Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, have you noticed there were some crazy moves in
Speaker 2: the market lately.
Speaker 3: I know, it's kind of funny if you look at
Speaker 3: I guess traditional measures of overall volatility in the market.
Speaker 3: So obviously things like the vis it was relatively low
Speaker 3: up until recently, and that was despite all these big
Speaker 3: surges in a bunch of stocks. So the megacap tech
Speaker 3: companies kind of stand out there. So I guess overall
Speaker 3: benchmark moves were kind of low. But if you look
Speaker 3: within that, if you look at specific single stock performance,
Speaker 3: things like dispersion, it's been kind of crazy, sort of
Speaker 3: under the surf, there's been a lot going on.
Speaker 2: We are recording this February fifteenth, twenty twenty four shares
Speaker 2: of super Micro. I don't know what they do. I
Speaker 2: know they do something with AI. They're currently at nine
Speaker 2: to fifty one, up sixty nine dollars a share on
Speaker 2: the day. On January eighteenth, they were at three hundred
Speaker 2: and eleven, so it's a triple in a month. There
Speaker 2: was some armholdings recently, which is like now in one
Speaker 2: hundred and fifty billion. I mean, these are like serious
Speaker 2: high market cap companies I do.
Speaker 3: They're call these upcrashes.
Speaker 2: Up crashes, that's the word that I use. So it's
Speaker 2: something like, here's just a company that's been around for
Speaker 2: a while, mature people understand it. It was a sixty
Speaker 2: five billion dollar company a couple of weeks ago, it's
Speaker 2: currently one hundred and twenty eight billion dollar company. Just
Speaker 2: these big fat, chunky moves in both directions that we're saying.
Speaker 3: Yeah, And on the one hand, obviously you can describe
Speaker 3: it all to investors are getting really excited about things
Speaker 3: like AI and again a lot of the movement we've
Speaker 3: seen happen in tech stocks. But on the other hand,
Speaker 3: it feels like there might be something else going on here.
Speaker 3: And every once in a while I hear people talking
Speaker 3: about multi strategy funds and the impact that those might
Speaker 3: be having on these overall market moves.
Speaker 2: Totally like these sort of moves that just keep going
Speaker 2: in one direction over and over again. Speaking of multi
Speaker 2: strategy hedge funds, which we're going to get into and
Speaker 2: understand how they work and maybe if they are sort
Speaker 2: of like changing the complexion of house docks trade these days.
Speaker 2: I think there's been a lot of launches of them,
Speaker 2: so we know that some of them have done really well,
Speaker 2: and of course we've regaled with the incredible returns a Citadel.
Speaker 2: But I think we're starting to see a lot of
Speaker 2: people who were at those shops launch their own multi
Speaker 2: strategy shops. So there was a good article too on
Speaker 2: Bloomberg just this week talk about like, not only are
Speaker 2: they proliferating, but for years they talked about how the
Speaker 2: two and twenty model was fading. Like you and I
Speaker 2: have probably heard that our whole career, it's going away
Speaker 2: because they're making they're taking in more than that, and
Speaker 2: I think they're like keeping like half the profits that
Speaker 2: they make, so like twenty percent to sort of old
Speaker 2: hat like, so these are huge money making machines.
Speaker 3: Now is this is this pod Lots?
Speaker 4: I think it's pod Lots.
Speaker 2: This is the original pod Lot.
Speaker 3: So there's only three things I really know about multi
Speaker 3: strategy shops, which is like one, they're very hot right now,
Speaker 3: and as you say, we have seen a lot of
Speaker 3: launches recently. Two, I think they trade a lot, like
Speaker 3: just in terms of absolute volume. I think they're very
Speaker 3: active and becoming increasingly active in a bigger portion of
Speaker 3: the market. And then three, I hear a lot of
Speaker 3: talk about measuring performance scientifically and like the things they
Speaker 3: do differently to maybe a traditional long short fund, but
Speaker 3: I don't actually know what it means in detail. And
Speaker 3: then also, as you were saying, I don't actually understand
Speaker 3: completely the market impact. I think there are a lot
Speaker 3: of different theories at the moment of how they might
Speaker 3: be impacting the market. So I'm very excited about this conversation.
Speaker 2: Yeah, tons of questions on a big and growing topic
Speaker 2: that we should talk about more. So I'm excited. We
Speaker 2: have the perfect guests. We're going to be speaking with
Speaker 2: Krishna Kumar. He is the founder of goose Hollow Capital.
Speaker 2: He previously ran pod capital at the Multi Strat Hedge
Speaker 2: Fund MKP. He was also previously at Omega, and he
Speaker 2: is going to talk about how these places work and
Speaker 2: the sort of impact they have on house dogs trade. So, Krishna,
Speaker 2: thank you so much for coming on Oudlacks.
Speaker 4: Hey excited to be here, A big fan of the show.
Speaker 2: What does a pod shop? Let's just start there, because
Speaker 2: I have some idea of like this big fund. This
Speaker 2: is what I think in my head. You have a
Speaker 2: big fund with a bunch of money, a bunch of teams.
Speaker 2: Maybe you have like a handful of people on each
Speaker 2: all working for themselves. The better the teams do, presumably
Speaker 2: they get more money, more resources, more capital to trade.
Speaker 2: If they do badly, they're on a short leash. They
Speaker 2: can be fired quickly, and somehow they make a lot
Speaker 2: of money with that. But that is probably like the
Speaker 2: extent of what I actually understand about how they work.
Speaker 2: What are they So.
Speaker 4: If you think about most hedge funds that people talk about,
Speaker 4: most of them are now multi strategy funds, and that
Speaker 4: are made of a bunch of pots underneath. So if
Speaker 4: you go back in time to the first hedge fund
Speaker 4: that ever started, A W. Jones, I mean that was
Speaker 4: in some sense a manager with all these underlying analysts
Speaker 4: who are then picking up looking at radious sectors and
Speaker 4: running strategies right. And the evolution to that today is
Speaker 4: this monster called the multi strategy fund, and it's sort
Speaker 4: of a platform. So if you think about our economy,
Speaker 4: we're very good at creating platforms out of things. So
Speaker 4: if you take Apple as a company, Apple is a
Speaker 4: platform company. They don't actually produce anything. They come up
Speaker 4: with ideas. They come up with this vision pro and
Speaker 4: then they get a bunch of people overseas to make them,
Speaker 4: and then they market it. So the similar kind of
Speaker 4: concept in hedge fund space is this idea of multi
Speaker 4: strategy platforms and parts of the units that are working
Speaker 4: within that platform.
Speaker 3: So you actually work in a multi strategy fund. At
Speaker 3: one point, I believe I'm curious how that platform idea
Speaker 3: drives the culture. But then also like, what exactly is
Speaker 3: the competitive edge that a multi strategy fund or a
Speaker 3: pod shop is offering here? Is it just we're able
Speaker 3: to select the best managers of individual strategies and put
Speaker 3: them together in one place, like what makes a successful
Speaker 3: multi strategy fund?
Speaker 4: So yeah, so this is again is a sort of
Speaker 4: part of the evolution. So if you go back in time,
Speaker 4: we used to have this construct of single manager hedge funds,
Speaker 4: which in the nineties were fairly big, and then people
Speaker 4: said they wanted to get the average hedge fund performance.
Speaker 4: Just like people like to buy the index, they wanted
Speaker 4: to buy the index of hedge funds, and there wasn't once,
Speaker 4: so they created something called the fund funds, which just
Speaker 4: added fees on fees, so essentially you had underlying Hetch funds,
Speaker 4: and then there was a fund manager that selected these
Speaker 4: hedge funds, and they did extremely well from two thousand
Speaker 4: to two thousand and seven, and then in eight also
Speaker 4: so bad things happened. But what we found out was
Speaker 4: fund of funds, the earlier iteration of the multi strategy
Speaker 4: fund had all the downside and less of the upside,
Speaker 4: because what we had in eight was a lot of
Speaker 4: the underlying managers did poorly and people just wanted to
Speaker 4: get out of Hetch funds as a whole, and the
Speaker 4: hedge funds started to get all these investors, and then
Speaker 4: the fund of funds, which were one level removed from them,
Speaker 4: also gated the underlying investors, right, So that created this
Speaker 4: whole thing where fund of funds as a concept became
Speaker 4: not a great idea. And so the next version of
Speaker 4: that now is this multi strategy fund. Essentially, you want
Speaker 4: to get in of different managers returns, and you don't
Speaker 4: have the ability to do that yourself, so you go
Speaker 4: to a multi strategy platform and you end up getting
Speaker 4: a whole bunch of managers as a composite Oh see, So.
Speaker 3: It's not necessarily outperformance, although there are a lot of
Speaker 3: multi strategy funds out there that seem to be outperforming,
Speaker 3: but more the diversification benefits.
Speaker 4: Yeah, I think it is. I mean, if you think
Speaker 4: about the average multi strategy fund, they have lots of
Speaker 4: uncorrelated strategies, right, So they have, you know, a typical
Speaker 4: multi strategy fund. The core of it, it's some sort
Speaker 4: of quant strategy like a stat art strategy. Pretty much
Speaker 4: every large multi strategy fund is built around that. And
Speaker 4: then you have fixed income RV, credit RV, macro RV,
Speaker 4: and then macro directional which is what I do, and
Speaker 4: all of that is put together into a composite performance profile.
Speaker 4: So given that all these strategies are sort of orthogonal,
Speaker 4: over time, you tend to benefit from the lack of correlation.
Speaker 4: And that's one of the biggest benefits that investors see
Speaker 4: when they allocate to multi strategy funds.
Speaker 2: So someone sets up the pod shop. Someone is the
Speaker 2: you know, runs the whole platform so to speak, and
Speaker 2: brings in fund managers and fires fund managers who are
Speaker 2: doing these different strategies. What does that person have to
Speaker 2: be good at for the platform to work.
Speaker 4: Yeah, so if you think about platforms, so if you
Speaker 4: think about Apple as a platform, Apple is good at
Speaker 4: coming up with cool ideas and marketing it. So if
Speaker 4: you take a multi strategy fund, the platform owners have
Speaker 4: to be good at raising capital obviously because that's one
Speaker 4: of the biggest things you need, and then you have
Speaker 4: to be good at risk management and the operational infrastructure.
Speaker 4: So what they're providing in a sense is providing all
Speaker 4: the stuff that's not investment related to the underlying pods,
Speaker 4: so the pots can go about doing their investing and
Speaker 4: then the platform provides all the other services.
Speaker 3: So talk to us about what multi strategy funds are
Speaker 3: actually doing here, because I think about a traditional hedge fund,
Speaker 3: maybe something like Pershing under Bill Ackman. There's a charismatic guy,
Speaker 3: to put it one way, and he's making all these
Speaker 3: big bets. He's going long or short certain companies. Multi
Speaker 3: strategy funds. Obviously, the clue is in the name. They
Speaker 3: have a bunch of different strategies, but typically what are
Speaker 3: they doing on a daily basis?
Speaker 4: So I think there's a couple of reasons why they
Speaker 4: are in prominence, right, So the first and foremost one
Speaker 4: is that of course, like you have, the regulatory burden
Speaker 4: of a single manager hedge fund has gone up dramatically,
Speaker 4: So if you are a single person and you want
Speaker 4: to start a hedge fund, it's much more complicated now
Speaker 4: than it was twenty years ago.
Speaker 3: This is like the key man risk aspect of it.
Speaker 4: Well, a key mand risk, but also the operational infrastructure
Speaker 4: you need and the support and all the other regulatory
Speaker 4: burdens that come with it is tremendous. So that's one
Speaker 4: aspect of the thing multi strategy fund is solving. But
Speaker 4: the other thing is the multi strategy fund is technically
Speaker 4: looking for good managers and providing them a platform so
Speaker 4: that they can actually run their business. And the multi
Speaker 4: strategy fund, the fund holding company, then provides all the
Speaker 4: other infrastructure needs like risk management, reporting, all of that
Speaker 4: fun stuff. But if you think about why they have
Speaker 4: done so well in the recent past, I mean, part
Speaker 4: of it is just that, you know, we have this
Speaker 4: like demand for leverage right in the system. So if
Speaker 4: you think about like what we did in the global
Speaker 4: financial crisis, obviously in my view, the fiscal response was
Speaker 4: very timid, right, Like we spent about three percent of
Speaker 4: GDP compared to COVID basically spent you know, ten percent
Speaker 4: of GDP or more. So that meant that our recovery
Speaker 4: was very, very timid. And there was this whole thing
Speaker 4: with austerity, not just here but elsewhere too, which meant
Speaker 4: that yields, real yields collapsed and the overall return you
Speaker 4: could get on capital collapsed. So the only way for
Speaker 4: you now to generate any sort of return was to
Speaker 4: take a lot of leverage, and so hedge funds as
Speaker 4: a whole are doing that. Like they provide you some
Speaker 4: form of leverage in terms of access, but the multi
Speaker 4: strategy funds take it to the next level where one
Speaker 4: of the biggest problems with a single manager fund is
Speaker 4: often that you may not have that many good ideas. Right.
Speaker 4: So if I'm a macro guy, I'm probably lucky if
Speaker 4: I find four good ideas in a year. Right. The
Speaker 4: rest of the time, I don't know what to do.
Speaker 4: You know, I have to keep busy. Now, if you're
Speaker 4: an investor paying two and twenty in fees, you want
Speaker 4: all the capital to be deployed at all times and
Speaker 4: to be invested in all sorts of things. So one
Speaker 4: of the problems the multi strategy fund solves is to
Speaker 4: make sure that capital is always deployed, and they do
Speaker 4: that by applying a lot of leverage. Right, So a
Speaker 4: typical multi strategy fund, you know, you give them a dollar,
Speaker 4: they have four or five dollars of exposure, and they
Speaker 4: have multiple pods that are then essentially deploying a capital.
Speaker 3: My impression post financial crisis was this idea that leverage
Speaker 3: was supposed to get more expensive, and it definitely did,
Speaker 3: I guess for regulated banks, and we saw, for instance,
Speaker 3: the regulations on things like prop trading. I guess liquidity, coverage,
Speaker 3: ratio is just everything that makes it more difficult for
Speaker 3: banks to actually trade on behalf of their clients or
Speaker 3: for their own books. So how are multi strategy firms
Speaker 3: get the edge here on leverage?
Speaker 4: So leverage is always expensive, I mean it was much
Speaker 4: cheaper ten years ago when interest rates were close to
Speaker 4: zero everywhere, so you could borrow infinite amounts of money.
Speaker 4: And so if you think about the performance of these strategies,
Speaker 4: they've been phenomenal in that period. We need two things
Speaker 4: for a typical hedge fund or any sort of levered
Speaker 4: strategy to work, right, The assets you buy have to
Speaker 4: yield more than the cost of your funding. So if
Speaker 4: you go back in time, we had a positive upward
Speaker 4: sloping yield curve, which meant that you could borrow money
Speaker 4: at one percent and buy assets to three percent, and
Speaker 4: so you could level that up. And then even when
Speaker 4: we had you know, two year notes here at half
Speaker 4: a percent, you could borrow money and buy two year
Speaker 4: jgbs FX, hedge it back and generated two percent kind
Speaker 4: of quasi risk free return. And so there were many
Speaker 4: similar sort of traits that you could do. Historically that
Speaker 4: was what I think fuel the of these strategies right
Speaker 4: and now if you come to today, leverage is expensive.
Speaker 4: Most multi strategy funds are probably funding themselves at SOFA
Speaker 4: plus some spread, so maybe a six percent, and the
Speaker 4: coupons you can buy they're all much lower because we
Speaker 4: have an inwarded yokurve where you know, sofur is much
Speaker 4: higher than where any any sort of coupon you can buy.
Speaker 4: So a lot of the strategies that are carry type
Speaker 4: strategies don't work as well, But then you have all
Speaker 4: these other sort of quasi RV type thing where you're
Speaker 4: long and short different things, and those sort of strategies
Speaker 4: tend to do better in this environment.
Speaker 2: So in addition to of course all the infrastructure and
Speaker 2: all that, the importance of a strong risk management at
Speaker 2: the top. And I want to talk about that further
Speaker 2: because I can think of a couple of ways in
Speaker 2: which risk management might be expressed. One is, obviously, people
Speaker 2: get fired somewhat quickly for poor returns. If a manager's
Speaker 2: strategy or approach isn't working, they're not going to be
Speaker 2: held around for long. I imagine another element too is
Speaker 2: style drift and making sure that pods are actually investing
Speaker 2: in the way in which they're sort of mandated, because
Speaker 2: if you want that diversification benefit, you don't want, you know,
Speaker 2: some random let's say, or some quant strategy or whatever
Speaker 2: to be like quietly really just going along super micro
Speaker 2: and in video or finding a way to make just
Speaker 2: do a buy AI strategy, because that's what's out right
Speaker 2: now to juice return. So talk to us a little
Speaker 2: bit more about the risk management component in terms of
Speaker 2: like allocating capital internally and making sure that the managers
Speaker 2: are actually not all crowded into the same traits.
Speaker 4: So this is a super interesting topic, Joe, and I
Speaker 4: think you know this is I think the most important
Speaker 4: topic of the moment. So if you think about it,
Speaker 4: there's a conservation of risk, and it's just like conservation
Speaker 4: of energy, right, So you know you can't just get
Speaker 4: rid of risk. It just gets transformed and it gets
Speaker 4: passed around from one person to the other person, right,
Speaker 4: because it's a complex system, you know, that's what happens.
Speaker 4: So if you think about what the multi strategies are doing,
Speaker 4: in a sense, is what the banks were doing ten
Speaker 4: fifteen years ago, before the vocal rule and before the
Speaker 4: dot frank came about. Right. So if you had some
Speaker 4: off the run treasuries and you know somebody had to
Speaker 4: sell it, you took it down and you put it
Speaker 4: on your balance sheet. You know, when I started at
Speaker 4: Citybank twenty plus years ago, we had twenty people on
Speaker 4: the spot trading desk and we had an auto trader
Speaker 4: machine which worked some of the time, but then when
Speaker 4: something happened, some sort of event happened, the machine would
Speaker 4: not be able to do it and it would get
Speaker 4: passed to the humans that were on the desk. Now,
Speaker 4: you go to Citybank, you'd be hard pressed to find
Speaker 4: maybe three spot traders, and the machines basically taken over, right,
Speaker 4: So all of those people that were there, they've all
Speaker 4: moved to the multi strategy funds. Right. So the typical
Speaker 4: multi strategy fund has specific pods that are focused on
Speaker 4: trading one particular asset. So in many cases, you know,
Speaker 4: you'd have a trader he would only trade five year
Speaker 4: notes and that's all he's doing, you know, that's all
Speaker 4: his mandate will allow him to do. And so what
Speaker 4: this does from a systemic point of view is we've
Speaker 4: shifted all the risks that was on the bank's balance
Speaker 4: sheet onto these funds. Right, So which is which is great?
Speaker 4: I mean, which is not a bad thing. But if
Speaker 4: you think about how the capitalist now managed, right. So,
Speaker 4: we always we're very good at coming up with complex
Speaker 4: formulas to calculate risk and do all that. And we
Speaker 4: saw that with the VR issues in the past. We
Speaker 4: had a Black Monday episode with the CPI constant proportion
Speaker 4: portfolio insurance. It turned out be a bad idea. And
Speaker 4: then we also start with the CEO crisis where we
Speaker 4: had you know this you know, single correlation parameter. We
Speaker 4: were using the models and wasn't capturing the real dynamics
Speaker 4: in the underlying portfolio, right, so we've always had this
Speaker 4: issue with you know, creating these mouse traps to manage risk,
Speaker 4: and often they create other problems. So I think one
Speaker 4: of the issues now with the growth in the multistrat
Speaker 4: universe and the fact that they are fairly large, is
Speaker 4: if you have a stat ar book and you're running,
Speaker 4: you know, at fifty by fifty start our book, and
Speaker 4: something happens or you decide like you want to de risk,
Speaker 4: it's fairly easy. You could probably get out of the
Speaker 4: whole book in no time. But let's say you are
Speaker 4: a forty billion dollar fund that now has levered that
Speaker 4: capital up four or five times, and now something happens
Speaker 4: and you need to de risk. There is no other
Speaker 4: side for that trade. There's no balance sheet on the
Speaker 4: other side. And we saw that in March of twenty twenty.
Speaker 4: People had all these basis traits because if you think
Speaker 4: about it, when you don't have carry, when you don't
Speaker 4: have an upward sloping eel curve, a lot of the
Speaker 4: traits tend to be this sort of fixed income RV
Speaker 4: type stuff where we are doing these spaces stuff, and
Speaker 4: many of those bases started to blow up in March
Speaker 4: of twenty twenty, and then the FED literally had into
Speaker 4: So we have this sort of thing where the size
Speaker 4: of the overall funds is so big. We have about
Speaker 4: four hundred billion at the moment, and they're growing at
Speaker 4: ten to fifteen percent a year, and you take that
Speaker 4: and you multiply by three to get the actual dollars invested.
Speaker 4: So they're about a trillion two dollars in these sort
Speaker 4: of platforms and they're all risk managed the same way.
Speaker 4: And I think that is the problem we could.
Speaker 2: Have outside though of the big event, whether it's like
Speaker 2: a black Bonday day or whether it's outside you know,
Speaker 2: March twenty twenty, with the relative value in treasury, it's
Speaker 2: like in normal times, just how would you describe like
Speaker 2: the sort of day to day blocking and tackling of
Speaker 2: good risk management of evaluating POTT.
Speaker 3: Just to add to that, I'm really curious so multi
Speaker 3: strategy funds, it's a collection of different strategies obviously, so
Speaker 3: how are risk managers getting a sort of holistic view
Speaker 3: of that business? And then also I'm super curious if
Speaker 3: they're all using the same software. Like I remember writing
Speaker 3: about Black Rocks Aladdin and the portfolio management tool there
Speaker 3: like almost a decade ago now, But I'm curious, is
Speaker 3: everyone using the same sort of system to do this?
Speaker 4: Well, I don't know about all of them, but you know,
Speaker 4: I can say that, you know, the risk thinking is
Speaker 4: kind of similar in a lot of these firms in
Speaker 4: the sense that imagine you had a dollar and you
Speaker 4: levered it up to four dollars. Now you want to
Speaker 4: make sure, let's say you've promised your LPs that you're
Speaker 4: not going to lose more than ten percent. You know,
Speaker 4: you want to manage each of the underlying strategies that
Speaker 4: you've deployed capital into to not lose more than three percent, right,
Speaker 4: because then, by definition, if all of them lose at
Speaker 4: the same time, you've now blown through your ten percent limit.
Speaker 4: So that means that they all end up with some
Speaker 4: sort of risk management that is not necessarily bad when
Speaker 4: you look at the platform as a whole, but from
Speaker 4: the perspective of what it does on a system stomic basis,
Speaker 4: it's not great. So I know, Joe mentioned this thing
Speaker 4: about the basis blowing up in March or twenty twenty,
Speaker 4: but you have this episode every other month where you
Speaker 4: could have some random event which has nothing of any
Speaker 4: real significance, could cause like a little unwind of positions, right.
Speaker 4: So what I mean by that is, so let's say
Speaker 4: you're going into the Polish elections last year in September,
Speaker 4: you look at Polish rates and europoland the currency all
Speaker 4: kind of started to move in the wrong direction, meaning
Speaker 4: Polish rates blew up and Europoland started a rally. And
Speaker 4: part of the issue there is that when you have
Speaker 4: a whole bunch of strategies that are all kind of
Speaker 4: risk managed the same way, it's no longer about the fundamentals, right.
Speaker 4: If the P and L starts to move in a
Speaker 4: certain direction, you now have to de risk your book,
Speaker 4: and that causes these events.
Speaker 2: Well, this is what I really want to get it
Speaker 2: because I want to talk about you know, you could
Speaker 2: see the chart of RPL and it shoots up and
Speaker 2: then a month later it's back to where it was.
Speaker 2: What is that day to day risk management process that
Speaker 2: causes trades to all go in one direction like that? Again,
Speaker 2: like outside of like the crazy times where it's like
Speaker 2: a pandemic hit like day to day, if I'm a
Speaker 2: manager at a pod shop and I have like the
Speaker 2: platform over me evaluating my risk, like talk to us
Speaker 2: about that process and how that informs the risks I'm
Speaker 2: willing to take.
Speaker 4: Yes, the risk management is almost algorithmic, right, So it's
Speaker 4: not even because I don't think it. It'd be very
Speaker 4: hard for the risk manager at some massive pot to
Speaker 4: know every individual position, so they don't really kind of
Speaker 4: they kind of understand the whole thing, but they don't
Speaker 4: necessarily know that you know X or wise you know
Speaker 4: what it is. So so essentially what happens is your
Speaker 4: P and L kind of drives risk management. Right, So
Speaker 4: if you draw down capital, you know you're getting delevered, right,
Speaker 4: and not only are you getting delevered. Let's take Poland
Speaker 4: is a good example, and we have a position in Poland,
Speaker 4: so we kind of followed closely. So imagine now you're
Speaker 4: at a POD and now you have a Europoland position.
Speaker 4: Now you have to take it off because you know
Speaker 4: it's gone against you, and you you know if you
Speaker 4: lose more than three percent, you're going to get capital
Speaker 4: is going to get cut in half, and you lose
Speaker 4: five six percent, you're probably getting stopped out, right, So
Speaker 4: that's typically how the pot capital gets allocated. So now
Speaker 4: you are now de risking that Europoland position. Which then
Speaker 4: causes everybody else to also de risk as well. So
Speaker 4: it's not even like a risk management thing. It's just
Speaker 4: the structure where everybody is allocating capital in the same way,
Speaker 4: which means that like an innoquous thing, like you know,
Speaker 4: somebody literally coughing at some place causes something to move
Speaker 4: and then next thing, you know, a whole bunch of
Speaker 4: people have to unwind the positions.
Speaker 2: So diversification in investing is generally good and people like it.
Speaker 2: And one way you can diversify is over time. So
Speaker 2: it's like in theory, you know, it's like people buy
Speaker 2: the SMP every two weeks in there four one k
Speaker 2: or something like that. But it sounds likely your example
Speaker 2: is that the pod manager does not have the ability
Speaker 2: to diversify with time, that as soon as the move
Speaker 2: goes against them, they don't really have the luxury to say, yeah,
Speaker 2: well it's just a brief thing and it'll be back
Speaker 2: to normal like that. Mechanically, they can't let it. They
Speaker 2: can't let the position lose for very long.
Speaker 4: Yeah, I think so. And also the other aspect of
Speaker 4: that which you touched upon is the fact that you're
Speaker 4: not maximizing long term returns you're maximizing returns per unit
Speaker 4: of time, right. So, so what it means is, let's say,
Speaker 4: you know, let's take a different example. Let's say you
Speaker 4: have a stock. So any given stock on any random
Speaker 4: day is just some beta to the S and P. Right,
Speaker 4: It's just it's going to move along with the rest
Speaker 4: of the market. Unless there's some stock specific news. It's
Speaker 4: just going to keep up with that, except that when
Speaker 4: you get into an event, like you have have an
Speaker 4: earnings release or Apple's vision pros getting released at that time,
Speaker 4: Now there is actually an event, and now you have
Speaker 4: to take a view on whether it's going to go
Speaker 4: up or down at that point in time. Right. So
Speaker 4: what happens with this sort of pot capital and that
Speaker 4: being a bigger part of the market, is that you
Speaker 4: now have to basically take a view on this event,
Speaker 4: which is an earnings release. Now, if it turns out
Speaker 4: that all the parts think that the earnings are going
Speaker 4: to be good, and if the earnings actually is not good,
Speaker 4: now we know that the stock is going to have
Speaker 4: a massive reaction because you know, everybody will try to
Speaker 4: get out at the first possible time, right, So you
Speaker 4: create these sort of mini crashes in equities and in
Speaker 4: other markets because of the way risk is managed, right,
Speaker 4: I imagine if I were to sort of look at
Speaker 4: my position every day and say, on every little blip,
Speaker 4: I'm going to take all my risks down, and not
Speaker 4: only take my risk down, but take other positions I
Speaker 4: might have also down. That's going to cause these sort
Speaker 4: of systemic events, which I think is actually an opportunity.
Speaker 4: If you're not playing that game and you're playing a
Speaker 4: slightly longer term game, then it's a slightly it's a
Speaker 4: great opportunity.
Speaker 3: So just to hammer this point home, in addition to
Speaker 3: the sort of short termism that you just described, there's
Speaker 3: a sort of reflexivity that's happening here too, where if
Speaker 3: a position starts to trade against you and everyone gets
Speaker 3: out at the same time, that makes it worse. But
Speaker 3: also if a position is going in your favor, then
Speaker 3: everyone crowds in and that gives it momentum and it
Speaker 3: sort of exacerbates the up crashes. As Joe would say.
Speaker 4: Yeah, I think to some extent that is probably the case.
Speaker 4: But I would say we probably have the ETFs to
Speaker 4: blame for that, just because of the way the ETF
Speaker 4: market is, and you know, a lot of what is
Speaker 4: happening now is money flowing into ETFs, which then end
Speaker 4: up buying you know, whatever is the underlying index of stocks,
Speaker 4: and then you end up with these stocks that don't
Speaker 4: have a lot of free flow, right, so you have
Speaker 4: large inflows. I mean this is not just a US phenomena.
Speaker 4: Like you look at what happened in Europe here to day, right,
Speaker 4: the top five six stocks in market gap are up
Speaker 4: like fifteen percent, right, and the same thing in Korea,
Speaker 4: same thing now, So everywhere in the world, as more
Speaker 4: money flows into these passive vehicles, I think it generates
Speaker 4: this effect where people are just buying it, you know,
Speaker 4: without actually looking at the valuation. So taken VideA, as
Speaker 4: long as we have new money coming into the S
Speaker 4: and P five hundred and video stocks going to go
Speaker 4: up and until something happens, as earnings comes out or
Speaker 4: some something else changes, this thing sort of drives the
Speaker 4: momentum effect. The pods, I think have a little bit
Speaker 4: to do with it, But I would imagine the typical
Speaker 4: long short equity pod. You know, it's sector neutral and
Speaker 4: market neutral and all kinds of neutrals. So basically they
Speaker 4: try to neutralize every possible factor that they could lose
Speaker 4: money against, right, And so that's what they do. I
Speaker 4: actually think that they might be a new factor that
Speaker 4: we might have to have, which is the multi factor
Speaker 4: multi strategy pod factor, right, because this is a factor
Speaker 4: like if you have a stock in which a lot
Speaker 4: of multi strategy pods have a position, you know, that
Speaker 4: might make that stock behave differently.
Speaker 2: By the way, super Micro, I think it was up
Speaker 2: about six what did I say? It was like up
Speaker 2: about sixty dollars on the day when we started the episode.
Speaker 2: It's up eighty anyone now. So when we see these
Speaker 2: crazy moves on the upside, it's like, okay, there isn't
Speaker 2: much free float. There's this sort of uninformed demand from
Speaker 2: the ETF flows. And then when we see like the
Speaker 2: crazy moves on the down it's a lot of pod
Speaker 2: all with the same risk profiles. How quickly do they
Speaker 2: get fired? Like in my mind like, oh they have
Speaker 2: a bad few weeks or a bead quarter a bit.
Speaker 2: What is the reality of like longevity And how quickly
Speaker 2: do they just say you're not cutting.
Speaker 4: It, you know, my guess And this is not you know,
Speaker 4: by any way scientific you know sort of thing is probably,
Speaker 4: you know, it's not very long, but you'd be surprised
Speaker 4: that a lot of these fairly large platforms have managers
Speaker 4: that have been around forever, right, and they all have
Speaker 4: something in common. One of the things is if you
Speaker 4: have a very high sharp ratio strategy, so a strategy
Speaker 4: where you know you're boltild these small relative to your returns,
Speaker 4: then you're more likely to survive in this sort of
Speaker 4: pod environment, right because if you have you know your
Speaker 4: drawdowns are limited, and then every once in a while
Speaker 4: you might have a big blow up, but then you
Speaker 4: know that's just part of the high sharp ratio game. Right.
Speaker 4: So there's a very nice paper by Jean Philippe Buschat
Speaker 4: that shows that most of these high sharp ratio strategies
Speaker 4: often tend to have a negative sq to P an
Speaker 4: L profile, which kind of makes sense. Like, if you're
Speaker 4: going to sell s and P options every day, that's
Speaker 4: going to be a very high sharp ratio strategy until
Speaker 4: something happens and then you lose three four years with
Speaker 4: a P and L. Right, So I think the longevity
Speaker 4: of a typical part is not that high, but you'd
Speaker 4: be surprised how many of these managers have done extremely
Speaker 4: well over time because they have this sort of high
Speaker 4: sharp ratio strategies that they can then survive.
Speaker 3: Some of this reminds me of the original discussion I
Speaker 3: guess it would have been more than ten years ago now,
Speaker 3: but around algorithmic or machine learning trading, where like the
Speaker 3: big discussion point was, Okay, you get a news release
Speaker 3: that comes out, maybe it's something company specific, maybe it's
Speaker 3: something macro, like the latest jobs release, and all the
Speaker 3: machines react to it. Sometimes they actually are read or
Speaker 3: at least back then, they would pull back from the
Speaker 3: market and just wait a little bit. But the idea
Speaker 3: is that you kind of get this gap where if
Speaker 3: you're not a machine or an algorithm, maybe there's an
Speaker 3: opportunity there in the market. Maybe you can be smarter
Speaker 3: I guess than the machines that are sort of like
Speaker 3: going on on wrote code.
Speaker 4: Yeah. I think, if you think about it, the biggest
Speaker 4: opportunities for slightly longer term investors. So if you are
Speaker 4: let's say your time horizon is not a month or
Speaker 4: three months now, this gives you a greater opportunity because
Speaker 4: you obviously get these big drawdowns every few months. Right.
Speaker 4: So so in my personal view, I think, you know,
Speaker 4: we have some active ETFs and and that we think
Speaker 4: of that as longer term capital, and we're looking at
Speaker 4: creating some sort of a drawdown structure where we actually
Speaker 4: wait for these big drawdowns that are caused by the
Speaker 4: pods and then use that to actually participate in these
Speaker 4: in these moves. And then that in case, could be
Speaker 4: a very interesting way to take advantage of this stuff.
Speaker 4: But anytime you have in al garden that decides how
Speaker 4: capital gets allocated and it's sort of rule space, you
Speaker 4: kind of know that it's going to create a problem
Speaker 4: the end, because the market is sort of a complex machine.
Speaker 4: So anytime you think you've found like some risk mousetrap,
Speaker 4: you know it's probably going to create other issues elsewhere.
Speaker 3: This might be a simplistic question, but how do you
Speaker 3: measure drawdowns? How do you know that those are happening
Speaker 3: and impacting a particular stock or factor.
Speaker 4: So you can kind of look at that on a
Speaker 4: kind of a micro scale by certain specific assets that
Speaker 4: are in focus. So for instance, like let's say you're
Speaker 4: going into an earnings release and you sort of see
Speaker 4: that the stock missed earnings and then has a massive
Speaker 4: reaction and it's a several sigma move, and you'd sort
Speaker 4: of say, like, Okay, the company did miss earnings dis quarter,
Speaker 4: but otherwise everything else seems to be fine. It shouldn't
Speaker 4: be as big reaction. And you can kind of look
Speaker 4: at these reactions from the past when they've missed earnings
Speaker 4: and you'd find that, you know, the reactions are much
Speaker 4: larger now, and part of that has to do with
Speaker 4: the fact that a lot of the capital that is deployed,
Speaker 4: apart from the ETFs, which are passive holders of this stuff,
Speaker 4: the active management part of it is a lot of
Speaker 4: these pots and multi strategy fonts, and that creates this
Speaker 4: sort of behavior, not just inequities, but in other assets
Speaker 4: as well. Like you'd get a really massive reaction in
Speaker 4: treasuries for like some random thing, and you'd be like,
Speaker 4: what has changed, Like economy hasn't really changed that much,
Speaker 4: but because like everybody was one way now they all
Speaker 4: have to kind of get out of the way, and
Speaker 4: that creates like, like, take this CPI reaction. I mean,
Speaker 4: you know, we had a big repricing the front end,
Speaker 4: which kind of made sense, but you look at the
Speaker 4: treasury move and you say, like, ah, does it really
Speaker 4: make a big difference. In the grand scheme of things,
Speaker 4: the one year forward ten years yields and the five
Speaker 4: year yields are about the same. They are about four percent,
Speaker 4: and so that hasn't really changed. But people's positions had
Speaker 4: to be unbound, and that creates these sort of large reactions.
Speaker 3: So one thing I was wondering, just going back to
Speaker 3: why these types of investment firms seem to have proliferated
Speaker 3: in recent years. I mean, to some extent, this was
Speaker 3: the desired outcome of post two thousand and eight regulation. Again,
Speaker 3: you make it more expensive to get leverage if you're
Speaker 3: a bank. If you're a bank, you also can't trade
Speaker 3: for your own account anymore, and so it all shifts
Speaker 3: into I kind of hate this term nowadays, but the
Speaker 3: shadow banking system, and it gets done there. So I
Speaker 3: guess my question is how worried should we be about
Speaker 3: this activity on a systemic basis? And then secondly, could
Speaker 3: multi strategy pod shops be hit if we were to
Speaker 3: see leverage get more expensive. So, for instance, there's a
Speaker 3: lot of talk right now about the basis trade in
Speaker 3: treasuries and maybe regulators are going to start cracking down
Speaker 3: on that or making it more expensive to use treasury futures,
Speaker 3: which are basically a source of leverage in that market.
Speaker 3: Is that a risk here?
Speaker 4: Think? I think on the second question, there's definitely a
Speaker 4: risk that the cost of leverage goes up. From a
Speaker 4: systemic point of view, if banks are financing these trades,
Speaker 4: and if that financing business gets charged more in risk capital,
Speaker 4: then you would imagine that you know, the traction of
Speaker 4: some of the pots become less attractive because if imagine
Speaker 4: I have to fund my book at ten percent when
Speaker 4: risk rere rates are five percent, then I'm less likely
Speaker 4: to find any GOO opportunities, right, I mean, I'm still
Speaker 4: going to find something, but not as much of these
Speaker 4: R type stuff. But the other aspect of it is
Speaker 4: like what they're really so I think, which is like
Speaker 4: one of the positives of the multistrat funds is that
Speaker 4: like unlike a fund of funds where you couldn't net
Speaker 4: risks together, here you're able to net all this exposure. Right,
Speaker 4: So imagine you have one person long of Tesla and
Speaker 4: the other person short of Tesla. Now you as the
Speaker 4: end investor, doesn't have to have these two positions and
Speaker 4: two different hedge funds. They're all getting netted and you're
Speaker 4: only getting charged for the net exposure cross margining, cross margining,
Speaker 4: which has been a big challenge. So if you're a
Speaker 4: single manager fund and let's say you're invested in like
Speaker 4: ten different single manager funds, you know what if like
Speaker 4: five of them along of Tesla and the other five
Speaker 4: were short, Now your problem is you're on a net
Speaker 4: basis kind of flat.
Speaker 2: You're paying for everyone's leverage.
Speaker 4: You're paid for everyone's leverage, and so that is like
Speaker 4: a big advantage I think of having this sort of thing.
Speaker 4: But on the flip side, right, if you think about it,
Speaker 4: if imagine you have five pods, there are long of
Speaker 4: Tesla and five pods that are short of Tesla, just
Speaker 4: to take a simple example, and Tesla goes up. Now,
Speaker 4: typical multi strategy investor takes all the netting risks. So
Speaker 4: historically in edge fund, if you invested in edge fund
Speaker 4: and the edge fund didn't make money, you didn't pay
Speaker 4: any fees to the manager. But now with the pod
Speaker 4: structure and the multi strategy platform, the people who made
Speaker 4: the money are getting their payouts and then the ones
Speaker 4: that lost money, now you're actually taking the losses. So
Speaker 4: if you have too much dispersion, that's not necessarily good
Speaker 4: from a overall perspective.
Speaker 3: And what about the systemic aspects of all of this? So, yes, Okay,
Speaker 3: there are some weird moves in the market, and maybe
Speaker 3: there's more short termism and we're getting bigger reactions to
Speaker 3: one off events or announcements. But is it an issue
Speaker 3: that we should be worried about? Should regulators be thinking
Speaker 3: about this?
Speaker 4: Well, I think the issue is less to do with
Speaker 4: the day to day stuff. It's more to do with
Speaker 4: these events, right, So I think the risk becomes more
Speaker 4: material when you go into any sort of event that
Speaker 4: we're not thinking about, Like, for instance, let's say EMP
Speaker 4: strike happens and all the great costs. Obviously we would
Speaker 4: be thinking about other things at that point, But just
Speaker 4: to make an example of something that we're not thinking about,
Speaker 4: if that would happen, we could have big systemic unwinds
Speaker 4: of positions just because of the way risk is managed. Right,
Speaker 4: And this is just natural, Like if you have a
Speaker 4: system where there's a lot of leverage and it's being
Speaker 4: tightly risk managed, you know you're going to create these
Speaker 4: unwinds over time.
Speaker 2: I'm curious about the non systemic risks to the model,
Speaker 2: and by that I mean like there have been a
Speaker 2: lot of new hedge fund launches over the last several months.
Speaker 2: I keep seeing headlines on the Bloomberg, many of them
Speaker 2: with the multi strap model. I imagine many people at
Speaker 2: multi strategy hedge funds want to be the guy on
Speaker 2: top rather than the pod with the you know, always
Speaker 2: having to worry about is their capital being pulled, so
Speaker 2: they leave and start something new. The returns for several
Speaker 2: of the existing ones are pretty extraordinary. Last year, I
Speaker 2: think Citadel's the Wellington Fund, it was up over fifteen percent,
Speaker 2: like really pretty solid year. Sitting aside systemic events is
Speaker 2: the risk that's just like the strategy is no longer
Speaker 2: as good the more people into it, because typically that's
Speaker 2: how it is. You just think about with investing, various
Speaker 2: quant strategies eventually don't work when everyone figures out the
Speaker 2: abnormality or whatever. What do you think about, like the
Speaker 2: long term prospects of good returns in this space as
Speaker 2: more people try to do the same thing.
Speaker 4: I think it's a great question. So I think that
Speaker 4: smaller you are, the better your advantages, because you know,
Speaker 4: if you go back to what I was saying before,
Speaker 4: if you have a one hundred bie hundred long short
Speaker 4: equity book, you could get out of it immediately. Right,
Speaker 4: if you have a fairly large book, it's nearly impossible
Speaker 4: to get out. There's no exit liquidity for the traits. Right,
Speaker 4: So the size is a major factor in terms of
Speaker 4: how they would perfer over time. Now, what does happen
Speaker 4: is the larger funds tend to have better financing terms
Speaker 4: because they've been around the longer, and so they've locked
Speaker 4: up all the funding and you know, so there is
Speaker 4: a definite benefit for the size. But from a forwardlooking
Speaker 4: return basis, you're going to be much better served in
Speaker 4: smaller multi strategy funds because the multi strategy as a
Speaker 4: concept is not a bad idea, it's just that the
Speaker 4: sizes become so big. And also, think about like how
Speaker 4: these managers are moving around, Right, So imagine somebody had
Speaker 4: a great alpha source some secret sauce, and they worked
Speaker 4: at a fund and now their junior person moved to
Speaker 4: the fund across the street and starts to do the
Speaker 4: same thing. Now, essentially that's what's happening is most of
Speaker 4: these strategies are the alpha is kind of decaying, right,
Speaker 4: because you have all the migration of people. So you
Speaker 4: might say you have fifty or forty multi strategy funds,
Speaker 4: but they might all be doing something very similar, right,
Speaker 4: And so that's I think is going to mean that
Speaker 4: overall returns might not be as attractive as they have
Speaker 4: been in the past. I mean, and some of the
Speaker 4: multi strategy funds I mean spectacular, right, Like look at
Speaker 4: Citadel that you mentioned, they've been phenomenal.
Speaker 2: Millennium had year last year.
Speaker 4: They've been great. I mean, so in the past they've
Speaker 4: been phenomenal. But on a going forward basis, as this
Speaker 4: thing gets bigger and bigger, you would imagine that the
Speaker 4: alpha kind of comes down. You don't have as many people.
Speaker 4: So if you take a typical multi strategy fund, the
Speaker 4: person who starts out starts out with two three hundred
Speaker 4: million to manage. So if you have a trillion two
Speaker 4: of capital, you're going to need forty thousand different parts.
Speaker 4: I mean, not every part is you know that size.
Speaker 4: A lot of parts are much bigger. But you know,
Speaker 4: you can just think about a number of people that
Speaker 4: you're going to require and enough orthogonal strategies, and I
Speaker 4: just don't think there's that many you know, orthogonal strategies
Speaker 4: out there.
Speaker 3: So this might be getting ahead of ourselves a little bit,
Speaker 3: but we started out describing the evolution of hedge funds.
Speaker 3: So going from the two and twenty model to fund
Speaker 3: of funds and then multi strategy, what's next in the
Speaker 3: evolution if there is a risk of overcrowding and alpha
Speaker 3: decay as you just described, what's the next big thing
Speaker 3: on the radar?
Speaker 4: So I think that this will evolve. You know, it'll
Speaker 4: take time obviously, because you know, you'll need a few
Speaker 4: years of underperformance before people say like, oh, this doesn't work.
Speaker 4: But in my mind, the two things I'm betting on
Speaker 4: is one is obviously anything that takes advantage of this
Speaker 4: sort of you know behavior right where you're being risk
Speaker 4: managed and forced unwined positions. So if you can actually
Speaker 4: have slightly longer term capital, you can actually be the
Speaker 4: person going and buying the stuff when everybody has to sell, right,
Speaker 4: So that's a bigger opportunity I think. And then the
Speaker 4: other one is any sort of long term capital structure
Speaker 4: like an ETF or any of that sort of stuff,
Speaker 4: because what happens there is that an ETF investor is
Speaker 4: not like looking at it every single I mean, although
Speaker 4: some might be, but most of them are investing for
Speaker 4: the long term, right, So if you could sort of
Speaker 4: manage that sort of money, then you get the ability
Speaker 4: to actually sit through all these things.
Speaker 2: Christiana Kumar, Goose Hollow Capital, thank you so much for
Speaker 2: coming on of love.
Speaker 3: That was so good.
Speaker 4: Thank you, Thanks Gus.
Speaker 2: Tracy. I really enjoyed that conversation. There was a lot
Speaker 2: in there that was interesting to me. I think where
Speaker 2: I would start was actually maybe with that last answer,
Speaker 2: where it sort of seems like, you know, the one
Speaker 2: thing that a POD seemingly cannot do is just that
Speaker 2: sort of like long by and whole philosophy, right, Like
Speaker 2: that's the one sort of bread and butter investment strategy
Speaker 2: that you probably can't do when you're being short term
Speaker 2: managed like that. So in the end, like the sort
Speaker 2: of benefits may accrue to those who can just and
Speaker 2: it's like what every financial advisor says, like right by
Speaker 2: the index and like stocks go up, go about the
Speaker 2: rest of your life.
Speaker 3: Yeah, absolutely, that really crystallized that point, the idea of
Speaker 3: like it's the time horizon. Yeah, that is different here.
Speaker 3: And also you know, the crowding behavior. I was sort
Speaker 3: of thinking back, do you remember flows before pros?
Speaker 2: Yeah, that's your life.
Speaker 3: Yeah, So the idea there was that, Okay, in an
Speaker 3: environment of low returns sort of post two thousand and eight,
Speaker 3: that it's hard to find you know, genuine like outperformance,
Speaker 3: and so the best thing to do is just follow
Speaker 3: the crowd, and that's how you kind of eke out alpha.
Speaker 3: And then I'm thinking about it in the context of
Speaker 3: the multi strategy firms, and I'm kind of thinking, like,
Speaker 3: maybe pros create flows. Now, maybe that's what the multi
Speaker 3: strategy firms are doing, Like they're just going in and
Speaker 3: out on a daily basis.
Speaker 2: Yeah, it's exactly that. Like I knew that there was
Speaker 2: a lot of trading volume that came from there, but
Speaker 2: I don't think I like totally understood why they had
Speaker 2: to trade. So yeah, like why not just you know,
Speaker 2: invest in some text docs and they probably go up.
Speaker 2: But if you think it was, like, no, you're really
Speaker 2: like not being paid to just like take a long
Speaker 2: term view or anything. Because the long term is for
Speaker 2: the end investors. The long term is for the LPs
Speaker 2: and everyone else. Like your job is short term performance,
Speaker 2: and you sort of like diversify it that way, and
Speaker 2: it benefits the long term. There's just a lot of
Speaker 2: interesting things about there so much isolating aspects. There's also
Speaker 2: you know, like it makes so much sense about like
Speaker 2: the capital efficiency of pod shops versus the fund of funds,
Speaker 2: which no one enjoy tell like all these things like
Speaker 2: sort of make a lot of sense to me.
Speaker 4: Now.
Speaker 3: Yeah, the other thing I would call out is the
Speaker 3: leverage point. And again this has been going on for
Speaker 3: for sort of a long time. And again I would
Speaker 3: call back to the lack of returns in the post
Speaker 3: two thousand and eight environment. That's when we saw people
Speaker 3: start to use a whole host of intro well not start,
Speaker 3: but using a whole host of interesting derivatives and like
Speaker 3: CDX index options to bet on corporate credit because you
Speaker 3: had that general macro environment as well. Things are sort
Speaker 3: of evolving now. But I take the point, Okay, leverage
Speaker 3: is expensive, particularly if you're a bank, and that's part
Speaker 3: of the reason we've seen it migrate in some respects
Speaker 3: to multi strategy funds. But I am interested to see
Speaker 3: if that kind of war, the regulatory war on leverage
Speaker 3: starts to pick up, because we have seen again going
Speaker 3: back to the basis trade and treasury futures. A lot
Speaker 3: of noises about that, and so yeah, definitely something to
Speaker 3: keep an eye on.
Speaker 2: Yeah, there's a lot there also just that point about like, okay,
Speaker 2: you know it used to be that the sort of
Speaker 2: proprietary trader at the bank could take advantage of some
Speaker 2: weird dislocation when an investor needs to sell some off
Speaker 2: the run treasuries and there may be not be an
Speaker 2: obvious buyer for at the moment and you like pocket
Speaker 2: a little bit of money. Yeah, and how okay.
Speaker 3: That that balance sheet that was available.
Speaker 2: Yeah, for those types of trades, and how that creates
Speaker 2: opportunities for these funds and the specialists in these areas
Speaker 2: to identify the as any really interesting conversation.
Speaker 3: So much and there shall we leave it there for now.
Speaker 2: Let's leave it there.
Speaker 4: Okay.
Speaker 3: This has been another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 2: Alloway and I'm Jill Wisenthal. You can follow me at
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