Latest / Masters in Business / Luke Ellis on the Hedge Fund Business (Podcast)

Transcript

Luke Ellis on the Hedge Fund Business (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg
0:06
Speaker 1: Radio this weekend on the podcast What Can I Say?
0:10
Speaker 1: Luke ellis CEO of the Man Group, managing well over
0:13
Speaker 1: a hundred billion dollars. They are the world's largest publicly
0:18
Speaker 1: traded hedge fund and Luke is a specialist in a
0:22
Speaker 1: number of things, risk management, systematic trading, derivatives, big data.
0:30
Speaker 1: He is about as knowledgeable of the world of math
0:35
Speaker 1: and technology driven trading as anybody in the world. And
0:40
Speaker 1: what a tour to force this conversation was. I wish
0:43
Speaker 1: I had him for another three hours. I just had
0:45
Speaker 1: so many questions to get to. If you were all
0:48
Speaker 1: interested in algorithmic trading, hedge funds, big data, understanding what
0:53
Speaker 1: it's like to run a large firm and to risk
0:57
Speaker 1: hundreds of billions of dollars, well, then what can I say?
1:00
Speaker 1: You're going to find this conversation absolutely fascinating. With no
1:04
Speaker 1: further ado, my conversation with Luke Ellis. This is Masters
1:11
Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. My special
1:15
Speaker 1: guest today is Luke Ellis. He is the CEO of
1:19
Speaker 1: Man Group, which manages about a hundred and four billion dollars.
1:23
Speaker 1: They are the world's largest listed hedge fund. The firm
1:28
Speaker 1: is known as a pioneer in the application of systematic trading.
1:33
Speaker 1: Since all the way back in Luke ellis welcome to Bloomberg.
1:40
Speaker 1: Very it's a pleasure to be here. So let's go
1:44
Speaker 1: back to the early days of your career. You began
1:47
Speaker 1: at Japanese Bank Numeral Holdings in the eighties. Tell us
1:52
Speaker 1: about that experience. The eighties and Japan was a pretty
1:56
Speaker 1: wild financial world, wasn't it. Yeah, yes, well, look, I
2:01
Speaker 1: have to admit that. Um so, I knew from an
2:05
Speaker 1: early age that I wanted to work in finance. I
2:09
Speaker 1: sort of I grew up playing cards when I was
2:12
Speaker 1: very young, sort of three or four. And then then
2:16
Speaker 1: my grandfather taught me to bet on the horses when
2:19
Speaker 1: I was about six, and but to do it seriously,
2:23
Speaker 1: you know, readformed guides, so on and so forth. And
2:26
Speaker 1: one day we're watching the racing and I there was
2:29
Speaker 1: there was a three horse race, and all of them
2:32
Speaker 1: had odds which were reasonably tight. And I looked at
2:36
Speaker 1: my grandfather and said, hang on, this isn't fair. None
2:39
Speaker 1: of those are good enough. The book he's going to
2:41
Speaker 1: win and he looked at me that the books were
2:42
Speaker 1: in on every race and I said, well, I think
2:45
Speaker 1: I want to be a bookie. One day he said, well,
2:48
Speaker 1: in our family we call that going to work in
2:50
Speaker 1: the city. So I knew I wanted to work in
2:52
Speaker 1: the city. And it's hard for young people listening to
2:57
Speaker 1: think about it properly. But when I graduate did there
3:01
Speaker 1: wasn't the Internet, and so when you were trying to
3:04
Speaker 1: work out where to go and get a job, there
3:07
Speaker 1: was a career's office which had various books about jobs,
3:12
Speaker 1: and it only had three jobs listed in the city
3:15
Speaker 1: that weren't accounting, and I knew I didn't want to
3:17
Speaker 1: do accounting. So I applied to all three and the
3:21
Speaker 1: first one that I got through to the final interview,
3:25
Speaker 1: m I nicely. They offered me the job. One of
3:28
Speaker 1: the interview questions was why do you want to go
3:30
Speaker 1: and live in Japan? But I just thought it was
3:32
Speaker 1: one of those trick interview questions that was all the
3:36
Speaker 1: rage in the eighties, like you sell on me this
3:39
Speaker 1: broken pen or stopped me jumping out of the window
3:41
Speaker 1: or something. So I just made up a story of
3:43
Speaker 1: why I wanted to go and live in Japan. Anyway,
3:46
Speaker 1: they offered me the job, and then I discovered it
3:48
Speaker 1: was a Japanese firm and I'd signed up to four
3:51
Speaker 1: months training program in Japan. It researched was harder in
3:55
Speaker 1: the pre internet days. That's what I'm going to defend
3:57
Speaker 1: myself off. But it was a brilliant time him. Yeah,
4:00
Speaker 1: that was the height of the Japanese company's power in
4:04
Speaker 1: financial market. So and when I was there in those
4:09
Speaker 1: days that they with one quarters earnings, they could have
4:13
Speaker 1: bought Meal Lynch, which at the time was the biggest
4:16
Speaker 1: US broker, Goldman, Sacks, you name it, just with one
4:20
Speaker 1: quarters earnings. So it was a pretty good time to
4:23
Speaker 1: get started in the industry, to say the very least.
4:27
Speaker 1: You know, if I find that Americans don't fully understand
4:32
Speaker 1: the extent of the Japanese bubble. As bad as the
4:37
Speaker 1: dot coms were in the United States, I think the
4:41
Speaker 1: measure of the peak in Japan was something like five
4:45
Speaker 1: times the US or seven times the US valuation is
4:49
Speaker 1: that ballpark? Yeah, that sounds about right. I mean, amazingly
4:53
Speaker 1: it's still double where it's ever got two since the
4:58
Speaker 1: other way. So the that which was always the stat
5:01
Speaker 1: which was in the end the best was the Imperial
5:05
Speaker 1: Palace with its garden, which is a sort of bit
5:08
Speaker 1: in the middle of Tokyo. It's right in the central
5:11
Speaker 1: of Tokyo. It's you know, it's a two or three
5:15
Speaker 1: type of plot. And at the time, the value of
5:18
Speaker 1: that land was more than the value of the land
5:21
Speaker 1: in California, and I mean all the land in California.
5:25
Speaker 1: That's the point where you know that this is a
5:26
Speaker 1: bubble that when it births, is going to have a
5:29
Speaker 1: really dire consequences. So you worked with Lane Tomlinson, who
5:35
Speaker 1: was founder of funder Funds Finance Risk Management. You ended
5:41
Speaker 1: up at FMR. What was that like working there? FMR
5:47
Speaker 1: is fidelity I think I m so. I was lucky
5:54
Speaker 1: enough to start my career right at the beginning of
5:58
Speaker 1: the drivative business. So this was the very early days
6:01
Speaker 1: of swats, and in fact, in Japan, the word swaps
6:06
Speaker 1: wasn't legal for very Japanese reason. So they had a
6:11
Speaker 1: group called the New Product Department, and basically Blame used
6:15
Speaker 1: to run that, and he got the pick of all
6:18
Speaker 1: of the new graduates that started that had a either
6:23
Speaker 1: some sort of mathematical numerical background, and luckily I got
6:28
Speaker 1: picked and so sort of died into the swap business
6:33
Speaker 1: when you know, nobody could teach you how to do it.
6:36
Speaker 1: You had to teach yourself because the rules haven't been written.
6:39
Speaker 1: So we had the first IBM come order. It was
6:42
Speaker 1: called an a T or an XT, but the first
6:45
Speaker 1: personal computer on the floor in the mirror, and people
6:48
Speaker 1: used to come around to look at it. Yeah, this
6:51
Speaker 1: is sort of if I did my first trade by telex.
6:54
Speaker 1: The thing. Most people weren't even remember what it is,
6:56
Speaker 1: so it was a very different world. But you basically
6:59
Speaker 1: had to have a fields for numbers in order to
7:02
Speaker 1: be able to do trade. And for me that was
7:05
Speaker 1: great because you know, I'm never was the best academic,
7:09
Speaker 1: but I've always had a natural affinity with patterns, and
7:14
Speaker 1: you know that was why I like playing cards. Originally
7:17
Speaker 1: it got me through degrees in maths in economics understanding patterns.
7:21
Speaker 1: But it really really worked when you were having to
7:25
Speaker 1: present value a set of cash flows in your head,
7:28
Speaker 1: because that was much quicker than the computer, and you
7:30
Speaker 1: could get the deal done before the other person's computer
7:33
Speaker 1: have worked out exactly what the answer was. So you
7:37
Speaker 1: were very very different world than you'd imagine. Now, I
7:41
Speaker 1: certainly could you end up at JP Morgan where eventually
7:45
Speaker 1: you become global head of equity derivatives trading. What was
7:50
Speaker 1: that experience like, well, that was my first build a
7:55
Speaker 1: business experience, and so I went there to do swell
8:01
Speaker 1: and fairly quickly, maybe it's a couple of years I've
8:05
Speaker 1: been there. They had a problem in their sort of
8:09
Speaker 1: Nathan Equity group to business. And this was back in
8:12
Speaker 1: the Glass Eagle days, so you know told of JP
8:16
Speaker 1: Morgan wasn't particularly supposed to be doing anything in equities,
8:19
Speaker 1: but you know, we were already a very important swaps house,
8:24
Speaker 1: maybe the leading swaps house, and they wanted to do
8:27
Speaker 1: other derivatives. They started in the equity rivative business and
8:31
Speaker 1: it sort of hadn't really worked, and in a very
8:35
Speaker 1: JP Morgan way, I got a phone call while I
8:38
Speaker 1: was on holiday saying when you get back from holiday,
8:41
Speaker 1: your new job is this. And then a couple of
8:44
Speaker 1: hours later somebody called me back and said, sorry, we
8:46
Speaker 1: were supposed to ask if you wanted that, but you know,
8:49
Speaker 1: it was like, of course I'll take the job. Yeah,
8:52
Speaker 1: I didn't think I got a choice. And so when
8:54
Speaker 1: I got to that business, it was I mean it
8:58
Speaker 1: was sort of twenty people and it was losing a
9:00
Speaker 1: bit of money, and it had revenues of sort of
9:03
Speaker 1: I think revenues of ten million or something. And when
9:07
Speaker 1: I left it, what was seven eight years later, we
9:10
Speaker 1: were up to making a billion dollars of profits. So
9:14
Speaker 1: it was it was a huge growth of a business,
9:18
Speaker 1: and it was a mixture of doing whatever we could
9:21
Speaker 1: do from a kind or of the point of view
9:26
Speaker 1: at the same time as effectively running a big hedge
9:29
Speaker 1: fund embedded in the bank. And it was a sort
9:33
Speaker 1: of hugely successful business that we built up there, and
9:38
Speaker 1: it was a lot of it was driven by the
9:40
Speaker 1: fact that JP Morgan was trying to grow a cash
9:43
Speaker 1: equities business, and growing a cash equities business from nothing
9:48
Speaker 1: is very expensive, and the chief executive at the time
9:52
Speaker 1: had said that we would be able to build a
9:54
Speaker 1: cash equities business without losing any money. And so basically
9:59
Speaker 1: sort of job of my team was to make enough
10:02
Speaker 1: money to offset whatever money needed to be invested in
10:06
Speaker 1: the next year of the equities cash equities business. Honestly,
10:09
Speaker 1: I had a real blast. I had a fantastic boss
10:13
Speaker 1: who kept all of the sort of complicated politics of
10:17
Speaker 1: being in a you know, in a money center bank,
10:22
Speaker 1: away from my shoulders. I didn't have to worry about
10:25
Speaker 1: any of that. I could just get on with running
10:27
Speaker 1: money and we had a very good time. We built
10:31
Speaker 1: a lot of interesting strategies, made some very good returns,
10:35
Speaker 1: and grew it. And for me, it was a really
10:38
Speaker 1: exciting growing a business. I got a kick of that.
10:41
Speaker 1: I've got a kick of leading the troops, learned a
10:45
Speaker 1: number of lessons along the way, quite fascinating. One of
10:49
Speaker 1: the interesting things about the JP Morgan Derivative book is
10:54
Speaker 1: it actually held up pretty well in the oh eight
10:57
Speaker 1: or nine crisis. Beca before that, a good five or
11:02
Speaker 1: seven years earlier, there was a little flare up that
11:05
Speaker 1: was managed. I don't know if you were there during that,
11:09
Speaker 1: but whatever policies were put into place, whatever risk management
11:12
Speaker 1: policies came in, really helped JP Morrigan navigate the Great
11:18
Speaker 1: Financial Crisis with very very little damage. Did that overlap
11:22
Speaker 1: with your time when you were there, well, I mean,
11:26
Speaker 1: clearly I had left well before the financial crisis, but
11:31
Speaker 1: you know, I think that there'd been a number of
11:34
Speaker 1: you know, as I mean, as you grow a drip
11:36
Speaker 1: to business in your learning things, there'd been a number
11:40
Speaker 1: of should we call them small minor hiccups, some of
11:43
Speaker 1: which were at the time seemed extremely important, but when
11:47
Speaker 1: you look back, they were quite small numbers compared to
11:50
Speaker 1: financial crisis. But you know, I was part of the
11:54
Speaker 1: sort of the old pre chase merger JP Morgan, where
11:58
Speaker 1: risk management was really the number one thing they taught you.
12:02
Speaker 1: And you know, Jamie Diamond obviously has a fantastic eye
12:06
Speaker 1: through his management, and so those two things together clearly
12:10
Speaker 1: has helped them operate through the next twenty years. And
12:16
Speaker 1: you go from being you know, at the heart when
12:19
Speaker 1: you know, back when I was there, people looked at
12:23
Speaker 1: it as as a very uppercross type of business, but
12:28
Speaker 1: you know, it wasn't really thought of as a powerhouse
12:31
Speaker 1: away from derivatives. And obviously today it's you know, well
12:35
Speaker 1: it's the most successful investment bank. Earlier we were discussing
12:40
Speaker 1: your time running the equity derivative's desk at JP Morgan.
12:44
Speaker 1: How did you get to the Man group? What what
12:47
Speaker 1: brought you over there? Well, so after JP Morgan, I
12:52
Speaker 1: had ten years building a fund of funds business with
12:56
Speaker 1: my original boss, Playe. Thomlinson. So he and I were
13:00
Speaker 1: partners in building up a fund of hedge funds business
13:03
Speaker 1: called FRM, which was really again that was my sort
13:06
Speaker 1: a second experience of building something, this time a private business.
13:11
Speaker 1: It was really interesting and entertaining, and I thought it
13:16
Speaker 1: got as big as it could get on its own.
13:19
Speaker 1: I tried to convince playing that we should sell the business.
13:23
Speaker 1: We had a couple of goals of getting extremely close
13:26
Speaker 1: to selling the business, and he really couldn't bring himself
13:29
Speaker 1: to let go, and so I basically said, Okay, well,
13:34
Speaker 1: if you're not going to sell the business, then you
13:36
Speaker 1: have to buy me out. And I actually retired at
13:40
Speaker 1: the end of two thousand and seven. So I had
13:43
Speaker 1: the good fortune to be retired during the financial crisis
13:48
Speaker 1: and to be not emotionally involved in what was going on,
13:53
Speaker 1: which has definitely given me longevity. And various friends running
13:59
Speaker 1: various hedge fund businesses asked for help during the course
14:02
Speaker 1: of the crisis, and you know, so I was you
14:06
Speaker 1: could call it consulting, but it was essentially helping friends
14:09
Speaker 1: with their businesses to think about what how they survived,
14:13
Speaker 1: what they could do, what they couldn't do. You know.
14:15
Speaker 1: It was an amazingly fast moving period and one of
14:20
Speaker 1: those was a business called g l G that at
14:24
Speaker 1: the time was run by a guy called Manny Roman,
14:27
Speaker 1: who's sort of an old equity friend of mine. And
14:31
Speaker 1: when things calmed down in the middle of two thousand
14:35
Speaker 1: and nine, I carried on doing sort of one day
14:39
Speaker 1: a week helping Manny at g LG, which was nice
14:43
Speaker 1: and interesting, but I didn't have any urge to go
14:45
Speaker 1: back to all time. So I was sort of doing
14:48
Speaker 1: one day a week, and then what ten years ago now,
14:54
Speaker 1: So spring of two thousand and ten, Man Group made
14:58
Speaker 1: a bid for g LG and succeeded in buying Geology
15:04
Speaker 1: and in looking at you know, I understood the GELG
15:09
Speaker 1: business very well. I also understood the Man business reasonably well,
15:13
Speaker 1: given it was sort of made up of a C
15:16
Speaker 1: T A and a fund of DGE funds. And I
15:18
Speaker 1: could see that the job of sorting out this merger
15:22
Speaker 1: was going to be extremely hard work but rather intellectually interesting.
15:28
Speaker 1: And so in effect I put my hand up and said, hey,
15:33
Speaker 1: many you've talked to me about coming full time to
15:36
Speaker 1: work at g LG. Well, now it's going to be
15:39
Speaker 1: the combination of mana GELG that looks really quite fun.
15:43
Speaker 1: And so I signed up to join Man as part
15:48
Speaker 1: of the team that was there to turn around the business.
15:52
Speaker 1: As you put those two things together, that's quite fascinating
15:57
Speaker 1: in knowing it was. I came in knowing it was
15:59
Speaker 1: a turnaround and thinking that that, you know, I built
16:03
Speaker 1: two businesses. I'd enjoyed building two businesses, but I wasn't
16:07
Speaker 1: back excited about starting to build another new one. But
16:11
Speaker 1: the chance to turn around some big, quite complicated things
16:16
Speaker 1: seemed rather exciting, and sure enough it was. So so
16:20
Speaker 1: let's stay with that. Turning around a giant hedge fund
16:24
Speaker 1: that had run into I don't even want to say trouble,
16:28
Speaker 1: but had become very complex, very complicated, and perhaps some
16:33
Speaker 1: of that was not showing up in UM the performance numbers,
16:37
Speaker 1: or at least it wasn't consistent. If I recall that
16:40
Speaker 1: era Man Group was a little inconsistent across different strategies,
16:46
Speaker 1: across different managers. Tell us what you saw when you arrived,
16:50
Speaker 1: and how did you turn a giant, multidiscipline multi manager
16:56
Speaker 1: funds around? So UM, I mean, there was a lot
17:03
Speaker 1: going on. The big thing was that during the pre
17:08
Speaker 1: crisis period, Man had specialized in selling the structured products,
17:13
Speaker 1: sort of ten year structured products, which actually the clients
17:17
Speaker 1: did very well out of over time, but they basically
17:21
Speaker 1: took a c t A, a fund of HETGE funds,
17:24
Speaker 1: and a capital guarantee rolled it all up together. But importantly,
17:28
Speaker 1: Man Group earned enormous fees out of those by any comparison,
17:33
Speaker 1: so Man had the highest sea margins by a multiple
17:37
Speaker 1: of five or six in the industry. But they also
17:41
Speaker 1: had a cost base that was a multiple of anybody
17:44
Speaker 1: else's cost base. And what was clear was in a
17:48
Speaker 1: post crisis, well, these structured products with those sorts of
17:52
Speaker 1: fees were unsellable, and so you could see in the
17:57
Speaker 1: future that we had to build a new stream of
18:01
Speaker 1: revenues for the business and a new form of distributing
18:05
Speaker 1: the product, and we also really had to sort out
18:08
Speaker 1: the cost base. So I think roughly the numbers went
18:12
Speaker 1: at the point of the merger that were about two thousand,
18:16
Speaker 1: four hundred people in Man Group, and at the low
18:21
Speaker 1: when we finished all of the cost initiatives that we
18:26
Speaker 1: needed to do, there were about seven fifty. So it
18:30
Speaker 1: was very significant cost removal exercise. Combined with that, we
18:37
Speaker 1: had to make sure that the investment processes were really
18:41
Speaker 1: focused on alpha generation and that required some a mixture
18:47
Speaker 1: of change of people and change of emphasis of what
18:50
Speaker 1: they focused on. And then thirdly, we had to build
18:53
Speaker 1: an entirely new distribution process. In the pre crisis world,
18:58
Speaker 1: these structured products were basically Man paid other people to
19:02
Speaker 1: sell them for them, and they were sold to retail
19:07
Speaker 1: around the world with an average ticket size and ten dollars.
19:11
Speaker 1: You know, what we did was to build a basically
19:16
Speaker 1: from scratch institutional sales process. So today we're an eight
19:21
Speaker 1: percent institutional business and even the other is you know,
19:26
Speaker 1: what we think of as retail business is JP Morgan
19:30
Speaker 1: Private banking is Morgan Stanley's wirehouse. You know, we don't
19:34
Speaker 1: do any direct to individual type of selling at all
19:38
Speaker 1: these days. Quite interesting, So most hedge funds we know
19:43
Speaker 1: about are not publicly traded entities. Why did Man Group
19:48
Speaker 1: decide to go public? Um, well, clearly pre my time,
19:54
Speaker 1: and I would say that at the time Man Group
19:58
Speaker 1: was more of a holding company and the bit that's
20:02
Speaker 1: the hedge fund was one of a number of pieces
20:06
Speaker 1: within the puzzle. And so a Man has a rather
20:10
Speaker 1: wonderful story in history. The business has been the firm
20:13
Speaker 1: has been around almost two d and forty years. Used
20:16
Speaker 1: to have a monopoly and supplying run to the Royal
20:19
Speaker 1: Navy doesn't sound like much of a business, but everybody
20:23
Speaker 1: in the Royal Navy used to get what's not quite
20:28
Speaker 1: half a point of rum every day, and you have
20:31
Speaker 1: a monopoly providing that. It was a very good business
20:33
Speaker 1: for a long time. So they were sort of quite
20:35
Speaker 1: late to the asset management thing. It wasn't their nature.
20:38
Speaker 1: They were a commodity dealer, but more a principle and
20:44
Speaker 1: through essentially the acquisition of HL which is the ct
20:50
Speaker 1: A within the firm, or the platform that came from
20:53
Speaker 1: the ct A, the you know, they started in the
20:56
Speaker 1: asset management business, and so you know when they went public,
21:00
Speaker 1: they were thinking of themselves as a financial conglomerate. As
21:03
Speaker 1: a hedge fund business. You know, there are things we
21:06
Speaker 1: gain from being public and there are things we lose
21:09
Speaker 1: from being public. You know that the truth of it is,
21:13
Speaker 1: if you're a private hedge fund business, I wouldn't recommend
21:17
Speaker 1: going public. As a public hedge fund business, I wouldn't
21:21
Speaker 1: recommend going private. It's you know, there are swings and roundabouts,
21:24
Speaker 1: gains and losses. It's absolutely fine, but you know sort
21:30
Speaker 1: of that there's pluses and minuses in the columns. Look,
21:35
Speaker 1: let's talk a little bit about the state of the
21:37
Speaker 1: industry today. Things are pretty challenging for a lot of
21:43
Speaker 1: hedge funds really since the Great Financial Crisis the past
21:47
Speaker 1: decade plus. Why is it that so many hedge funds
21:51
Speaker 1: have been struggling? And the obvious follow up question and
21:55
Speaker 1: how come you guys have not I think that one
22:02
Speaker 1: of the things that we're seeing in many industries with
22:08
Speaker 1: the rise of technology, and I think it's primarily driven
22:11
Speaker 1: by technology. But it's an interesting question because you see
22:15
Speaker 1: it in many different industries. Is the stronger getting stronger
22:20
Speaker 1: and the week are struggling to survive. And the hedge
22:25
Speaker 1: fund business is a very Darwinian industry. And what you're
22:29
Speaker 1: seeing is that the larger hedge fund platforms have actually
22:35
Speaker 1: done very well over the last five and ten years
22:39
Speaker 1: and have grown and have got you know, with signs,
22:43
Speaker 1: have actually been able to invest more and thereby create
22:47
Speaker 1: bigger barriers to entry, which creates competitive advantage, which makes
22:51
Speaker 1: it even harder for the small hedge fund And so,
22:54
Speaker 1: you know, twenty whatever years ago, when I started in
22:58
Speaker 1: the hedge fund business, it was all about looking for
23:01
Speaker 1: the next two hundred million dollar hedge fund. The reality
23:07
Speaker 1: is that's not really an economically viable business anymore. And
23:11
Speaker 1: so you know that what's been happening is a concentration
23:16
Speaker 1: of the alpha with the people who can afford to
23:20
Speaker 1: invest in the technology, who can afford to invest in
23:23
Speaker 1: the best people, and that is squeezing out the smaller players.
23:28
Speaker 1: So you hear a lot of stories of people struggling
23:31
Speaker 1: in the hedge fund industry because by number of hedge funds,
23:36
Speaker 1: that's right, But when you look at it in terms
23:39
Speaker 1: of the overall industry, actually it's in rather good health.
23:43
Speaker 1: It's just the good health is getting concentrated in first
23:48
Speaker 1: the top and the top hundred, now maybe the top
23:52
Speaker 1: twenty players when you take all we see that across
23:56
Speaker 1: a lot of industries. So you mentioned and I think
24:00
Speaker 1: it's I think it's particularly something around this technology question
24:03
Speaker 1: because one of the big differences between human process and
24:08
Speaker 1: technology processes. When you develop a human process, uh, you know,
24:14
Speaker 1: the next day you have to repeat roughly the same
24:18
Speaker 1: process again in order to check that everything is all right,
24:21
Speaker 1: and so the amount of new research you do is
24:25
Speaker 1: relatively constrained when you have a technology process. Once you've
24:30
Speaker 1: got the technology running, you don't really need to spend
24:34
Speaker 1: very much time at all making sure it's doing what
24:36
Speaker 1: it's supposed to be doing, and so you can put
24:39
Speaker 1: nine of your time into new research and that means
24:44
Speaker 1: that you get a compounding effect that over time really
24:49
Speaker 1: is is a significant benefit to the technology empowered business
24:54
Speaker 1: over the one that is sort of dragging its feed
24:59
Speaker 1: quite quite fast innings. So during the first quarter, when
25:04
Speaker 1: the market dropped pretty substantially, you saw a drop of
25:08
Speaker 1: only eleven, a lot of hedge funds did much much
25:12
Speaker 1: worse than that. What did you guys see to get
25:16
Speaker 1: this right? Or asked more systematically, what was the technological
25:22
Speaker 1: edge that helped you avoid the full thirty plus percent
25:27
Speaker 1: down draft? So many other funds suffered. So I think
25:32
Speaker 1: one of the things just to highlight is so sort
25:38
Speaker 1: of six what we do is hedge funds and is
25:42
Speaker 1: long only, and so we run a number of long
25:46
Speaker 1: only strategies as well within the platform. And you know,
25:49
Speaker 1: when you look at the returns in the first quarter,
25:53
Speaker 1: the long only strategies were down when we had some
25:57
Speaker 1: decent outfit performance, but they were down proportionately with the market. Actually,
26:03
Speaker 1: our hedge fund strategies on average made money small but
26:07
Speaker 1: on average made small money in the first quarter. And
26:11
Speaker 1: you know what was that about. Well, the if I
26:14
Speaker 1: go back to that thing I mentioned about JP Morgan
26:18
Speaker 1: in the beginning, you know, I think that risk management
26:22
Speaker 1: is an incredibly important skill. And if you looked at
26:27
Speaker 1: our positioning on the February just before the market turned, yeah,
26:33
Speaker 1: we had good positioning for the way the market was
26:36
Speaker 1: then and therefore horrific positioning for where the market was
26:42
Speaker 1: two weeks later. Um. But we've spent a lot of
26:47
Speaker 1: our time and energy on investing in our risk management
26:51
Speaker 1: processes and particularly a sort of strong belief that the
26:56
Speaker 1: simple answer to risk management is if you don't like position,
27:01
Speaker 1: don't try and find some complicated heading strategy, get rid
27:05
Speaker 1: of it. And so in order to do that you
27:08
Speaker 1: have to spend a lot of time and effort on
27:10
Speaker 1: your execution process. But basically what we were able to
27:14
Speaker 1: do is the systems recognized very quickly that they had
27:19
Speaker 1: the wrong positioning as the market started to sell off,
27:23
Speaker 1: and we got out of that positioning very quickly by
27:26
Speaker 1: the end of February so that we could make money
27:30
Speaker 1: as the market continued itsel off down into the end
27:34
Speaker 1: of March, and you know it comes from very good
27:39
Speaker 1: risk management systems and the risk management built into everything
27:43
Speaker 1: we do. But really important the execution platform because the
27:48
Speaker 1: market's got pretty crazy, as we all remember during that period,
27:53
Speaker 1: and doing your execution in a smart way was really
27:59
Speaker 1: important because if you were a bit sloppy about it,
28:03
Speaker 1: you could get terrible slippage, so you could be leaving
28:06
Speaker 1: loads of money on the table. Yeah. We because of
28:10
Speaker 1: the investment we made in that execution, we're able to
28:13
Speaker 1: get out of our positions without leaving lots a bit
28:17
Speaker 1: offer on the table. M hm, very interesting. What do
28:21
Speaker 1: you make of this recovery? Here we are in the
28:24
Speaker 1: second week of June. Nasdaq is up to all time highs,
28:28
Speaker 1: SMP not quite back to all time highs, but just
28:32
Speaker 1: about positive for the year. Have we come too far
28:36
Speaker 1: too fast? Or do you just let the technology guide
28:40
Speaker 1: you on those decisions and not sort of spitball market commentary? Well,
28:47
Speaker 1: I'm always happy to spitball market commentary. But the machines
28:51
Speaker 1: will do what the machines do. They don't do what
28:53
Speaker 1: I tell them to do, that's for sure, But quite interestingly,
28:57
Speaker 1: they they don't really believe in this rally. Either, which
29:02
Speaker 1: there's something about history, but it's very easy to see
29:06
Speaker 1: how the first half of the rally happened, given how
29:10
Speaker 1: quickly we sold off, perfectly normal in market behavior for
29:16
Speaker 1: a rebound, normally for for the port of shorts to
29:20
Speaker 1: reset if you like, um, you know, and then we
29:24
Speaker 1: saw this amazing wave of retail buying that came in
29:28
Speaker 1: and sort from the middle of April onwards that has
29:32
Speaker 1: really driven the rally up here. And I think it's
29:38
Speaker 1: easy to look at valuations where they are now and
29:42
Speaker 1: think that the valuations are going down from here. Now.
29:48
Speaker 1: Whether that happens in the next month will depend on
29:52
Speaker 1: more buyers or sellers. I mean, you know, this is
29:54
Speaker 1: the market is being driven by technicals. But I think
29:58
Speaker 1: somewhere over the summer it's almost inevitable that the sort
30:02
Speaker 1: of buying frenzy from retail is running out of steam.
30:07
Speaker 1: The issuing from companies is not running out of steam,
30:12
Speaker 1: and there's a point where that's going to create more
30:14
Speaker 1: sellers than buyers, and we'll start another leg down. How
30:19
Speaker 1: far that goes will be an interesting question. I think evaluation,
30:24
Speaker 1: which basically says that the current valuation says earnings have
30:30
Speaker 1: to be at least as high as earnings, and you're
30:35
Speaker 1: happy to put on a multiple that's higher than we
30:38
Speaker 1: had in myself. You know, you can debate multiples, but
30:45
Speaker 1: you know that that even if the economy, I think
30:48
Speaker 1: that the most most optimistic view of the economy would
30:52
Speaker 1: be the returns to something like grow sort of absolute
30:59
Speaker 1: GDP into one, I think it's likely to be lower.
31:03
Speaker 1: In that process, I think that you're likely to see
31:08
Speaker 1: higher costs for companies and higher cost of capital because
31:13
Speaker 1: they're likely to run more conservative balance sheets. You know,
31:16
Speaker 1: they're going to have to pay the sort of gig
31:19
Speaker 1: type of workers more, and so I think the you know,
31:24
Speaker 1: the margins that companies had in are not going to
31:27
Speaker 1: be seen. But at the moment, you know, this market
31:32
Speaker 1: is being driven purely by technicals. On every day, there
31:36
Speaker 1: are more buyers and sellers. You go up. Before we
31:39
Speaker 1: get into some more details about different strategies and what's
31:43
Speaker 1: working and what's not, tell us a little bit about
31:47
Speaker 1: your role as CEO. Are you overseeing investments? Are you
31:52
Speaker 1: overseeing investor relations? Running the day to day business? Man
31:56
Speaker 1: Group is a pretty substantial, complicated business to run. What
32:02
Speaker 1: demands your attention the most? The interesting thing is considered
32:09
Speaker 1: not what people expect, So I probably maybe I spend
32:15
Speaker 1: ten per cent of my time on corporate stuff. We are,
32:19
Speaker 1: as you say, a public company that requires a certain
32:22
Speaker 1: amount of things, But I spend very little time with
32:25
Speaker 1: our shareholders. I provide them with the information and then
32:29
Speaker 1: leave them to make their own decision. I spend about
32:33
Speaker 1: ten percent of my time on clients, um sort of
32:38
Speaker 1: temper cent of my time on the sort of other
32:42
Speaker 1: aspects of business management. And you know what I spend
32:47
Speaker 1: most of my time on is really the people. You know,
32:51
Speaker 1: I have strong views about markets. I talk markets all
32:54
Speaker 1: the time with the different people at work, but you know,
32:57
Speaker 1: I don't influence anybody's investment pro fesse. But I spend
33:01
Speaker 1: a lot of time on getting people to work together well,
33:05
Speaker 1: making sure that they're happy in their job, making sure
33:10
Speaker 1: that people that are having a tough time have an
33:12
Speaker 1: arm around the shoulder, making sure that people that are
33:15
Speaker 1: doing really well don't get cocky, and you know, you
33:19
Speaker 1: poke them hard so that they don't get arrogant about it.
33:23
Speaker 1: Because we all know, whatever your investment style is, at
33:27
Speaker 1: various points, the market will love your investment style and
33:30
Speaker 1: you'll look really clever, and there are times when the
33:33
Speaker 1: market will hate your investment style. And you know, what
33:36
Speaker 1: we want is people and whether it's discretionary or quand
33:42
Speaker 1: to stick to a process. And so my job to
33:47
Speaker 1: keep them motivated, keep them working together, make sure you
33:51
Speaker 1: provide leadership to the people, because you know, in the end,
33:55
Speaker 1: these businesses are all about the people you have within them.
33:59
Speaker 1: Quite interesting in let's talk a little bit about what
34:03
Speaker 1: the various worldwide government's responses have been to the pandemic.
34:09
Speaker 1: Central banks of slash rates. They've injected a ton of liquidity,
34:13
Speaker 1: lots of governments have done large fiscal stimulus. How much
34:17
Speaker 1: of this rally is being driven by all this government
34:21
Speaker 1: largess and how much of it is bounce back from
34:25
Speaker 1: the fastest down I think we've ever seen in market history. Yeah,
34:32
Speaker 1: I think we've hit the fastest, quickest, largest everything in
34:35
Speaker 1: the last oh actually in everything compare the last time
34:41
Speaker 1: that this all happened was in the circus, which is
34:43
Speaker 1: a slightly scary thought of the hold. I think what
34:47
Speaker 1: you've got going on is, you know, you have a
34:53
Speaker 1: serious tsunami of pain in the real economy out there. Um,
34:59
Speaker 1: you know, even with a slightly strange unemployment numbers that
35:02
Speaker 1: we had on Friday. You know, we've had a ten
35:05
Speaker 1: percent increase in unemployment in the space for two months,
35:10
Speaker 1: and you know, in many countries it's a lot worse
35:12
Speaker 1: than that. Um. You know, when you talk to anybody
35:17
Speaker 1: running a small business in the sort of you know
35:22
Speaker 1: that's not in the financial markets, in the real economy,
35:25
Speaker 1: that they're having a miserable time. Um. And on the
35:29
Speaker 1: other side, you've got this incredible ways of money that's
35:34
Speaker 1: come from governments and central banks getting harder and harder
35:37
Speaker 1: to tell governments and central banks apart to be honest.
35:41
Speaker 1: You know, that has to something I alluded to earlier
35:45
Speaker 1: that has definitely benefited a lot of the larger companies.
35:51
Speaker 1: That's where most of the money has gone to. And
35:55
Speaker 1: so there is something understandable that says, you know, large
36:01
Speaker 1: tax stocks are doing relatively well in a world where
36:06
Speaker 1: the overall economy is still doing poorly, because there will
36:11
Speaker 1: be market share gains for big companies out of all
36:14
Speaker 1: of this, I believe. But one of the troubles of
36:18
Speaker 1: trying to put valuations on the market or valuations on
36:22
Speaker 1: individual stocks is you know, these enormous waves of money
36:27
Speaker 1: in the different directions. People are trying to guess the
36:32
Speaker 1: inputs for their share model that you know, the stock
36:37
Speaker 1: valuation model that they had a year ago. What are
36:39
Speaker 1: the inputs I should put in for next year? I
36:42
Speaker 1: have to say my own senses, you need a different
36:45
Speaker 1: model looking forward, because I do think out of all
36:48
Speaker 1: of this, there are going to be some material changes
36:52
Speaker 1: over time. Sort of time scales in the US are
36:55
Speaker 1: hard to guess given the political situation, but yeah, there
36:59
Speaker 1: are going to be changed us for the corporate landscape
37:02
Speaker 1: in the same way that there were coming out of
37:04
Speaker 1: two thousand and eight nine to the financial institution landscape
37:10
Speaker 1: two nine. You know what happened. You can say what
37:16
Speaker 1: we realized. I don't know, but it's certainly what happened
37:19
Speaker 1: was that, you know, there's a conclusion banks were two
37:23
Speaker 1: levered and that they didn't take enough responsibility for their
37:27
Speaker 1: own actions, and they were not resilient enough in their business.
37:32
Speaker 1: And so we came out of two thousand eight nine
37:35
Speaker 1: with a series of regulation which put leverage limits on banks,
37:40
Speaker 1: to impose stress tests on them so the businesses were
37:43
Speaker 1: more resilient and put personal liability into the management of
37:47
Speaker 1: the of the banks. I think personally that we're likely
37:53
Speaker 1: to see similar types of things come out of this,
37:57
Speaker 1: but applied to the corporate world, because what happened after
38:01
Speaker 1: two thousand and eight nine was bank leverage went down
38:04
Speaker 1: and corporate leverage went up a lot, and so we
38:07
Speaker 1: came into the crisis with all of these companies with
38:11
Speaker 1: absolutely no resilience. Not again, not all of the companies.
38:15
Speaker 1: You could see why an Amazon or an Apple has
38:18
Speaker 1: done incredibly well through all of this because they have
38:21
Speaker 1: incredibly robust balant sheets. But if you look at a
38:26
Speaker 1: whole bunch of the names which um I've struggled, you
38:31
Speaker 1: see that they had huge leverage and no ability to
38:35
Speaker 1: withstand two three months of you know, I mean it's
38:40
Speaker 1: an extreme shock, but still to withstand two or three
38:44
Speaker 1: months of no income is not you know, I don't
38:48
Speaker 1: think that's an unreasonable thing to expect the company to
38:52
Speaker 1: run with that amount of resilience. And I think you're
38:55
Speaker 1: life you to see regulation coming out of the other
38:58
Speaker 1: end of this which start to drive that behavior into company.
39:03
Speaker 1: We've certainly seen that in the just in time delivery
39:07
Speaker 1: for essential medical and food supplies. I wouldn't be surprised
39:12
Speaker 1: to see some regulations change with that. When the supermarkets
39:18
Speaker 1: don't have toilet paper for a month, that doesn't say
39:22
Speaker 1: your society is especially stable, does it. There you go
39:27
Speaker 1: and you know you you mean, you know, toilet paper
39:31
Speaker 1: was I mean, it's a perfect post to chart on it.
39:34
Speaker 1: And one of the things is, you know, when you
39:37
Speaker 1: think you might run out of toilet paper, you're willing
39:40
Speaker 1: to pay any price for it. But that's not good
39:42
Speaker 1: for an economy. So I think that just in time
39:46
Speaker 1: inventories is another form of running businesses with extremely low resiliency.
39:52
Speaker 1: And so I think that either through company management or
39:56
Speaker 1: through regulation, there is going to be a push for
39:59
Speaker 1: companies to run with more inventory, to run with shorter
40:03
Speaker 1: supply lines. And if you've got the longest supply line,
40:06
Speaker 1: then it's got to have more, even more inventory built
40:10
Speaker 1: into it. All of these things are likely to come
40:15
Speaker 1: out of the other side of this crisis. And you know,
40:19
Speaker 1: when we when we moved from companies having you know,
40:24
Speaker 1: sort of a year of spare part inventory to just
40:27
Speaker 1: in time manufacturing, the route of direction was a good one.
40:33
Speaker 1: But I think you know, in the way that happens
40:35
Speaker 1: if there's no regulation, it went too far. I'm a
40:39
Speaker 1: huge believer in capitalism. It's the best system there is,
40:42
Speaker 1: but it shouldn't be untrammeled. It should have some constraints
40:46
Speaker 1: on it. And you know, if you actually go back
40:49
Speaker 1: and read Adam Smith, you know who is everybody's posted
40:53
Speaker 1: child for the father of capitalism. Actually, when he talks
40:56
Speaker 1: about the invisible hand, in the rest of the chat,
40:59
Speaker 1: he talks about the fact that the invisible hand needs
41:03
Speaker 1: some constraints to stop it going too far. Absolutely, So
41:09
Speaker 1: let me shift gears a little bit and ask you
41:12
Speaker 1: about a different sort of practice within the Man group.
41:16
Speaker 1: You have a private practice focusing on real estate, single
41:21
Speaker 1: family homes financing. Tell us a little bit about that
41:25
Speaker 1: practice and what you are looking at going forward. Some
41:30
Speaker 1: people have posited that following the pandemic, there's gonna be
41:36
Speaker 1: a little bit of an egress out of the city
41:39
Speaker 1: and into the surrounding bedroom communities where you have a
41:42
Speaker 1: little more space and a little more room to deal
41:46
Speaker 1: with either a pandemic or a shelter in place situation.
41:52
Speaker 1: I think that's right. I would love to say that,
41:57
Speaker 1: you know, we have predicted that part in getting into
42:00
Speaker 1: this business, But you know, I think what we saw
42:03
Speaker 1: was in the States. Two big things happening. One has
42:08
Speaker 1: been a gradual drift of people from I guess you'd
42:13
Speaker 1: call it something like the Northeast down in the direction
42:17
Speaker 1: of the southeast and south, in terms of moving from
42:23
Speaker 1: parts of the country where the cost of living is
42:25
Speaker 1: incredibly high to parts of the country where the cost
42:28
Speaker 1: of living is more manageable, and that suits both the
42:33
Speaker 1: individuals and the companies. Um. So, you know, the cost
42:39
Speaker 1: of having a three bedroom house in commuting distance to
42:44
Speaker 1: a bank in Manhattan is crucifying the expensive. The cost
42:50
Speaker 1: of having a three bedroom house in commuting distance to
42:54
Speaker 1: Bank of America in Charlotte is you know, it's sort
42:59
Speaker 1: of a couple of hundred thousand dollars and therefore well
43:03
Speaker 1: within the sort of capability of people. But the second
43:07
Speaker 1: thing we've seen is that after the financial crisis, there
43:12
Speaker 1: is a whole generation of people who don't see houses
43:17
Speaker 1: as a store of value. In the UK, still there
43:21
Speaker 1: is the sense that the house is the one shore
43:24
Speaker 1: fare store of value. Obviously, a lot of people in
43:26
Speaker 1: the US had real difficulties in financial crisis with housing finance,
43:32
Speaker 1: and so there is a whole generation that is very
43:37
Speaker 1: nervous of owning their own home, doesn't see it as
43:41
Speaker 1: a store of value and therefore is really quite happy
43:46
Speaker 1: with rental as opposed to mortgage finance. And so one
43:51
Speaker 1: could get people who can very easily afford the house
43:59
Speaker 1: that choose to sit rather than buy it. We use
44:02
Speaker 1: some technology to basically identify best neighborhood's best type of
44:08
Speaker 1: houses for the type of of renters we're looking for,
44:14
Speaker 1: you know, and part of the thing is it's as
44:16
Speaker 1: opposed to the multi family, you know, lots of apartments
44:20
Speaker 1: packed in together. This is much more about, you know,
44:23
Speaker 1: the three four bedroom family house around the sort of
44:27
Speaker 1: ring road in one of the growing cities, where you
44:32
Speaker 1: know that they care a lot about it's a three
44:35
Speaker 1: four bedroom house. You're worried about kids because otherwise why
44:39
Speaker 1: you've got three or four bedrooms, and so you worry
44:42
Speaker 1: about the quality of the local school and so access
44:45
Speaker 1: to the right schools is really important. And then once
44:48
Speaker 1: somebody is renting and their kids are at a good school,
44:53
Speaker 1: you know they're a pretty stable tenant because the last
44:56
Speaker 1: thing you want to do is take your kids out
44:57
Speaker 1: of a good school. So, you know, we think that's
45:00
Speaker 1: a very interesting thing where you're delivering value to the tenants,
45:08
Speaker 1: and you can deliver a very decent return to the
45:13
Speaker 1: capital providers, to our investors, and actually, really interestingly through
45:18
Speaker 1: the crisis, you know, so we've been collecting something like
45:25
Speaker 1: class of the rent that we collected by number of
45:30
Speaker 1: tenants as this time last year, and actually more dollars
45:34
Speaker 1: of rent than we collected this time of last year.
45:38
Speaker 1: So as an asset class, it's really held up even
45:41
Speaker 1: before me it's held up in cash flow, even before
45:44
Speaker 1: you start to see the possibility of of increasing prices
45:48
Speaker 1: as people start to move out of the big cities.
45:52
Speaker 1: Quite interesting. Any other new strategies that are being revealed
45:59
Speaker 1: by the pens I'm making lockdown or or asked differently,
46:03
Speaker 1: what has changed going forward? As a allocator of capital?
46:09
Speaker 1: What areas are you thinking about? As hey, this is
46:13
Speaker 1: very different post than it was previously. I think the
46:19
Speaker 1: challenge for allocators is that everybody's got used to the
46:24
Speaker 1: idea that the sort of starting point is a sixty
46:27
Speaker 1: type of portfolio, and that was based around the idea
46:32
Speaker 1: that government bonds were a store of value and had
46:37
Speaker 1: a decent yield and were uncorrelated. And I think we
46:42
Speaker 1: are seeing something through the course of this process of
46:49
Speaker 1: basically central banks funding government deficits and thereby repressing natural
46:58
Speaker 1: movements and yields, and so we've we've ended up at
47:01
Speaker 1: this place where the amount of upside in owning treasuries
47:07
Speaker 1: is extremely limited or government bonds anywhere over time, and
47:13
Speaker 1: you obviously have a downside if the central bank ever
47:15
Speaker 1: loses control. And so I think government bonds globally have
47:22
Speaker 1: gone from being a long term investment as one of
47:27
Speaker 1: the core pillars of your natural savings process could basically
47:32
Speaker 1: being a trading instrument. So there are moments you want
47:35
Speaker 1: to be long treasuries, there are moments you want to
47:37
Speaker 1: be short treasuries, but just owning them as a store
47:41
Speaker 1: of value over time with a nice yield that just
47:44
Speaker 1: doesn't apply anymore, and thinking that they're going to provide
47:48
Speaker 1: you with significant ballant in a time of difficulty also
47:53
Speaker 1: really not clear that that happens when you start getting
47:57
Speaker 1: down to these very low levels of yields, which are
48:00
Speaker 1: only there because of central bank buying, because of QUI.
48:03
Speaker 1: So I think you know that there's a challenge in
48:08
Speaker 1: building successful portfolios for clients over time that really you
48:14
Speaker 1: have equities and the equity like things like credit, like
48:18
Speaker 1: private equities. They're all basically growth instruments driven by the
48:22
Speaker 1: same thing. On the one hand, and you have cash
48:25
Speaker 1: as the alternative, and that's a that's a riskier portfolio
48:32
Speaker 1: than the one that clients have had for the last
48:34
Speaker 1: twenty years. And so we're doing a lot of work
48:38
Speaker 1: helping clients think about how you manage manage their overall
48:43
Speaker 1: pension fund, whatever it might be. In that type of environment.
48:49
Speaker 1: Quite intriguing. I know I only have you for a
48:52
Speaker 1: couple of minutes. More so, let's jump to our speed round.
48:55
Speaker 1: These are our favorite questions we ask all of our guests,
49:00
Speaker 1: and let's start out with what are you streaming these days?
49:02
Speaker 1: What are you watching on Netflix or whatever video preferences
49:07
Speaker 1: you have. I have to say I thought about that
49:11
Speaker 1: one because I've heard it in your other questions, and
49:13
Speaker 1: I realized we haven't had a rather unexciting time with streaming.
49:18
Speaker 1: It's partly by the time you get to the evening,
49:20
Speaker 1: we're not I'm not after anything very intellectual, but you know,
49:24
Speaker 1: we've we've watched some New Amsterdam. On one thing we watched,
49:27
Speaker 1: there's a British police drama called in the line of duty,
49:32
Speaker 1: which we somehow missed over the last ten years, so
49:35
Speaker 1: we went back and started that one from the beginning.
49:38
Speaker 1: But fundamentally, television has been really dull for me without
49:42
Speaker 1: sport in barely worth putting the TV on for quite
49:47
Speaker 1: interesting tell us about some of your mentors who helped
49:51
Speaker 1: guide your career when you were a young buck um Well,
49:58
Speaker 1: I have to say that the uh, I've tried over
50:01
Speaker 1: my life to get, you know, sort of whoever I
50:05
Speaker 1: deal with to try and learn something from them. I'm
50:08
Speaker 1: quite a sponge for ideas and processes from people in
50:13
Speaker 1: a traditional sense. So the you know, so I mentioned earlier,
50:18
Speaker 1: you know the best manager I've ever had was my
50:21
Speaker 1: boss at JP Morgan, who was called Rumond olivera who
50:25
Speaker 1: really taught me how to build a team, how to
50:27
Speaker 1: motivate people, and I've always been super grateful to him
50:31
Speaker 1: for everything I learned from that. Let's talk about books.
50:35
Speaker 1: What are some of your all time favorite books and
50:38
Speaker 1: what are you reading right now? So I have to
50:41
Speaker 1: say I've been reading a lot in the in the lockdown.
50:45
Speaker 1: One of the things I realized was getting up in
50:47
Speaker 1: the morning and going straight to my desk was slightly sad,
50:52
Speaker 1: so that morning commute type of period. I've taken that
50:57
Speaker 1: first hour of the morning and I sit and read,
51:00
Speaker 1: which means you get through quite a lot. I try
51:02
Speaker 1: to read a mixture old things which are good for work,
51:06
Speaker 1: things which are sort of mind expanding in some form,
51:10
Speaker 1: of things which are just just a bit of fun.
51:13
Speaker 1: My favorite book is a book called John McNabb, which
51:18
Speaker 1: is a John Bucking book written in thirties, I think,
51:24
Speaker 1: and it's actually applies incredibly today, and it's basically about
51:29
Speaker 1: three successful people who are suffering from on weed. They're
51:35
Speaker 1: somewhat bored with their successful life and they've lost the spark.
51:39
Speaker 1: And it's about how they refined that spark, which I
51:42
Speaker 1: go back to that really quite often. But in the lockdown,
51:46
Speaker 1: I don't know if you've come across the guy called
51:49
Speaker 1: Matthew Said, who writes some very interesting books. He's more
51:54
Speaker 1: of a thinker than Malcolm Gladwell, but he's in the
51:57
Speaker 1: same type of area. He has one called Black Box Thinking,
52:01
Speaker 1: which is one of my favorite ones because it's it's
52:04
Speaker 1: really into how the the aviation. I mean, it's I
52:09
Speaker 1: can thinking of how do you create a no blame
52:11
Speaker 1: culture within a business? But it's really about the difference
52:14
Speaker 1: between the aviation industry, where every time there's a problem,
52:19
Speaker 1: it's a learning experience, as opposed to the medical industry,
52:23
Speaker 1: where nobody wants to admit they ever got anything wrong.
52:26
Speaker 1: And he had a new one out just recently called
52:28
Speaker 1: Rebel Ideas, which is about cognitive diversity and have some
52:33
Speaker 1: very interesting ideas about practical diversity in a business, which
52:39
Speaker 1: is pretty appropriate in the circumstances of the last couple
52:43
Speaker 1: of weeks. I love wine. I spent a lot of
52:47
Speaker 1: time thinking about wine. I like reading about wine. I
52:50
Speaker 1: like drinking it more and going around and fiddling in
52:53
Speaker 1: my wine cellar. But the somebody got me a book
52:56
Speaker 1: called Corkdalk, which is about New York's Famelia, which I
52:59
Speaker 1: found a really good read. What I read Black Box
53:03
Speaker 1: Thinking some time ago, and what I found so surprising
53:07
Speaker 1: and fascinating was that the famed black box is actually
53:13
Speaker 1: orange because, as part of their process of always reviewing
53:19
Speaker 1: each problem, if a plane crashes in water or in
53:24
Speaker 1: deep forest, black is hard to see, an orange is
53:27
Speaker 1: easy to see. So even the same black box itself
53:32
Speaker 1: is actually a different color. That's how serious they are
53:35
Speaker 1: about learning from the process exactly and don't don't have
53:41
Speaker 1: sacred coals. Learned from a process and try and get better.
53:45
Speaker 1: I definitely try to follow a lot of those ideas
53:47
Speaker 1: in my day to day process. Quite interesting, what sort
53:51
Speaker 1: of advice would you give to a recent college graduate,
53:55
Speaker 1: recent university graduate who was interested in either the world
53:59
Speaker 1: of investing or systematic trading or anything quantitative having to
54:05
Speaker 1: do with finance. For the first one would be simple,
54:09
Speaker 1: which is, if you haven't done it already, go and
54:13
Speaker 1: spend time learning to code in Python. Python is one
54:17
Speaker 1: of these languages that you know, it's it's a new
54:22
Speaker 1: generation language where it's one of these places ways of
54:27
Speaker 1: language where you could get real compounding of ideas because
54:30
Speaker 1: you don't have to code everything from first principles. You
54:33
Speaker 1: could take chunks of other people's work. I think that's
54:36
Speaker 1: really important in terms of the one of the interesting
54:40
Speaker 1: things that man is. You know, while while obviously English
54:43
Speaker 1: is the first language of man and we have I
54:47
Speaker 1: think we've worked out fifty two different first language is
54:51
Speaker 1: in the employees in the firm. The second largest human
54:56
Speaker 1: language is the Mandarin. So if we've got employees, because
55:02
Speaker 1: a sort of called it a thousand of them their
55:05
Speaker 1: first language might be English, hundred and fifty their first
55:08
Speaker 1: language would be Mandarin. But we have about six people
55:13
Speaker 1: who code for a living in Python, and so really
55:17
Speaker 1: Python is becoming more and more the lingual pancra of
55:20
Speaker 1: our business, and I think is for anybody who has
55:25
Speaker 1: an interest in these sorts of areas, it's a real necessity.
55:29
Speaker 1: The other is something I would always tell people is
55:34
Speaker 1: don't choose a job because you think it's the one
55:37
Speaker 1: where you can make the most money. Choose a job
55:40
Speaker 1: because it's the one way you're interested where you get
55:44
Speaker 1: intellectually challenged by it. Because actually predicting where which would
55:50
Speaker 1: be the most profitable jobs in ten years time, I
55:54
Speaker 1: don't think I've ever seen anybody succeed at that. But
55:57
Speaker 1: you'll never succeed at something which you're doing just for
56:01
Speaker 1: the money, Whereas if you're doing something with passion, that's
56:04
Speaker 1: always the thing you'll do best at. Quite quite of triguing,
56:09
Speaker 1: and our final question, what do you know about the
56:12
Speaker 1: world of investing today that you wish you knew thirty
56:16
Speaker 1: plus years ago when you were first getting started. I
56:23
Speaker 1: don't know. That's an interesting one in terms of that
56:26
Speaker 1: they're easy answers like I wish I knew that rates
56:28
Speaker 1: were going to go down to nothing, but the but
56:31
Speaker 1: the reality is, I mean, I've had a great run,
56:34
Speaker 1: and I'm not sure I would change what happened in
56:38
Speaker 1: my thirty years of my career by knowing something different
56:42
Speaker 1: at the beginning. So what I would say is what
56:46
Speaker 1: I hope I did, which is trying to make everything
56:48
Speaker 1: a learning experience. When you talk to somebody, try and
56:52
Speaker 1: figure out not what's wrong with them, but what do
56:55
Speaker 1: they know that you don't know. When you see a problem,
56:58
Speaker 1: try and figure out what you could learn from man
57:00
Speaker 1: and then you know, over the long run, you'll do really,
57:04
Speaker 1: really well out of that. Thanks Luke for being so
57:06
Speaker 1: generous with your time. We have been speaking with Luke Ellis,
57:10
Speaker 1: CEO of the Man Group, the world's largest publicly traded
57:14
Speaker 1: hedge funds. If you enjoy this conversation well, be sure
57:17
Speaker 1: to look up an intro Down an Inch on Apple iTunes,
57:20
Speaker 1: where you can see all of our previous three D
57:23
Speaker 1: conversations over the past is it six years, seven years?
57:27
Speaker 1: I've lost count? You can find our previous broadcasts at iTunes, Spotify,
57:34
Speaker 1: Google Podcasts, Overcast, Stitcher, wherever final podcasts are sold. We
57:40
Speaker 1: love your comments, feedback and suggestions right to us at
57:44
Speaker 1: m IB podcast at Bloomberg dot net. Check out my
57:48
Speaker 1: weekly column on Bloomberg dot Com Opinion. You can sign
57:52
Speaker 1: up for my daily reading list at rid Halts dot com.
57:56
Speaker 1: Follow me on Twitter at rit Halts. I would be
57:58
Speaker 1: remiss if I did not thank the crack staff that
58:01
Speaker 1: helps put this conversation together each week. Michael Boyle is
58:05
Speaker 1: my producer. Maroufo is my audio engineer. Michael Batnick is
58:11
Speaker 1: my head of research. Batica val Bronn is our project manager.
58:16
Speaker 1: I'm Barry Retolts. You've been listening to Masters in Business
58:20
Speaker 1: on Bloomberg Radio.