Speaker 4: sub sectors is it coming from. How many managers have

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Speaker 4: been on the platform for x period of time, how

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Speaker 4: many of them account for the you know what, what's

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Speaker 4: the breakdown of the of who's making the profit? How

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Speaker 4: diversified is that across strategies, et cetera. So that's what

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Speaker 4: we spend a lot of time doing.

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Speaker 3: When you're doing the due diligence, can you talk to

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Speaker 3: pod managers like how much pro how deep into the

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Speaker 3: system are you? Is it an outside investor able to get.

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Speaker 4: If if you have a good long term relationship and

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Speaker 4: you're a large allocator of capital, we get a lot

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Speaker 4: of information to make a very very good decision. I

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Speaker 4: think if you're just trying to do it on your own,

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Speaker 4: you have no shot.

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Speaker 2: It sounds like you're trying to build a diversified portfolio

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Speaker 2: of multistrat exposure. How do you get a good sense

432
00:27:20,920 --> 00:27:25,080
Speaker 2: of what each multi strategy firm, each pod shop is

433
00:27:25,080 --> 00:27:26,119
Speaker 2: actually good at doing.

434
00:27:26,720 --> 00:27:31,159
Speaker 4: Ironically, they have very different approaches, so it's not as

435
00:27:31,240 --> 00:27:34,919
Speaker 4: hard as you think. The differences between a citadel and

436
00:27:34,960 --> 00:27:39,280
Speaker 4: a millennium are extensive interesting, and so when you start

437
00:27:39,400 --> 00:27:43,920
Speaker 4: peeling back all of the different avenues of how they

438
00:27:43,920 --> 00:27:47,879
Speaker 4: make money, you start to see really how different they

439
00:27:47,920 --> 00:27:51,080
Speaker 4: are fundamentally. And I think you can see that as

440
00:27:51,119 --> 00:27:57,000
Speaker 4: an outsider if you examine thirteen f's and you see

441
00:27:57,320 --> 00:28:02,320
Speaker 4: after periods of volatility, who's adding to positions and who's

442
00:28:02,359 --> 00:28:04,840
Speaker 4: subtracting to positions. So if you look at march of

443
00:28:04,920 --> 00:28:08,080
Speaker 4: twenty twenty, you get a pretty good insight into who's doing.

444
00:28:08,280 --> 00:28:09,720
Speaker 3: Can you say a little bit more, what are the

445
00:28:09,720 --> 00:28:11,439
Speaker 3: different like, what are those differences that look like.

446
00:28:11,640 --> 00:28:15,760
Speaker 4: So for the more trading oriented managers, they're shrinking their

447
00:28:15,800 --> 00:28:18,840
Speaker 4: balance sheet, they're they're cutting their balance sheet. And then

448
00:28:18,840 --> 00:28:21,879
Speaker 4: there's a group of managers that are calculating intrinsic values,

449
00:28:21,960 --> 00:28:25,240
Speaker 4: so they're actually as those investments are going down, they're

450
00:28:25,280 --> 00:28:27,840
Speaker 4: actually adding to them. And if you look at a

451
00:28:27,920 --> 00:28:31,639
Speaker 4: historical vol you can see it in historical VALL. So

452
00:28:31,920 --> 00:28:34,879
Speaker 4: some of the multi strap managers are very tight in

453
00:28:35,359 --> 00:28:39,160
Speaker 4: their VALL calculations and they stay around four percent. Others

454
00:28:39,200 --> 00:28:42,720
Speaker 4: that are more intrinsic value oriented are up as high

455
00:28:42,760 --> 00:28:46,320
Speaker 4: as eight percent. It's just two different ways of getting

456
00:28:46,520 --> 00:28:49,640
Speaker 4: at the same thing. Some people hedge from the top

457
00:28:49,680 --> 00:28:53,480
Speaker 4: of the house, some people don't. Again, the styles when

458
00:28:53,520 --> 00:28:57,720
Speaker 4: you really get down into it, very different methodologies.

459
00:28:58,200 --> 00:29:01,800
Speaker 3: So you mentioned that, you know one of your concerns

460
00:29:02,120 --> 00:29:04,800
Speaker 3: is in the new you know, it's very hard to

461
00:29:04,880 --> 00:29:07,800
Speaker 3: recreate a three hundred pod. You know, a team of

462
00:29:07,840 --> 00:29:11,720
Speaker 3: three hundred quality pods. It's really hard to recreate that tech.

463
00:29:12,320 --> 00:29:14,680
Speaker 3: But you know, some might do it, and some might try.

464
00:29:14,880 --> 00:29:17,200
Speaker 3: I'm trying to think of like the science equivalent a

465
00:29:17,280 --> 00:29:20,760
Speaker 3: concert a law of the conservation of alpha. Somehow that

466
00:29:20,840 --> 00:29:24,480
Speaker 3: the structure of these multi strat hedge funds have been

467
00:29:24,520 --> 00:29:28,600
Speaker 3: able to deliver superior returns on a range of market environments.

468
00:29:28,880 --> 00:29:32,520
Speaker 3: Is there some sort of intrinsic limit to how many

469
00:29:33,320 --> 00:29:36,080
Speaker 3: entities can try to capture this alpha such that it

470
00:29:36,160 --> 00:29:39,120
Speaker 3: all degrades, or is it really just a matter of

471
00:29:39,640 --> 00:29:41,320
Speaker 3: some just won't have the skills to do it.

472
00:29:41,840 --> 00:29:44,720
Speaker 4: I think it's a combination of both. But look, there

473
00:29:44,760 --> 00:29:48,680
Speaker 4: are pockets of alpha in the market that get overcrowded,

474
00:29:49,000 --> 00:29:53,240
Speaker 4: and we've seen this in the area of index editions

475
00:29:53,280 --> 00:29:57,160
Speaker 4: and subtractions, where a lot of capital gets thrown at

476
00:29:57,200 --> 00:30:00,560
Speaker 4: the area and they don't make money money, or they

477
00:30:00,600 --> 00:30:03,680
Speaker 4: lose a lot of money, but then the capital quickly

478
00:30:03,760 --> 00:30:07,480
Speaker 4: retreats and goes and finds a new pocket. And one

479
00:30:07,520 --> 00:30:12,960
Speaker 4: thing about these organizations is they are very innovative. And

480
00:30:13,040 --> 00:30:15,760
Speaker 4: if you look at senior management, this is some of

481
00:30:15,800 --> 00:30:20,320
Speaker 4: the best investment talent that I've seen. They're coming from

482
00:30:20,520 --> 00:30:23,840
Speaker 4: very high quality firms and they are innovating all of

483
00:30:23,880 --> 00:30:28,920
Speaker 4: the time, both in technology, in scope of markets, in

484
00:30:29,040 --> 00:30:33,000
Speaker 4: how they're joint venturing with people. They're very, very innovative,

485
00:30:33,040 --> 00:30:39,080
Speaker 4: but obviously their capacity is constrained, right, but they have

486
00:30:39,160 --> 00:30:42,360
Speaker 4: unlimited demand and that's why they've been able to lengthen

487
00:30:42,400 --> 00:30:46,320
Speaker 4: their terms. So they've many of them gone from quarterly

488
00:30:46,360 --> 00:30:49,920
Speaker 4: liquidity to five year liquidity. And that's a testament, Joe,

489
00:30:50,520 --> 00:30:52,640
Speaker 4: to the fact that the model's working.

490
00:30:54,120 --> 00:30:57,800
Speaker 2: Can you give us a concrete example of innovation because

491
00:30:57,920 --> 00:31:00,880
Speaker 2: I feel like people use that word a lot and

492
00:31:00,960 --> 00:31:04,280
Speaker 2: it's sort of, you know, nebulous in many ways, but like,

493
00:31:04,360 --> 00:31:07,280
Speaker 2: what are you saying that is actually innovative or what

494
00:31:07,400 --> 00:31:10,880
Speaker 2: has struck you as particularly original and creative recently?

495
00:31:11,920 --> 00:31:14,840
Speaker 4: I think there's a ton of examples on the quant side,

496
00:31:15,160 --> 00:31:18,160
Speaker 4: and quant will be something we should return to when

497
00:31:18,200 --> 00:31:22,120
Speaker 4: we talk about Brown because one of the traditional David

498
00:31:22,240 --> 00:31:26,640
Speaker 4: Swinson tenants was not to invest in quant, and yet

499
00:31:26,840 --> 00:31:30,080
Speaker 4: Brown was the largest investor in the Ivy League in quant.

500
00:31:30,080 --> 00:31:32,760
Speaker 4: And that's one of the big differences when people ask me,

501
00:31:33,280 --> 00:31:38,880
Speaker 4: where did you differentiate yourself? So what's going on in quant?

502
00:31:39,360 --> 00:31:43,480
Speaker 4: Just in the systems using AI at these firms would

503
00:31:44,040 --> 00:31:49,840
Speaker 4: is absolutely unbelievable. And there are firms out there that

504
00:31:50,200 --> 00:31:53,080
Speaker 4: while their capacity constrain. They make money every day. We're

505
00:31:53,120 --> 00:31:56,280
Speaker 4: invested in some managers that make money every single day,

506
00:31:56,360 --> 00:31:57,640
Speaker 4: and it always blows my mind.

507
00:31:57,800 --> 00:32:00,680
Speaker 3: What is quant mean? Tracy knows that sometimes I don't

508
00:32:00,680 --> 00:32:03,280
Speaker 3: know the basic definitions of words, Like how many times

509
00:32:03,320 --> 00:32:05,480
Speaker 3: I've asked Tracy to define what fintech means?

510
00:32:06,160 --> 00:32:08,600
Speaker 2: Joe's being very modest. He knows what all these things are.

511
00:32:09,000 --> 00:32:12,200
Speaker 2: You choose like the terms that actually don't have a

512
00:32:12,200 --> 00:32:14,440
Speaker 2: good definition, right, What does mean?

513
00:32:14,840 --> 00:32:21,920
Speaker 4: I think it's it's the application of quantitative methodologies towards

514
00:32:21,960 --> 00:32:26,360
Speaker 4: markets to analyze large sets of data and come up

515
00:32:26,360 --> 00:32:33,479
Speaker 4: with patterns or correlations or anomalies of things that happen

516
00:32:33,920 --> 00:32:41,600
Speaker 4: divergences between say the futures and you know the cash market.

517
00:32:41,840 --> 00:32:44,560
Speaker 4: So everyone talks about the basis trade, right, So the

518
00:32:44,600 --> 00:32:47,320
Speaker 4: basis trade is simply I'm going to buy a treasury,

519
00:32:47,600 --> 00:32:49,360
Speaker 4: I'm going to sell the future, and I'm going to

520
00:32:49,440 --> 00:32:52,280
Speaker 4: capture that convergence because the future should trade at a

521
00:32:52,280 --> 00:32:57,360
Speaker 4: premium to capture that convergence. And I'm allowed to lever

522
00:32:57,520 --> 00:33:01,480
Speaker 4: that trade because the convergence I'm capturing a very small,

523
00:33:02,720 --> 00:33:06,719
Speaker 4: like absolute spread. So I'm levering that sixty to eighty times.

524
00:33:07,000 --> 00:33:14,280
Speaker 4: So the ability to rapidly identify those alphas some people

525
00:33:14,280 --> 00:33:17,200
Speaker 4: call them alphas, you can call monomalies in the market

526
00:33:17,280 --> 00:33:21,480
Speaker 4: that can be exploited. Some of them are high frequency

527
00:33:22,040 --> 00:33:25,560
Speaker 4: beating someone to a trade, serving as a market maker.

528
00:33:26,520 --> 00:33:30,440
Speaker 2: So you mentioned that when you were Brown, you didn't

529
00:33:30,520 --> 00:33:34,840
Speaker 2: follow the Swinson model when it came to quantitative investing.

530
00:33:35,520 --> 00:33:40,240
Speaker 4: Why was that, Well, I think to put up really

531
00:33:40,240 --> 00:33:43,800
Speaker 4: good returns, you have to figure out one what your

532
00:33:43,800 --> 00:33:47,040
Speaker 4: competitive advantage is, and two you have to be an

533
00:33:47,080 --> 00:33:51,280
Speaker 4: independent thinker and not follow the herd. And that's what

534
00:33:51,320 --> 00:33:53,640
Speaker 4: we did at Brown. And I'll tell you how we

535
00:33:53,720 --> 00:33:57,720
Speaker 4: created our competitive advantage because I owe it to the alumni.

536
00:33:58,280 --> 00:34:01,280
Speaker 4: We we did a really good job was creating a

537
00:34:01,400 --> 00:34:05,600
Speaker 4: network of alumni in each asset class. So we would

538
00:34:05,600 --> 00:34:10,040
Speaker 4: work with our investment committee, but we would also reach

539
00:34:10,120 --> 00:34:14,480
Speaker 4: out to some of the best investors on the planet

540
00:34:14,760 --> 00:34:19,120
Speaker 4: by industry, and I would actually go and present our

541
00:34:19,160 --> 00:34:22,719
Speaker 4: portfolio in that asset class and say, what do you

542
00:34:22,760 --> 00:34:25,880
Speaker 4: think where can we do better? Who would you recommend

543
00:34:25,920 --> 00:34:29,040
Speaker 4: we look at? How would you structure this? And so

544
00:34:29,360 --> 00:34:32,000
Speaker 4: that was one of the secrets I think of us,

545
00:34:32,040 --> 00:34:36,120
Speaker 4: which is using that network effect now, Joe, back to

546
00:34:36,760 --> 00:34:40,800
Speaker 4: your comment. Most people don't like to do that because

547
00:34:40,840 --> 00:34:44,360
Speaker 4: they're exposing themselves the same way that they feel pressure.

548
00:34:44,719 --> 00:34:47,720
Speaker 4: They don't want people opining on what they were doing.

549
00:34:47,760 --> 00:34:51,799
Speaker 4: But I was willing philosophically to have that kind of

550
00:34:51,800 --> 00:34:55,279
Speaker 4: open transparency so that I could learn and benefit from

551
00:34:55,280 --> 00:34:57,759
Speaker 4: the Brown ecosystem. And I always used to have this

552
00:34:57,840 --> 00:35:01,560
Speaker 4: expression was I would go to people and I would say,

553
00:35:01,600 --> 00:35:03,319
Speaker 4: what do you have to feed the bear? Because it's

554
00:35:03,360 --> 00:35:05,920
Speaker 4: the brown bear, So feed the bear. Give us your

555
00:35:06,239 --> 00:35:11,360
Speaker 4: best co investments. And I have an unbelievable all star

556
00:35:11,560 --> 00:35:15,160
Speaker 4: alumni cast, and they carried Brown to greatness. I happened

557
00:35:15,200 --> 00:35:17,959
Speaker 4: to shepherd the process with an incredible team.

558
00:35:18,680 --> 00:35:21,920
Speaker 2: Joe, what was your college mascot? Out of curiosity? The

559
00:35:21,960 --> 00:35:24,080
Speaker 2: Texas Longhorns, of course.

560
00:35:23,960 --> 00:35:26,520
Speaker 3: Which one day if, by the way, if the if,

561
00:35:26,800 --> 00:35:31,279
Speaker 3: one day, we'll do a proper interview with the head

562
00:35:31,280 --> 00:35:34,080
Speaker 3: of you, Timco. It does seem like an investing and

563
00:35:34,120 --> 00:35:38,480
Speaker 3: this includes VC investing too, like you'd probably want you

564
00:35:38,480 --> 00:35:40,399
Speaker 3: want to see a lot of pitches, don't you, right,

565
00:35:40,520 --> 00:35:43,279
Speaker 3: like hit a home run, and so it sounds like

566
00:35:43,320 --> 00:35:45,640
Speaker 3: they had alumni network or whatever it is. It's like

567
00:35:45,680 --> 00:35:47,680
Speaker 3: you don't have to say. You might just say yes

568
00:35:47,719 --> 00:35:49,319
Speaker 3: to one out of every thousand or whatever, but you

569
00:35:49,360 --> 00:35:49,920
Speaker 3: want to see a lot.

570
00:35:49,960 --> 00:35:50,880
Speaker 4: It sounds like you want to see it.

571
00:35:50,920 --> 00:35:52,400
Speaker 3: Seems like it's a huge part of the game, just

572
00:35:52,440 --> 00:35:54,600
Speaker 3: waiting for that fastball down the middle and until you

573
00:35:54,640 --> 00:35:55,160
Speaker 3: see it.

574
00:35:55,120 --> 00:35:58,680
Speaker 4: One hundred percent. And you know, each asset class has

575
00:35:58,719 --> 00:36:02,839
Speaker 4: so many nuances, and you know, to have someone who

576
00:36:03,239 --> 00:36:09,360
Speaker 4: can help out their endowment as an alumnus, it's rewarding,

577
00:36:09,520 --> 00:36:12,759
Speaker 4: but you also have to you know, their risks associated

578
00:36:12,760 --> 00:36:16,120
Speaker 4: that with that also, so saying no became an art.

579
00:36:17,280 --> 00:36:21,040
Speaker 2: So you are now head of multi asset investing at Blackstone,

580
00:36:21,080 --> 00:36:24,320
Speaker 2: as we've mentioned, and I think when you were initially hired,

581
00:36:24,440 --> 00:36:28,720
Speaker 2: you were head or cohaed maybe of Blackstone Alternative asset management.

582
00:36:29,280 --> 00:36:32,239
Speaker 2: And my impression of what you were hired to do

583
00:36:32,320 --> 00:36:36,200
Speaker 2: was basically try to make that group more competitive, which

584
00:36:36,640 --> 00:36:39,239
Speaker 2: you know, when we're talking about nebulous words, I think

585
00:36:39,320 --> 00:36:43,600
Speaker 2: competitive is up there with innovation or innovative. Probably what

586
00:36:43,640 --> 00:36:46,080
Speaker 2: does that mean exactly? If someone says, I want to

587
00:36:46,120 --> 00:36:49,839
Speaker 2: make our alternative asset investing business or our hedge fund

588
00:36:49,880 --> 00:36:52,719
Speaker 2: business more competitive, what do you do?

589
00:36:53,000 --> 00:36:56,080
Speaker 4: So I think about it, as going from good to great,

590
00:36:56,880 --> 00:37:01,640
Speaker 4: and you do that not by making dramatic changes, but

591
00:37:01,880 --> 00:37:04,399
Speaker 4: like James Clear and atomic habits. I don't know if

592
00:37:04,440 --> 00:37:07,200
Speaker 4: either of you have read that it's actually worth it,

593
00:37:07,280 --> 00:37:11,080
Speaker 4: but he talks in his book about how it's the

594
00:37:11,239 --> 00:37:16,400
Speaker 4: little constant improvements, all stacked on each other that create greatness.

595
00:37:16,920 --> 00:37:21,759
Speaker 4: And and really our group embraces that principle and that's

596
00:37:22,040 --> 00:37:25,600
Speaker 4: embedded in our culture. And so what does great mean?

597
00:37:26,080 --> 00:37:31,640
Speaker 4: Great means, you know, top quartile returns. Great means top

598
00:37:32,000 --> 00:37:38,400
Speaker 4: quartile risk statistics, a high sharp consistency, and you know,

599
00:37:38,480 --> 00:37:42,479
Speaker 4: knock on wood, we're delivering that over you know, since

600
00:37:42,480 --> 00:37:46,680
Speaker 4: I've been there, and it's it's really the result of

601
00:37:47,280 --> 00:37:50,040
Speaker 4: the great team that I have. I have an amazing team.

602
00:37:50,440 --> 00:37:54,120
Speaker 3: By the way, Tracy Richard Hall is the CEO and

603
00:37:54,160 --> 00:37:56,440
Speaker 3: the CIO of you, Timco. I couldn't remember his name

604
00:37:56,480 --> 00:37:59,440
Speaker 3: for a second, but putting it out there. If anyone

605
00:37:59,480 --> 00:38:02,120
Speaker 3: at you Tim is listening to this episode, he has

606
00:38:02,160 --> 00:38:05,160
Speaker 3: a standing invite to come on. To come on.

607
00:38:05,400 --> 00:38:07,720
Speaker 4: Rich would be a great guest. I know him personally,

608
00:38:08,600 --> 00:38:10,880
Speaker 4: super smart. You should call him out.

609
00:38:10,880 --> 00:38:16,040
Speaker 3: Joe, Joe has and we would join you enjoy that'd

610
00:38:16,040 --> 00:38:19,640
Speaker 3: be such a blast. The call has been put out, Rich,

611
00:38:20,080 --> 00:38:22,800
Speaker 3: let's make this happen. I just have one last question.

612
00:38:22,880 --> 00:38:25,320
Speaker 3: You know, you talk about your team and how important

613
00:38:25,360 --> 00:38:27,879
Speaker 3: that is, and I like to ask this someone maybe

614
00:38:27,960 --> 00:38:31,319
Speaker 3: they're in college, maybe they're studying finance, maybe they think

615
00:38:31,320 --> 00:38:35,680
Speaker 3: about studying finance. What is the path for someone who

616
00:38:35,719 --> 00:38:37,759
Speaker 3: wants to be on one of these teams, maybe they

617
00:38:37,760 --> 00:38:39,960
Speaker 3: want to work for their own university's team or whatever

618
00:38:40,000 --> 00:38:42,640
Speaker 3: it is. What should someone be studying and try to

619
00:38:42,920 --> 00:38:43,839
Speaker 3: try to do right now?

620
00:38:44,080 --> 00:38:47,440
Speaker 4: Yeah, Joe, it's a great question. I think the number

621
00:38:47,520 --> 00:38:51,759
Speaker 4: one trait is to be really, really curious. And I

622
00:38:51,800 --> 00:38:55,880
Speaker 4: know that sounds trite, but I had no idea that

623
00:38:55,880 --> 00:38:58,000
Speaker 4: I would be at Blackstone. I had no idea that

624
00:38:58,000 --> 00:39:01,200
Speaker 4: I would be at Brown University. But everything that I

625
00:39:01,360 --> 00:39:05,200
Speaker 4: did I was fundamentally curious about and wanted to really

626
00:39:05,239 --> 00:39:09,560
Speaker 4: be good at it. And so when you're curious and

627
00:39:09,600 --> 00:39:13,120
Speaker 4: you go deep and you learn and you're a practitioner,

628
00:39:13,480 --> 00:39:16,200
Speaker 4: people will tap you on the shoulder. You know. I

629
00:39:16,600 --> 00:39:20,040
Speaker 4: had never met John Gray. I was at Brown University

630
00:39:20,760 --> 00:39:23,479
Speaker 4: and I got a phone call that John Gray wanted

631
00:39:23,480 --> 00:39:27,239
Speaker 4: to have dinner with me. And it was after an

632
00:39:27,320 --> 00:39:29,520
Speaker 4: article had come out in the Wall Street Journal on

633
00:39:29,640 --> 00:39:33,319
Speaker 4: the success of the Brown team and how we had

634
00:39:33,560 --> 00:39:36,040
Speaker 4: gone to number one in the Ivy League over every

635
00:39:36,040 --> 00:39:40,160
Speaker 4: time period. So I wasn't expecting that that wasn't in

636
00:39:40,200 --> 00:39:43,319
Speaker 4: the game plan. And I had dinner with John and

637
00:39:43,400 --> 00:39:47,120
Speaker 4: the next thing, you know, in January of twenty twenty one,

638
00:39:47,800 --> 00:39:52,000
Speaker 4: I started at Blackstone and it's been incredible. My advice

639
00:39:52,040 --> 00:39:54,799
Speaker 4: to people is, I tell this to all of our

640
00:39:54,840 --> 00:39:57,879
Speaker 4: younger people. Try to be a nine or a ten

641
00:39:57,920 --> 00:40:02,440
Speaker 4: out of ten every day. Don't overly plan out your career.

642
00:40:03,040 --> 00:40:06,759
Speaker 4: Be really curious because if you're curious and passionate, no

643
00:40:06,840 --> 00:40:09,399
Speaker 4: one will beat you, no one will outwork you, and

644
00:40:09,440 --> 00:40:13,120
Speaker 4: no one will. You know, have more depth of knowledge

645
00:40:13,160 --> 00:40:13,760
Speaker 4: and a topic.

646
00:40:14,600 --> 00:40:17,319
Speaker 2: This is the thing, Joe. People sometimes think there's like

647
00:40:17,520 --> 00:40:20,960
Speaker 2: a shortcut to success, but actually the real secret is

648
00:40:21,080 --> 00:40:23,240
Speaker 2: just be very good every day.

649
00:40:23,200 --> 00:40:23,960
Speaker 1: And knowing a lot.

650
00:40:24,360 --> 00:40:26,440
Speaker 3: You know. I love hearing that phrase. I think I've

651
00:40:26,440 --> 00:40:28,480
Speaker 3: said it about all of our good depth of knowledge,

652
00:40:28,480 --> 00:40:31,560
Speaker 3: depth of knowledge, depth of knowledge. There's no substitute for

653
00:40:31,680 --> 00:40:32,720
Speaker 3: actually knowing stuff.

654
00:40:32,800 --> 00:40:37,200
Speaker 2: Yeah, okay, so you've been at Blackstone now for four years.

655
00:40:37,560 --> 00:40:42,319
Speaker 2: What's been the biggest challenge over that time horizon, so

656
00:40:42,719 --> 00:40:46,239
Speaker 2: four years. And what's your biggest challenge right now in

657
00:40:46,280 --> 00:40:49,399
Speaker 2: the short term given all the market volatility that we've seen.

658
00:40:49,880 --> 00:40:54,799
Speaker 4: Yeah, I think going from an organization where you had

659
00:40:54,840 --> 00:40:59,480
Speaker 4: a small team where you present it to your investment

660
00:40:59,480 --> 00:41:03,640
Speaker 4: committee to then going to you know, we have our

661
00:41:03,680 --> 00:41:07,680
Speaker 4: division as eighty eight billion over three hundred people. So

662
00:41:07,760 --> 00:41:11,920
Speaker 4: obviously the biggest change for me was becoming a better

663
00:41:12,160 --> 00:41:17,560
Speaker 4: manager of large groups of people and still having maintaining

664
00:41:17,560 --> 00:41:20,239
Speaker 4: a high standard of care and everything that we do,

665
00:41:20,719 --> 00:41:24,680
Speaker 4: but also not getting in the backswing whether you're a

666
00:41:24,680 --> 00:41:27,759
Speaker 4: tennis player or a golf player. Of my very talented

667
00:41:28,160 --> 00:41:31,399
Speaker 4: partners who are helping me drive, and I got some

668
00:41:31,600 --> 00:41:35,680
Speaker 4: very good advice from John Gray and Brian Gavin, who's

669
00:41:35,680 --> 00:41:40,440
Speaker 4: our COO, about delegating the importance of delegating the importance

670
00:41:40,480 --> 00:41:43,040
Speaker 4: of clear communication. So I got a lot of help

671
00:41:43,120 --> 00:41:46,839
Speaker 4: along the way. This is a great environment right now

672
00:41:46,880 --> 00:41:49,600
Speaker 4: in the market for us because we're in the absolute

673
00:41:49,600 --> 00:41:52,480
Speaker 4: return business and we have a lot of volatility. We

674
00:41:52,680 --> 00:41:55,719
Speaker 4: have a lot of stock dispersion, and that's great for

675
00:41:55,800 --> 00:42:01,680
Speaker 4: our strategies. Quant loves that, Macro loves that, our low

676
00:42:01,719 --> 00:42:05,520
Speaker 4: net equity guys love that, and then our credit is

677
00:42:05,560 --> 00:42:09,960
Speaker 4: insulated because we're in very, very specialized credits. So it's

678
00:42:10,000 --> 00:42:14,520
Speaker 4: a good environment. I would say that I haven't seen

679
00:42:14,600 --> 00:42:18,200
Speaker 4: volatility like this since like two thousand and eight. I mean,

680
00:42:18,239 --> 00:42:23,640
Speaker 4: and it's the market doesn't like uncertainty. Our products like

681
00:42:23,920 --> 00:42:25,520
Speaker 4: uncertainty and volatility.

682
00:42:26,640 --> 00:42:29,160
Speaker 2: Are you deploying more risk at the moment or taking

683
00:42:29,160 --> 00:42:29,719
Speaker 2: on more risk?

684
00:42:29,880 --> 00:42:32,960
Speaker 4: Absolutely. One of the things that our team is really

685
00:42:33,000 --> 00:42:38,160
Speaker 4: good at is rebalancing into things that are down and

686
00:42:38,239 --> 00:42:41,480
Speaker 4: trimming those that have done really well. And it's that

687
00:42:42,120 --> 00:42:46,359
Speaker 4: rebalancing that leads to a lot of consistency. I know.

688
00:42:47,120 --> 00:42:50,120
Speaker 4: John Gray on our earnings call said that mentioned that

689
00:42:50,239 --> 00:42:52,719
Speaker 4: our group had been up twenty straight quarters in a

690
00:42:52,800 --> 00:42:55,960
Speaker 4: row and twenty four months in a row, and I

691
00:42:56,000 --> 00:42:59,879
Speaker 4: think that's a function of that rebalancing and really really

692
00:43:00,080 --> 00:43:01,840
Speaker 4: bust portfolio construction.

693
00:43:02,960 --> 00:43:05,520
Speaker 2: All right, Joe Dowling, thank you so much for coming

694
00:43:05,560 --> 00:43:23,080
Speaker 2: on a laws Yeah, Joe, that was that was an

695
00:43:23,160 --> 00:43:26,839
Speaker 2: enjoyable conversation. The one thing that really struck me is

696
00:43:27,800 --> 00:43:30,680
Speaker 2: it is such a It strikes me as like such

697
00:43:30,719 --> 00:43:33,600
Speaker 2: a competitive advantage if you can just buy and hold

698
00:43:33,800 --> 00:43:37,400
Speaker 2: for a really, really long time like that seems to

699
00:43:37,800 --> 00:43:40,080
Speaker 2: maybe this is simplistic, but that seems to be such

700
00:43:40,080 --> 00:43:40,880
Speaker 2: a key difference.

701
00:43:41,600 --> 00:43:43,240
Speaker 3: No, I mean that's that's huge.

702
00:43:43,320 --> 00:43:46,400
Speaker 2: And then you can monetize that like liquidity premium, as

703
00:43:46,719 --> 00:43:48,120
Speaker 2: Joe Dee was saying.

704
00:43:48,160 --> 00:43:50,719
Speaker 3: You know, individuals can do that too, which is you

705
00:43:50,880 --> 00:43:53,520
Speaker 3: just invest in a range of things and then not

706
00:43:53,600 --> 00:43:56,200
Speaker 3: ever look at your four one K First's right, we're

707
00:43:56,280 --> 00:43:58,360
Speaker 3: just really bad at it as humans.

708
00:43:58,400 --> 00:44:00,400
Speaker 2: It's particularly difficult moment.

709
00:44:00,440 --> 00:44:03,000
Speaker 3: I would say, No, that was one of those conversations.

710
00:44:03,080 --> 00:44:06,560
Speaker 3: I mean I really enjoyed that where each specific question

711
00:44:06,760 --> 00:44:10,160
Speaker 3: could have obviously been an hour long episode, right, because

712
00:44:10,160 --> 00:44:13,760
Speaker 3: we could have talked more about what is the value

713
00:44:13,800 --> 00:44:18,440
Speaker 3: creation of PE, what is the due diligence process for

714
00:44:18,520 --> 00:44:22,319
Speaker 3: hedge funds to establish that the multi threat is truly uncorrelated?

715
00:44:22,600 --> 00:44:26,319
Speaker 3: How stressful are these times for university endowments which thought

716
00:44:26,320 --> 00:44:29,880
Speaker 3: they had really stable environments, and so it's like a

717
00:44:30,000 --> 00:44:32,600
Speaker 3: very there's a lot to go on. I really do

718
00:44:32,640 --> 00:44:35,960
Speaker 3: feel like it's like all of these are episodes within themselves.

719
00:44:36,000 --> 00:44:37,800
Speaker 3: But I thought that was a great overview.

720
00:44:37,480 --> 00:44:42,480
Speaker 2: Absolutely, and the alumni network points really interesting. I hadn't

721
00:44:42,520 --> 00:44:44,959
Speaker 2: heard that before, but it absolutely makes sense, right because

722
00:44:44,960 --> 00:44:48,839
Speaker 2: your resource basically all of your resources kind of well,

723
00:44:48,920 --> 00:44:52,239
Speaker 2: except for government funding, most of your resources come from

724
00:44:52,280 --> 00:44:55,520
Speaker 2: your alumni, so why not throw in I guess knowledge

725
00:44:55,520 --> 00:44:58,440
Speaker 2: and expertise in addition to actual donations.

726
00:44:58,480 --> 00:45:02,000
Speaker 3: People love their universities, you know, this is I don't know, Tracy.

727
00:45:02,040 --> 00:45:04,240
Speaker 3: In Europe, is it the same way where like people

728
00:45:04,480 --> 00:45:07,320
Speaker 3: I mean, I'm sure like an Oxford and Cambridge, but like, yeah,

729
00:45:07,360 --> 00:45:09,560
Speaker 3: there's that same thing where like people wear sweatshirts to

730
00:45:09,640 --> 00:45:12,040
Speaker 3: their universities until they're like in their fifties.

731
00:45:12,120 --> 00:45:15,799
Speaker 2: Well, I personally enjoyed my university. I don't think it's

732
00:45:15,840 --> 00:45:17,680
Speaker 2: as intense I feel it is.

733
00:45:17,719 --> 00:45:21,040
Speaker 3: In the US, Americans really build their identity, but really,

734
00:45:21,239 --> 00:45:23,759
Speaker 3: like I went to you know, ut or I went

735
00:45:23,840 --> 00:45:26,640
Speaker 3: to you know, Eastern Iowa State or whatever it is,

736
00:45:26,680 --> 00:45:29,600
Speaker 3: and then their entire personality is like, you know, go

737
00:45:29,800 --> 00:45:31,120
Speaker 3: redbird to whatever the team.

738
00:45:31,440 --> 00:45:33,759
Speaker 2: You never asked me what our college mascot was.

739
00:45:33,719 --> 00:45:34,279
Speaker 4: Well, this true.

740
00:45:34,320 --> 00:45:36,200
Speaker 3: What did did you guys have one?

741
00:45:36,239 --> 00:45:38,800
Speaker 2: I think this might be one of the reasons why

742
00:45:39,440 --> 00:45:42,400
Speaker 2: people aren't wearing like LC sweatshirts for the rest of

743
00:45:42,440 --> 00:45:45,839
Speaker 2: their lives. But our mascot was the beaver. This one

744
00:45:45,840 --> 00:45:51,160
Speaker 2: because we're industrious that's a great one. It's admirable for sure.

745
00:45:51,600 --> 00:45:52,719
Speaker 2: All right, shall we leave it there.

746
00:45:52,800 --> 00:45:53,560
Speaker 3: Let's leave it there.

747
00:45:53,760 --> 00:45:56,280
Speaker 2: This has been another episode of the All Thoughts podcast.

748
00:45:56,480 --> 00:45:59,680
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.

749
00:45:59,640 --> 00:46:02,560
Speaker 3: I'm just Joe Wisenthal. You can follow me at the Stalwart.

750
00:46:02,760 --> 00:46:06,320
Speaker 3: Follow our producers Carmen Rodriguez at Carmen Arman, Dashel Bennett

751
00:46:06,320 --> 00:46:10,120
Speaker 3: at Dashbot, and Kilbrooks at Kalebrooks. More Oddlovs content, go

752
00:46:10,239 --> 00:46:12,319
Speaker 3: to Bloomberg dot com slash odd lots, where we have

753
00:46:12,440 --> 00:46:14,800
Speaker 3: all of our episodes and a daily newsletter that you

754
00:46:14,840 --> 00:46:17,360
Speaker 3: should subscribe to, and you can chat about all of

755
00:46:17,400 --> 00:46:20,719
Speaker 3: these topics twenty four to seven in our discord Discord

756
00:46:20,760 --> 00:46:22,560
Speaker 3: dot gg slash online.

757
00:46:22,760 --> 00:46:24,840
Speaker 2: And if you enjoy Odd Thoughts, if you like it

758
00:46:24,920 --> 00:46:27,960
Speaker 2: when we talk about how people are actually running these

759
00:46:28,120 --> 00:46:31,120
Speaker 2: huge pools of capital, then please leave us a positive

760
00:46:31,160 --> 00:46:34,400
Speaker 2: review on your favorite podcast platform. And remember, if you

761
00:46:34,480 --> 00:46:37,200
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762
00:46:37,239 --> 00:46:40,200
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763
00:46:40,280 --> 00:46:43,280
Speaker 2: is find the Bloomberg channel on Apple Podcasts and follow

764
00:46:43,320 --> 00:46:45,600
Speaker 2: the instructions there. Thanks for listening

765
00:47:00,560 --> 00:47:05,520
Speaker 3: The stood in a