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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Bloomberg's Nishan Kumar has covered hedge funds for nearly fifteen years.

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Speaker 1: This is the most exciting job on planet, given the

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Speaker 1: kind of people personalities in money, Boom and bust and A.

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Speaker 2: Shant says that historically hedge funds haven't had much trouble

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Speaker 2: finding workers.

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Speaker 1: Well, it's a dream job, isn't it if you are

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Speaker 1: made for it.

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Speaker 2: That is, last year, he says, more than eighty thousand

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Speaker 2: people applied just to intern at the top tier hedge

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Speaker 2: fund Citadel.

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Speaker 1: Just zero point five percent of those applicants get selected

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Speaker 1: to be an intern. Forget about jobs, just to be

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Speaker 1: an intern at these firms. It's easier to get into

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Speaker 1: MIIT or Harvard, which has a success rate of around

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Speaker 1: three to four percent. Actually, so that's the audio are

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Speaker 1: talking about.

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Speaker 2: It's not great odds, not.

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Speaker 1: At all, not at all, but you know it has

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Speaker 1: its rewards. What do interns get paid at Citadel? It

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Speaker 1: could be as high as about nineteen thousand dollars per month.

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Speaker 2: Nineteen thousand dollars a month.

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Speaker 1: Yeah, I don't think many journeys get bid.

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Speaker 2: That, certainly not.

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Speaker 1: But that's just the start. That's just the start.

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Speaker 2: Hedge funds have created dozens of billionaires in the last

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Speaker 2: twenty years as the industry has boomed. In two thousand

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Speaker 2: and eight, hedge funds managed about one point four trillion dollars.

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Speaker 2: Today they manage four point three trillion. They've more than

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Speaker 2: tripled their assets in less than two decades. These funds

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Speaker 2: typically practice riskier investment strategies with the hope of seeing

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Speaker 2: massive returns, and it's been paying off. All that money

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Speaker 2: flowing into hedge funds coffers has meant they've needed more

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Speaker 2: and more people to manage it, and a Shant says

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Speaker 2: in all out talent war has been royaling the world's

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Speaker 2: top hedge funds. That's led to the creation of something

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Speaker 2: unprecedented in the industry, in house hedge fund boot camps,

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Speaker 2: cutthroat training grounds meant to build out the next generation

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Speaker 2: of star hedge fund traders. In a sector that's gotten

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Speaker 2: very large, very fast. It sounds a little like it's

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Speaker 2: pulled straight out of a season of industry on HBO,

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Speaker 2: or maybe the other way around.

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Speaker 1: I find industry to be a bit exaggerated.

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Speaker 2: I've been watching a lot of industry lately yeah. Today

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Speaker 2: on the show, the lengths hedge funds are going to

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Speaker 2: cultivate top talent and what the rise of the hedge

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Speaker 2: fund boot camp means for one of the world's most

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Speaker 2: competitive industries. Hedge funds are pressure cookers, and Ashan says

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Speaker 2: not everyone is cut out for them.

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Speaker 1: Talent is a given. You need to be super bright,

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Speaker 1: expert at your subjects. That's just the basic stuff. The

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Speaker 1: main qualities are temperament and if you can handle all

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Speaker 1: the stresses that come with it. You need to be

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Speaker 1: absolutely on your toes to survive in this truly Darwinian industry.

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Speaker 1: You are as good as your last trade, no matter

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Speaker 1: who you are.

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Speaker 2: Part of what creates that Darwinian dynamic is that hedge

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Speaker 2: fund investments tend to be riskier, and if your portfolio

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Speaker 2: doesn't meet strict performance standards, the consequences are swift and severe.

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Speaker 1: It's highly highly competitive. If you lose five percent at

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Speaker 1: some of these hedge fund your capital will be cut

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Speaker 1: into half. If you lose two percent more on top

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Speaker 1: of that, you are fired.

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Speaker 2: That is a razor thin margin. To put that into perspective,

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Speaker 2: Nashan looked at the track record of one of the

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Speaker 2: world's most storied investors.

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Speaker 1: Just imagine how likely it is for a stock to

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Speaker 1: move by seven percent in a day. If Warren Buffett

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Speaker 1: worked at one of these hedge funds and looking at

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Speaker 1: his stock price, he could have got fired on eight

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Speaker 1: occasions over the last more than ten years. So that's

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Speaker 1: how tough it is to survive in this industry.

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Speaker 2: Those kinds of steaks, unlimited upside, with zero room for error,

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Speaker 2: create an extremely demanding environment sink or swim.

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Speaker 1: And in the.

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Speaker 2: Past, hedge funds have traditionally relied on a steady stream

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Speaker 2: of seasoned professionals, people who could walk in and be

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Speaker 2: trusted to successfully manage hundreds of millions or a billion

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Speaker 2: dollars worth of client money on day one.

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Speaker 1: So if you look at the evolution of hedge fund

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Speaker 1: industry over the last three decades, most of the superstars

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Speaker 1: Beat Alan Howard, Michael Platt, Steve Cohen, Ken Griffin, all

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Speaker 1: these personalities worked at one or other investment banks.

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Speaker 2: In other words, investment banks were a key part of

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Speaker 2: the hedge fund talent pipeline.

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Speaker 1: They took risk with banks owned capital, they made billions

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Speaker 1: out of it for themselves and for their companies and

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Speaker 1: that was the true, real training ground for a lot

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Speaker 1: of these star traders.

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Speaker 2: Nashan says, the financial crisis of two thousand and eight

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Speaker 2: started to change the game. Those higher risk oriented desks

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Speaker 2: at investment banks where today's hedge fund titans cut their teeth,

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Speaker 2: were rained in. But the industry boomed in the years

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Speaker 2: that followed, and there were still enough people who had

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Speaker 2: that banking background to propel hedge funds to new heights.

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Speaker 1: A number of these prop traders from banks moved out

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Speaker 1: and started their own hedge funds, or they started to

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Speaker 1: work for other hedge funds.

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Speaker 2: It was broadly speaking, a great time to be a

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Speaker 2: successful analyst or portfolio manager. These types of traders were

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Speaker 2: in high demand, and the way for hedge funds to

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Speaker 2: win was to have a better roster of superstar traders

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Speaker 2: than their competitors.

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Speaker 1: All these large hedge funds, they have dozens and dozens

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Speaker 1: of people who are just keeping a track of who

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Speaker 1: are the good people working at their rival, not only

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Speaker 1: portfolio managers, but even the analyst Who are the great

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Speaker 1: analysts who are just emerging, who could be a great

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Speaker 1: portfolio manager in future, and they are looking at the

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Speaker 1: right opportunity to attack them and convince them to switch.

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Speaker 1: So the party lasted for a few years because you know,

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Speaker 1: there were still many traders to pick from.

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Speaker 2: But as the pipeline problem eventually caught up to the

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Speaker 2: firm's talent started getting scarcer and convincing people to switch

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Speaker 2: started getting much more expensive. I asked Naseean, just how

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Speaker 2: much more expensive?

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Speaker 1: I mean, cordiners, like I knew about someone getting paid

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Speaker 1: more than one hundred and twenty million in guaranteed. I'm

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Speaker 1: not sure that's one off case. There might be a

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Speaker 1: few others like that. I've heard that, Like, there have

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Speaker 1: been a few cases of fifteen million dollar plus payouts,

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Speaker 1: and ten to fifteen million is becoming more frequent. So

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Speaker 1: just think about it. You leave your job, agree to

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Speaker 1: join your rival, and your rival is saying, okay, I'll

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Speaker 1: pay you ten million dollars even before you start making

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Speaker 1: money for me.

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Speaker 2: This worked for a while, but in more recent years,

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Speaker 2: Nashan says a new trend has emerged, in part because

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Speaker 2: the industry has shifted away from its focus on superstar talents.

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Speaker 1: So the problem with individual traders is you are relying

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Speaker 1: on the intelligence of one person to take the right

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Speaker 1: call and be right all the time. It doesn't happen

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Speaker 1: that way. If you look at returns of some of

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Speaker 1: those individual hetch fund managers, they will have a few

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Speaker 1: great years and then they will blow up. Like we

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Speaker 1: see several dozen cases of this kind every year. Even

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Speaker 1: the rock star traders, they will keep making money and

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Speaker 1: then lose everything in one year.

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Speaker 2: One strategy that's taken hold at dominant firms like er

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Speaker 2: point seventy two or Millennium or Citadel is to build

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Speaker 2: huge teams of traders.

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Speaker 1: Find all these bright individuals and put them together and

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Speaker 1: bind them in chains that look, you can't lose money.

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Speaker 1: Of course, make as much money as you want, but

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Speaker 1: just you can't lose money. And if you combine a

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Speaker 1: number of those individuals intelligently, and if you risk manage

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Speaker 1: them properly, give them all the resources to prosper give

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Speaker 1: them enough capital to manage, the end result is quite good.

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Speaker 2: That new approach has helped some top firms see returns

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Speaker 2: of ten percent or better. It gives them an edge.

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Speaker 2: According to data compiled by Bloomberg, the average hedge fund

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Speaker 2: had a return of about eight percent last year. But

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Speaker 2: this strategy relies on having a lot of capable people,

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Speaker 2: people who have only grown harder and harder to find

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Speaker 2: since the investment bank training ground disappeared. The talent is

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Speaker 2: so scarce at this point it's impacting how much money

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Speaker 2: hedge funds can accept.

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Speaker 1: I wrote a story and I tracked top twenty of

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Speaker 1: these large hedge funds. The majority of them are no

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Speaker 1: longer accepting new capital. That's only because they can't hire

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Speaker 1: people who could manage those additional capital. So this is

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Speaker 1: called the capacity issue in the industry.

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Speaker 2: That's why, for the first time, hedge funds are trying

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Speaker 2: a new strategy. Rather than assembling teams of elite investing mercenaries,

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Speaker 2: they're building their own armies, and that means they're putting

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Speaker 2: these someday managers through basic training. So what happens at

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Speaker 2: hedge fund training camps and what does the shift mean

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Speaker 2: for the industry. That's after the break Over the last

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Speaker 2: twenty years, as the industry grew and traditional pathways to

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Speaker 2: hedge funds dried up, the field got more competitive and

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Speaker 2: hedge funds found themselves entrenched in a poaching war. So

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Speaker 2: they decided to try something new. Instead of finding the

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Speaker 2: perfect trader, they wanted to create the perfect trader from scratch.

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Speaker 2: The Academy is our program to take investment talent without

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Speaker 2: any background or experience and turn them into long short

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Speaker 2: investors at our firm. That's a clip from the Point

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Speaker 2: seventy two Academy podcast. It's a training series produced by

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Speaker 2: the Point seventy two Hedge Fund that gives a taste

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Speaker 2: of how their program molds promising new hires into formidable investors.

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Speaker 2: How does a hedge fund boot camp do that? What

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Speaker 2: happens inside those walls.

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Speaker 1: So it's a long process. It's training slash mentoring slash

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Speaker 1: on the job experience. So of course in turns are fresh,

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Speaker 1: so they will have more classroom teachings or more formal

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Speaker 1: kind of teaching. If you are an analyst who has

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Speaker 1: joined one of these programs, more like on the job experience.

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Speaker 1: If you are a portfolio manager, say junior portfolio manager

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Speaker 1: or senior portfolio manager, who is being trained to become

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Speaker 1: a portfolio manager, that would be like managing real money

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Speaker 1: with certain constraint with someone overlooking you. That sort of approach.

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Speaker 1: So it could be as simple as you know, talking

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Speaker 1: to experienced portfolio managers, giving them that opportunity to talk

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Speaker 1: to some of these experienced people and learn from them,

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Speaker 1: learn about their successes, their mistakes. You know, how they

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Speaker 1: behave in a certain market conditions, how they look at securities.

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Speaker 1: You know, what kind of questions they ask when they

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Speaker 1: meet management, what kind of body language they observe. That

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Speaker 1: these are simple things, but when you learn from a pro,

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Speaker 1: you can really inherit those qualities. And if you keep

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Speaker 1: on doing it repeatedly, you sort of become a person

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Speaker 1: like him, or even better than him.

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Speaker 2: And how are these trainees being assessed? How can you excel?

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Speaker 1: So everyone is looking for different things. The inflection points

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Speaker 1: that when is a person ready to manage a billion

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Speaker 1: dollars or money? And it really varies. So, for example,

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Speaker 1: Hedgeman's would like to see in you whether you are

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Speaker 1: able to build a team around you, whether you have

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Speaker 1: capacity to risk real dollars on ideas generated by someone else.

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Speaker 1: Once you do it, maybe you know over a period

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Speaker 1: of times, at twelve months, which is the case at

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Speaker 1: Ballyasni for example, a minimum of twelve months where you

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Speaker 1: need to prove yourself, then you might be ready to

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Speaker 1: take over as a portfolio manager.

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Speaker 2: So how has this conveyor belt of talent or assembly

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Speaker 2: line of talent worked out. So far for hedge funds.

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Speaker 1: So far, so good. Actually, if you look at point

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Speaker 1: seventy two, more than half of their stock pickers come

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Speaker 1: through their training program. The average tenure life of a

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Speaker 1: trader at point seventy two has been six years. Now,

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Speaker 1: that's their data. If you look at hetch funds that

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Speaker 1: have shot, their life has been six point six years.

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Speaker 1: So hetche funes don't survive that long. Forget about individual traders.

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Speaker 1: Let's take Phil Lee, who is the head of one

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Speaker 1: of the stocks trading unit at Citadel. He joined the

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Speaker 1: firm as an analyst and within ten years, yes, he

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Speaker 1: rose to become the head of that business. Wow, that's

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Speaker 1: an incredible journey. So you know, these training programs are

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Speaker 1: genuinely producing talent. They're genuinely making people stay longer and

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Speaker 1: giving hedge funds a real chance that they can find

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Speaker 1: another way of hiring people rather than just throwing investors'

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Speaker 1: money at the next hot star trader.

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Speaker 2: What does the rise of these boot camps mean for

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Speaker 2: the industry.

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Speaker 1: It's a better way of managing money. See, all of

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Speaker 1: these is funded ultimately by end investors. Maybe it's your

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Speaker 1: and my pension fund. Of every dollar that a hedge

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Speaker 1: fund makes, some of these hedgehunds make, not all sixty

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Speaker 1: cents goes to pay for talent, to run their businesses

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Speaker 1: and to pay for themselves. If that can be minimized

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Speaker 1: little bit, either through growing your talent in house or

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Speaker 1: reducing competition as a result, reducing this war for talent,

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Speaker 1: then maybe there will be more money left for investors.

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Speaker 1: So that's what at stake here.

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Speaker 2: This is The Big Take from Bloomberg News. I'm Sarah Holder.

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Speaker 2: This episode was produced by David Fox and Jessica Beck.

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Speaker 2: It was edited by Aaron Edwards and James Boxel. It

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Speaker 2: was mixed by Blake Maples. It was fact checked by

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Speaker 2: Adriana Tapia. Naomi Shaven and Kim Gettleson are our senior producers.

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Speaker 2: Our senior editor is Elizabeth Ponso. The Cool Beemsterbor is

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Speaker 2: our executive producer. Sat Bowman is Bloomberg's head of Podcasts.

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Speaker 2: If you liked the episode, make sure to subscribe and

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Speaker 2: review The Big Take wherever you listen to podcasts. It

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Speaker 2: helps people find the show. Thanks so much for listening.

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Speaker 2: We'll be back tomorrow.