Latest / Masters in Business / Ilana Weinstein Discusses Hedge Fund Recruitment

Transcript

Ilana Weinstein Discusses Hedge Fund Recruitment · Masters in Business

• 0:02
  Speaker 1: This is Masters in Business with Barry Ridholts on Boomberg Radio.
• 0:07
  Speaker 1: This weekend on the podcast, I have an extra special guest,
• 0:10
  Speaker 1: and this was a master class in what is going
• 0:15
  Speaker 1: on in the alternative space. Alana Weinstein is uniquely situated
• 0:21
  Speaker 1: to understand hedge funds, venture capital, private equity, the demands
• 0:27
  Speaker 1: of scaling a billion dollar firm into a forty billion
• 0:31
  Speaker 1: dollar firm, Who is moving around from firm to firm,
• 0:35
  Speaker 1: Who are the most talented people in the space, What
• 0:38
  Speaker 1: is going on without flows from hedge funds and why.
• 0:43
  Speaker 1: I don't know how to describe this except to say
• 0:45
  Speaker 1: this is absolutely an incredible discussion from a person uniquely
• 0:51
  Speaker 1: situated in a one off vantage point to understand exactly
• 0:55
  Speaker 1: what's taking place in this space. So, with no further ado,
• 1:00
  Speaker 1: my conversation with Alana Weinstein. This is Masters in Business
• 1:07
  Speaker 1: with Barry Ridholts on Bloomberg Radio. My special guest this
• 1:11
  Speaker 1: week is Alana Weinstein. She is the founder and CEO
• 1:15
  Speaker 1: of the I d W Group, a leading boutique for
• 1:18
  Speaker 1: hedge funds, private equity, and family offices in search of
• 1:22
  Speaker 1: top investment talent. Previously, she worked at such August firms
• 1:26
  Speaker 1: as Goldman Stacks and the Boston Consulting Group. She got
• 1:30
  Speaker 1: her undergraduate degree from the University of Pennsylvania and her
• 1:33
  Speaker 1: MBA from Harvard Elana Weinstein, Welcome to Bloomberg Radio. And
• 1:38
  Speaker 1: I add that because I've seen you on Bloomberg TV
• 1:41
  Speaker 1: many times, but I don't recall ever hearing you on
• 1:44
  Speaker 1: Bloomberg Radio. This is my first time, Barry, So, you've
• 1:47
  Speaker 1: been in the asset management industry for more than two decades.
• 1:51
  Speaker 1: How did you end up on the recruiting side. The
• 1:55
  Speaker 1: short answer is I was really young and I was
• 1:59
  Speaker 1: still trying to figure or out what I wanted to
• 2:01
  Speaker 1: be when I grew up. Literally, Um, I had gone
• 2:05
  Speaker 1: to HBS after a year at Goldman, So I literally
• 2:10
  Speaker 1: went from penn from my dorm room to my parents home,
• 2:14
  Speaker 1: worked a Goldman for a year, uh and then UH
• 2:18
  Speaker 1: and then went to HBS. And just to go back
• 2:22
  Speaker 1: and answer your question, I ended up going to the
• 2:25
  Speaker 1: Boston Consulting Group really because I felt I needed to
• 2:28
  Speaker 1: get a post m b A to my m b A.
• 2:31
  Speaker 1: I wanted to figure out, um, what path I wanted
• 2:34
  Speaker 1: to take, what sorts of problems I wanted to solve,
• 2:37
  Speaker 1: what industries were interesting to me, and um and this
• 2:42
  Speaker 1: is in the I was in my late twenties, this
• 2:44
  Speaker 1: is in the mid nineties, so the dot com because
• 2:49
  Speaker 1: that's of course what we called it back then, and
• 2:50
  Speaker 1: the dot com bubble was just bubbling. And within a
• 2:55
  Speaker 1: year and a half, my entire class of MBAs at BCG,
• 3:00
  Speaker 1: the class I entered with, was gonzo. I was literally
• 3:03
  Speaker 1: they'd all gone to California to seek their you know,
• 3:05
  Speaker 1: start the next whatever. Give me a big fat slug
• 3:08
  Speaker 1: of stock options and a stock that just goes up
• 3:10
  Speaker 1: ten percent a day, and and everybody jumped at it
• 3:13
  Speaker 1: and done right. And you can imagine how that ended
• 3:15
  Speaker 1: for most of them. It depends on if they knew
• 3:18
  Speaker 1: when to hit the bit or not. If they were
• 3:20
  Speaker 1: smart and and took off some risk, not too bad
• 3:23
  Speaker 1: the people who didn't, so they had gone to try
• 3:26
  Speaker 1: to start dot com companies. And um, I that wasn't
• 3:30
  Speaker 1: my gig. I wasn't I realized I didn't. Really, I
• 3:34
  Speaker 1: had learned a lot of BCG. I didn't want to
• 3:36
  Speaker 1: be a management consultant um as a as a career path,
• 3:41
  Speaker 1: and I still was figuring out what do I want
• 3:43
  Speaker 1: to do? And before I committed to UM any particular pathway.
• 3:49
  Speaker 1: I figured I would jump into another milieu where I
• 3:54
  Speaker 1: could learn again more about companies and functions and just
• 3:59
  Speaker 1: figure out where I wanted to commit to. And so
• 4:02
  Speaker 1: I joined a large recruiting firm, thinking that would give
• 4:04
  Speaker 1: me a purview. And as it turned out, I was
• 4:07
  Speaker 1: really good at it, and I fell into quickly joined
• 4:11
  Speaker 1: their financial services practice, and uh, that's how That's how
• 4:15
  Speaker 1: I ended up in recruiting, and so you end up
• 4:18
  Speaker 1: focusing a little further along in your career on head funds,
• 4:22
  Speaker 1: private equity, family offices. So what happened was UM after
• 4:27
  Speaker 1: about a year or two, there the dot com bubble burst,
• 4:32
  Speaker 1: and there this is this big search firm I was at.
• 4:35
  Speaker 1: Their financial services practice was really focused more on investment, banking, equities,
• 4:40
  Speaker 1: traditional asset management, sort of what i'll call older school businesses,
• 4:44
  Speaker 1: compared to what I really fell into and started to
• 4:49
  Speaker 1: focus on, which was back in the late nineties early
• 4:54
  Speaker 1: two thousands. As you'll remember, these were the this is
• 4:57
  Speaker 1: what was fueling the cell side. This is where the
• 4:59
  Speaker 1: action was. It was the prop groups, and it was
• 5:02
  Speaker 1: it was these new, first of their kind type financial products.
• 5:06
  Speaker 1: It was called so it was credit correlation. Asset swaps
• 5:10
  Speaker 1: wasn't even called credit derivatives back then, highly structured first
• 5:14
  Speaker 1: of their kind derivativesy types of transactions. That's what we
• 5:18
  Speaker 1: were focused on for the cell side clients that I
• 5:22
  Speaker 1: was working with, and that's where the juice was. And
• 5:24
  Speaker 1: all of a sudden, I developed my own business which
• 5:28
  Speaker 1: was on fire within this big firm, and it just
• 5:32
  Speaker 1: became obvious after a few years to me um to
• 5:37
  Speaker 1: really try to do this on my own, given um
• 5:41
  Speaker 1: I was acting effectively independently within a larger construct which
• 5:44
  Speaker 1: was having issues at the time. So let's talk also
• 5:48
  Speaker 1: about the timing. As you were explained that, I began
• 5:52
  Speaker 1: to think about the timing. If we go back years,
• 5:57
  Speaker 1: what were there two hundred four hundred hedge funds Today
• 6:00
  Speaker 1: there's eleven thousand. Your timing into that ramp up could
• 6:04
  Speaker 1: not perfect Barry, right, I planned it perfectly, right. I mean,
• 6:09
  Speaker 1: so so all these and Goldman sachs Is is infamous
• 6:13
  Speaker 1: for saying to a group of traders who they smell
• 6:16
  Speaker 1: might be itching to head out, Hey, why don't you
• 6:18
  Speaker 1: guys go set up a hedge fun We'll get you capital,
• 6:21
  Speaker 1: will will prime broker for you, and we'll steer some
• 6:24
  Speaker 1: potential clients to you. And that's how they built an
• 6:27
  Speaker 1: immense prime brokerage business. How much was the Goldman Sacks
• 6:32
  Speaker 1: connection helpful or as you was an analyst, it had nothing.
• 6:35
  Speaker 1: I was literally just understand I started a Goldman in
• 6:38
  Speaker 1: the middle of my senior year of PEN. I mean
• 6:41
  Speaker 1: because I just was. I don't know, I was stupid.
• 6:43
  Speaker 1: I was like working. I just I got through all
• 6:45
  Speaker 1: my classes. I didn't have I didn't have enough fun
• 6:46
  Speaker 1: in college. At the bottom line, I'm making up for it,
• 6:49
  Speaker 1: trying to make up for lost time now. But I
• 6:53
  Speaker 1: was finished with my classes. I started middle of my
• 6:55
  Speaker 1: senior year and I was out within literally a year
• 6:58
  Speaker 1: to HBS. So think about it. I was I hadn't
• 7:00
  Speaker 1: even graduated from college. So this was it was. That
• 7:02
  Speaker 1: was not what UM really what really jump started my business.
• 7:07
  Speaker 1: It what it was. However, UM, you are correct in
• 7:10
  Speaker 1: signaling the cell side um as as a driver of
• 7:15
  Speaker 1: hedge fund talent, because back then it was the prop
• 7:19
  Speaker 1: groups that were the precursors to hedge funds. It was
• 7:22
  Speaker 1: it was these you know again, high octane um and
• 7:26
  Speaker 1: these were the guys who got paid the most on
• 7:28
  Speaker 1: the cell side at the time, and I even still
• 7:30
  Speaker 1: felt like they weren't capturing as much of their p
• 7:33
  Speaker 1: m L as they wanted. Well, you know it, within
• 7:38
  Speaker 1: a cell side context, they were doing as well as
• 7:41
  Speaker 1: they possibly could. Back then, you could be a superstar
• 7:44
  Speaker 1: prop trader and earning forty million bucks a year, which
• 7:48
  Speaker 1: which doesn't happen anymore. You could be earning more certainly
• 7:52
  Speaker 1: than the CEO. But their buddies were leaving UM, many
• 7:55
  Speaker 1: of whom were Goldman partners or just were um just
• 7:59
  Speaker 1: like again, high octane prop traders from Credit Sweez, from
• 8:03
  Speaker 1: Deutsche Bank, from Morgan Stanley, from JP Morgan, and they
• 8:07
  Speaker 1: were setting up shop. And remember back then you could
• 8:10
  Speaker 1: start with fifty and scale to a billion very quickly.
• 8:13
  Speaker 1: And so and all of a sudden, there's no headwinds
• 8:17
  Speaker 1: from any other part in the bank. There's no cap
• 8:19
  Speaker 1: at all in terms of how you get paid. You
• 8:21
  Speaker 1: can do whatever you want. And if you're an entrepreneurial
• 8:24
  Speaker 1: person who is a great investment professional and that's your
• 8:27
  Speaker 1: passion and that's what you want to do, why be
• 8:30
  Speaker 1: part of a bank. There was no headwind to getting
• 8:32
  Speaker 1: into this business and scaling if you could produce the goods,
• 8:35
  Speaker 1: and back then you could do that a lot more easily,
• 8:38
  Speaker 1: quite quite fascinating. Let's let's talk a little bit a
• 8:41
  Speaker 1: lot about how your business works. Do hedge funds and
• 8:45
  Speaker 1: family offices come to you looking for slots to fill?
• 8:48
  Speaker 1: Are the traders and fund managers reaching out to you? What?
• 8:52
  Speaker 1: What does the structure like? So, UM, let me back
• 8:57
  Speaker 1: up and tell you, which I'm actually quite proud of.
• 9:00
  Speaker 1: We've been in business for almost seventeen years, seventeen this February.
• 9:06
  Speaker 1: Most of our clients we've been working with practically, if
• 9:11
  Speaker 1: not since the beginning beginning, certainly within the first few
• 9:13
  Speaker 1: years of inception of I DW. So what that means
• 9:18
  Speaker 1: is we're UM, we really know their business, We've helped
• 9:23
  Speaker 1: them build their business. And yes they are coming to
• 9:26
  Speaker 1: us UM for specific assignments, whether it's and the common
• 9:32
  Speaker 1: thread being they are all uh senior people who can
• 9:35
  Speaker 1: move the needle, whether it's a someone to do VI,
• 9:38
  Speaker 1: a t M t PM for equities UM, someone to
• 9:41
  Speaker 1: run an emerging markets business, someone to build and run distress.
• 9:45
  Speaker 1: But at the same time, and this goes back perhaps
• 9:48
  Speaker 1: to my BCG background, UM, I really are our role
• 9:52
  Speaker 1: my firm's role is to also be an advisor to
• 9:55
  Speaker 1: them as well as to the market. So it's I'll
• 9:58
  Speaker 1: give you two assignments we're working on today. A in
• 10:00
  Speaker 1: the genesis of it UM each each one UM is
• 10:05
  Speaker 1: arguably for one of the biggest and most sophisticated hedge
• 10:08
  Speaker 1: funds in the world. One UM, I started talking with
• 10:11
  Speaker 1: the founder at the end of the summer about a
• 10:13
  Speaker 1: new business he wants to build. He runs a forty
• 10:16
  Speaker 1: billion dollar hedge funds, super successful, and he wants to
• 10:20
  Speaker 1: create something wholly other than what he does today. So
• 10:23
  Speaker 1: we're helping him find somebody who could oversee that and
• 10:27
  Speaker 1: build that. That's that's a very sophisticated person who's not
• 10:31
  Speaker 1: This isn't someone looking for a job. This is somebody
• 10:33
  Speaker 1: who has actually had great success with what they've done
• 10:37
  Speaker 1: in the past, and this is kind of an interesting
• 10:39
  Speaker 1: maybe chapter two UM and and as successful as they've been,
• 10:44
  Speaker 1: it's an opportunity for even greater wealth creation. The second
• 10:47
  Speaker 1: example I'll give you is another UM client that is
• 10:51
  Speaker 1: almost as big UM and again, these are two of
• 10:54
  Speaker 1: the most successful hedge funds in the world. Very forward
• 10:57
  Speaker 1: thinking guys. Uh, this is al we've worked with for
• 11:00
  Speaker 1: a long time. I came to him and I said
• 11:03
  Speaker 1: to him, Um, there I see an ARB in the
• 11:06
  Speaker 1: market right now. UM, there's a universe of people who
• 11:10
  Speaker 1: are really talented and our staying where they are not
• 11:14
  Speaker 1: because they're happy, but because a better option doesn't exist.
• 11:19
  Speaker 1: And if you created this, I think you could capture
• 11:23
  Speaker 1: that alpha right this this group of individuals that have
• 11:26
  Speaker 1: been phenomenal P and L generators, even in the last
• 11:28
  Speaker 1: few years where it's been very difficult, he's now building
• 11:31
  Speaker 1: that business. So it's both UM working on UM discreet
• 11:36
  Speaker 1: assignments for our clients as well as coming to them
• 11:39
  Speaker 1: with advice about where to take take their how to
• 11:42
  Speaker 1: take their funds forward. That's that's fascinating. So if someone
• 11:46
  Speaker 1: comes to you and they're looking to fill a specific role,
• 11:50
  Speaker 1: what is your thought process like when you're trying to say,
• 11:54
  Speaker 1: who do I know that might be a good fit
• 11:56
  Speaker 1: for this? Or if I don't know anybody in particul
• 12:00
  Speaker 1: killer who comes to mind, how do you go about
• 12:03
  Speaker 1: creating UM a pool of applicants that could fill that role. Well,
• 12:08
  Speaker 1: after again almost two decades doing this, we typically, UM,
• 12:14
  Speaker 1: you know most of the player We kind of No,
• 12:15
  Speaker 1: I'm not going to go so far as to say
• 12:17
  Speaker 1: we have the answer before we begin, although that is
• 12:19
  Speaker 1: often correct, like actually formally begin this like someone says
• 12:22
  Speaker 1: something and you're like, I know, in the back of
• 12:24
  Speaker 1: your head, I have just the p We We've done
• 12:27
  Speaker 1: so much work in every conceivable asset class so many times,
• 12:33
  Speaker 1: um that when we start something, it's rarely truly brand
• 12:38
  Speaker 1: new what it can be because certain strategies are more
• 12:40
  Speaker 1: cyclical than others. So for example, UM, when we did
• 12:44
  Speaker 1: the here's a good example, when we did the head
• 12:47
  Speaker 1: of Emerging markets for one of our clients, he asked
• 12:49
  Speaker 1: me how much work we've done in e M and
• 12:51
  Speaker 1: I told him we had done a fair bit of work.
• 12:54
  Speaker 1: This is going back a few years. But because it's
• 12:56
  Speaker 1: a cyclical strategy, not for a while. UM, So they're
• 13:00
  Speaker 1: what we did is we threw a lasto over the
• 13:03
  Speaker 1: universe sort of as we knew it from when we
• 13:06
  Speaker 1: last left off and when that strategy was last in vogue,
• 13:09
  Speaker 1: and and it was a pretty sizeable universe. But um,
• 13:13
  Speaker 1: and this was a global search as well, right, because
• 13:15
  Speaker 1: it's a head of emerging markets, it's the person could
• 13:17
  Speaker 1: sit here or could sit in London and we just
• 13:19
  Speaker 1: dive in and we build a tapestry of who the
• 13:22
  Speaker 1: best people are, which is both by meeting people that
• 13:26
  Speaker 1: we already know to be good. But even if we
• 13:28
  Speaker 1: have no idea UM, the reality is we're doing so
• 13:32
  Speaker 1: much work in other areas, whether it's credit rates, macro,
• 13:38
  Speaker 1: and if we're doing work at a multi strat and
• 13:42
  Speaker 1: we have the credit candidates or the equities candidates some play,
• 13:46
  Speaker 1: they will also have perspective on who is good in
• 13:49
  Speaker 1: a m right, whether it's at their firm or they
• 13:52
  Speaker 1: may or they may know someone that they respected another firm.
• 13:56
  Speaker 1: And and the common theme is these are people we're
• 13:59
  Speaker 1: reaching out to, people who have who we who we
• 14:01
  Speaker 1: view as best in class and um, talented people tend
• 14:06
  Speaker 1: to recommend other talented people, so we we very quickly
• 14:10
  Speaker 1: um form a picture of who the best people are.
• 14:12
  Speaker 1: And the other thing Barry is just good old fashioned
• 14:15
  Speaker 1: hard work. When we do a search, any search, we're
• 14:18
  Speaker 1: typically going through maybe to three people, even though I
• 14:23
  Speaker 1: know the answer is within ten to fifteen of those.
• 14:26
  Speaker 1: We just want to make sure we're leaving no stone
• 14:29
  Speaker 1: unturned and also building our own depth and breadth of knowledge.
• 14:32
  Speaker 1: So when you make a final recommendation to a firm.
• 14:37
  Speaker 1: I imagine this varies from firm to firms. Do some
• 14:39
  Speaker 1: firms say find me the guy and I'll hire them.
• 14:42
  Speaker 1: Or do firms say give me your best on a
• 14:45
  Speaker 1: three choices and will interview them. What what's the range like?
• 14:49
  Speaker 1: It's really it's usually iterative because again there there is
• 14:53
  Speaker 1: there's the best three choices in its basis form, which
• 14:58
  Speaker 1: is people who are um who can generate Who are
• 15:02
  Speaker 1: the people who can generate consistent P and l over time?
• 15:05
  Speaker 1: UM that meet with with our UM with that meet
• 15:10
  Speaker 1: with our investing you know our investment parameters. But your
• 15:15
  Speaker 1: your version of who the those best three people are
• 15:19
  Speaker 1: may be different than someone else's. Part of it is
• 15:21
  Speaker 1: cultural fit. Part of it is just how flexible you,
• 15:25
  Speaker 1: as a founder are going to be with respect to
• 15:27
  Speaker 1: giving them. You may say you're going to give them
• 15:29
  Speaker 1: a fair degree of you know, a lot of autonomy,
• 15:31
  Speaker 1: but they may need more than what you're willing to
• 15:33
  Speaker 1: give them. Um, they and then there were just nuances.
• 15:37
  Speaker 1: They may You may say you're open to somebody who
• 15:40
  Speaker 1: runs in a in a manner that's quite that's concentrated,
• 15:44
  Speaker 1: in volatile, but their version of concentration and volatility maybe
• 15:47
  Speaker 1: too much for you. So there's a lot of nuances
• 15:49
  Speaker 1: where we you and I um need to iterate on
• 15:52
  Speaker 1: truly who the best quote three are. And the way
• 15:55
  Speaker 1: we work is I'm not gonna we're not gonna throw fifty.
• 15:58
  Speaker 1: We're going to do the work of meeting all the
• 16:00
  Speaker 1: bull but we're going to have you meet let's call
• 16:02
  Speaker 1: it fifteen twenty that many, and they want you as
• 16:05
  Speaker 1: well because we're talking about really good people and they're
• 16:08
  Speaker 1: going to learn something. They're going to learn how other
• 16:11
  Speaker 1: funds are set up, they're going to learn how other
• 16:13
  Speaker 1: um how they're going to get ideas from these people
• 16:17
  Speaker 1: right there. There may be um uh, let's say it's
• 16:20
  Speaker 1: along short equity search. There may be things that that
• 16:22
  Speaker 1: that the candidates are in that are actually helpful for
• 16:24
  Speaker 1: the founder to know about. So if if I told
• 16:28
  Speaker 1: you that a search is a portal to meeting the
• 16:30
  Speaker 1: top fifty people in your universe, you would take every
• 16:34
  Speaker 1: one of those meetings. That's a good use of your time.
• 16:36
  Speaker 1: So this isn't just I need a guy to do this,
• 16:38
  Speaker 1: get me some now, this is a whole big, holistic
• 16:42
  Speaker 1: process that's a really a two way street with a
• 16:45
  Speaker 1: lot of exchange of information. That is the only way
• 16:47
  Speaker 1: we work. And it's and and I will tell you, um,
• 16:51
  Speaker 1: we're doing a search right now where the founder was
• 16:53
  Speaker 1: candid with me. He may not even end up hiring someone.
• 16:56
  Speaker 1: He just sees um an opportunity that he may may
• 17:01
  Speaker 1: being the operative word, want to capitalize upon and wants
• 17:05
  Speaker 1: to meet the smartest people who do this out there.
• 17:07
  Speaker 1: And then let's iterate on what makes sense. So that's
• 17:10
  Speaker 1: not that different than BCG, where I had to sort
• 17:13
  Speaker 1: of help a CEO draw a conclusion on whether to
• 17:16
  Speaker 1: enter a market, and the way we went about that
• 17:18
  Speaker 1: was through competitive benchmarking and speaking to other really smart
• 17:21
  Speaker 1: people who sat in competitive companies and would help us
• 17:25
  Speaker 1: to help him figure it out. So here's the obvious
• 17:27
  Speaker 1: business question. Typically m headhunting and recruitment firms get paid
• 17:33
  Speaker 1: when the hier is placed. If someone says to you, hey,
• 17:36
  Speaker 1: I may may not hire this person, but do all
• 17:39
  Speaker 1: this work, do you have to set up a different
• 17:41
  Speaker 1: sort of consultingly. We we are retained firm. We don't
• 17:44
  Speaker 1: do any work without without so it's a very different
• 17:48
  Speaker 1: structure than the old school. Now we we are at
• 17:51
  Speaker 1: the risk of being totally a modest I will tell you,
• 17:55
  Speaker 1: for a variety of reasons, I don't think we look
• 17:57
  Speaker 1: like anybody else that the most prominent one of which
• 18:01
  Speaker 1: is um are the level we work at and the
• 18:05
  Speaker 1: access to the people that we have. So um It's. Yes,
• 18:11
  Speaker 1: there are discrete roles that founders need to fill. Yes
• 18:14
  Speaker 1: we are hired to complete those searches, but they tend
• 18:17
  Speaker 1: to be really important searches that will move the needle
• 18:22
  Speaker 1: for the for the fund. And if it's a fund
• 18:24
  Speaker 1: that's let's call it somewhere between ten and forty billion,
• 18:28
  Speaker 1: that's a really important person. Um. And and and it's
• 18:32
  Speaker 1: not about who's looking for a job. It's not about
• 18:36
  Speaker 1: um uh, you know who's available. It's that's not how
• 18:40
  Speaker 1: we come in things. If you think of a ven diagram,
• 18:43
  Speaker 1: one bubble being best in class, and there are very
• 18:46
  Speaker 1: few people in any asset class I'd put into that
• 18:48
  Speaker 1: bubble that are really that good. Again, there's all the
• 18:51
  Speaker 1: work we do to make sure we're leaving no stone unturned,
• 18:54
  Speaker 1: but I really have a firm view on who is
• 18:57
  Speaker 1: best in class. My firm does before we start at
• 19:00
  Speaker 1: any sorts. That's why I say, we sort of know
• 19:01
  Speaker 1: the answer, but we just wanted we do all the
• 19:03
  Speaker 1: work to make sure we're not missing anybody. The second
• 19:05
  Speaker 1: bubble is people who are disenfranchised, miserable, looking for jobs.
• 19:10
  Speaker 1: If there's an overlap, and these days, for a variety
• 19:13
  Speaker 1: of reasons we can get into, there's probably more of
• 19:15
  Speaker 1: an overlap than ever before. That's a happy coincidence. It
• 19:19
  Speaker 1: makes our job a little bit easier. All we care about.
• 19:22
  Speaker 1: All we care about is that first bubble and really
• 19:25
  Speaker 1: talented people who are who have accomplished something special. This
• 19:33
  Speaker 1: would not be an unusual profile of a candidate. Somebody
• 19:36
  Speaker 1: who oversees five billion dollars where they sit today has
• 19:41
  Speaker 1: had triple digit p n L every year for the
• 19:44
  Speaker 1: last specifically triple digit. Yeah, it's not even double digit.
• 19:48
  Speaker 1: Triple digit is an actual candidate and this isn't an outlier.
• 19:52
  Speaker 1: This is like, this is every day what we do.
• 19:55
  Speaker 1: So five billion, triple digit p n L and the
• 19:59
  Speaker 1: las four years have been really, really difficult. So that's
• 20:02
  Speaker 1: quite an accomplishment, right, much much tougher environment, which we
• 20:05
  Speaker 1: can talk about um and uh uh. And compensation for
• 20:12
  Speaker 1: him has typically been between twenty and thirty a year.
• 20:15
  Speaker 1: He's not looking for a job, and he's at a
• 20:17
  Speaker 1: great firm, by the way, which is not at all
• 20:20
  Speaker 1: facing the issues other firms are facing. He's coming in
• 20:23
  Speaker 1: to talk to me and my team because he wants
• 20:26
  Speaker 1: to understand given what we do, given all the smart
• 20:29
  Speaker 1: people we meet, and the clients we have, and everything
• 20:32
  Speaker 1: we see across the entire hedge fund landscape. Am I,
• 20:37
  Speaker 1: what do you think about the structure of where I'm sitting? UM?
• 20:42
  Speaker 1: What is what else exists out there? Here's what I've built?
• 20:47
  Speaker 1: Do I take my bag of tricks and do something different?
• 20:50
  Speaker 1: And then what does different look like? What should compensation
• 20:53
  Speaker 1: look like? For me? It's it's it's it's an advisory
• 20:56
  Speaker 1: UM meeting, and in that it is our job to
• 21:00
  Speaker 1: understand everything about his firm before he walks in, which
• 21:03
  Speaker 1: we know. Why do we know because we've met plenty
• 21:05
  Speaker 1: of other people at that firm UM constantly and UM
• 21:09
  Speaker 1: and also understand what all his other options look like.
• 21:13
  Speaker 1: So we have to have deep intelligence on all the
• 21:15
  Speaker 1: other funds that he could theoretically think about, and then
• 21:18
  Speaker 1: have a point of view on which of our clients
• 21:21
  Speaker 1: could make sense. And there are times there isn't although
• 21:24
  Speaker 1: it's rare there you know there isn't something else because
• 21:27
  Speaker 1: our clients tend to be very innovative and creative. To
• 21:29
  Speaker 1: attract someone like that, there are times he should stay
• 21:32
  Speaker 1: exactly where he's at, but more often than not, we
• 21:35
  Speaker 1: can set something up that is structurally superior to where
• 21:38
  Speaker 1: he is. Even at that level, that's a very different
• 21:41
  Speaker 1: dynamic than somebody who like needs a job. Quite fascinating.
• 21:46
  Speaker 1: Let's let's jump into something you alluded to earlier. The
• 21:51
  Speaker 1: past decade has not been especially kind to most hedge funds.
• 21:56
  Speaker 1: A lot of them have been struggling. First question, from
• 22:00
  Speaker 1: your unique vantage point, why is that? And second what
• 22:04
  Speaker 1: can they do to turn of things around? Okay, so
• 22:06
  Speaker 1: I don't know that it's been the past decade. I
• 22:10
  Speaker 1: think it's more from twenty fifteen on. Okay, Okay, so
• 22:15
  Speaker 1: we could that's a whole longer. That's a whole longer discussion.
• 22:18
  Speaker 1: We can talk. But it's it's been it's been a
• 22:22
  Speaker 1: very very tough environment. But but let's talk about what's
• 22:26
  Speaker 1: gone on. And MO went to timing, so um, and
• 22:31
  Speaker 1: let's juxtapose it to when I started, which we talked
• 22:34
  Speaker 1: about earlier, which was two thousand and three, that's when
• 22:36
  Speaker 1: I started my firm, uh five hundred billion of assets
• 22:41
  Speaker 1: under management, three thousand hedge funds. As you said, Barry,
• 22:44
  Speaker 1: Now there's eleven thousand hedge funds and three and a
• 22:47
  Speaker 1: half trillion of a UM. A lot of that growth
• 22:50
  Speaker 1: actually came post crisis. At the time of the in
• 22:54
  Speaker 1: two thousand and eight was one point four trillion, now
• 22:57
  Speaker 1: is three and a half. So that's a lot of growth.
• 22:59
  Speaker 1: Actually in the last is that organic growth of assets
• 23:02
  Speaker 1: or is that just capital flowing? Capital flowing in literally
• 23:06
  Speaker 1: especially post crisis. Right, that's when you saw the shift, right,
• 23:10
  Speaker 1: And that's also you know you mentioned earlier we do
• 23:13
  Speaker 1: UM which we do uh work to find investment talent
• 23:17
  Speaker 1: for the hedge fund industry, but we also do work
• 23:21
  Speaker 1: to find and this is when this started, was was
• 23:24
  Speaker 1: in two thousand and eight. We have a very meaty
• 23:29
  Speaker 1: practice looking at UM non investment talent across functions like president, CEO,
• 23:37
  Speaker 1: head of marketing UM meaning the non investments administrative Well yeah,
• 23:43
  Speaker 1: but but senior UM. But what what what really drove
• 23:46
  Speaker 1: that was post crisis you saw all the the shift
• 23:50
  Speaker 1: from fund of funds and high net worth LPs to
• 23:53
  Speaker 1: institutional LPs because they realized that had they invested in
• 23:57
  Speaker 1: a hedge fund, they would have done much better than
• 24:00
  Speaker 1: buying the market. Right, most hedge funds were down half
• 24:02
  Speaker 1: they were down, but they were down half as much
• 24:04
  Speaker 1: as the SMP on average. So so so institutions said,
• 24:08
  Speaker 1: we'll wait a second. You know this is this is like,
• 24:10
  Speaker 1: this is an asset class that we should be investing in.
• 24:13
  Speaker 1: And so all of a sudden, hedge funds had to
• 24:16
  Speaker 1: look they had to grow up right. It was no
• 24:18
  Speaker 1: wanting legal compliance, accounting operations. We were suddenly they couldn't
• 24:23
  Speaker 1: just be a fly by night sort of a couple
• 24:25
  Speaker 1: of guys working, which is what it was, right, So
• 24:27
  Speaker 1: we were brought in all these founders that we did
• 24:29
  Speaker 1: work for on the investing side, said well, wait a second.
• 24:32
  Speaker 1: You know, my head of marketing isn't going to cut
• 24:34
  Speaker 1: it anymore, my CEO isn't going to cut So we
• 24:36
  Speaker 1: had to revamp these funds and make them institutional, right,
• 24:41
  Speaker 1: so they would be attractive to institutional LPs. So what
• 24:44
  Speaker 1: happened is you saw all this institutional money pouring into
• 24:47
  Speaker 1: the and and pouring into the hedge fund world, and
• 24:50
  Speaker 1: institutional LPs were also far less sophisticated back then about
• 24:54
  Speaker 1: hedge funds because it was a new asset class to them.
• 24:56
  Speaker 1: So what so where so what happened? So we went.
• 25:00
  Speaker 1: So you have this huge growth of funds, tremendous amount
• 25:04
  Speaker 1: of capital pouring into the industry. UM technology became much
• 25:09
  Speaker 1: more sophisticated, right, think about technology in two thousand and
• 25:13
  Speaker 1: three to today. So today everyone has access to the
• 25:17
  Speaker 1: same information. That's why it's so, that's why scale is
• 25:20
  Speaker 1: so important in this business. To have the ability to
• 25:24
  Speaker 1: have UM data science and quant and a machine internally
• 25:30
  Speaker 1: that can turn that data into alphae signals. Very few
• 25:34
  Speaker 1: funds do that successfully, but it gives their people a
• 25:36
  Speaker 1: tremendous leg up if if they do create that in house.
• 25:41
  Speaker 1: UM so so so everyone has access to the same data.
• 25:44
  Speaker 1: Information is much more transparent. Also since two thousand and three,
• 25:48
  Speaker 1: you know, to date, you have the platforms. When I
• 25:52
  Speaker 1: say the platforms, I talk about the multi managers like
• 25:54
  Speaker 1: Citadel and Point seventy two and Millennium and ballet Asney.
• 25:57
  Speaker 1: These guys exploded, they got so much bigger. You have
• 26:00
  Speaker 1: all these pms now sitting at these shops UM and
• 26:05
  Speaker 1: so many more eyes and ears at conferences UM and
• 26:09
  Speaker 1: behind a shorting model that can suss out under performance.
• 26:13
  Speaker 1: So so if management says something squishy at a conference,
• 26:17
  Speaker 1: it used to have three to six months to for
• 26:20
  Speaker 1: that under performance to get price fully. Now that happens
• 26:23
  Speaker 1: in two days. So the window of efficiency right for
• 26:26
  Speaker 1: performance has gotten much smaller. And LPs, as I said,
• 26:30
  Speaker 1: have gotten much more sophisticated. And so with all of this,
• 26:33
  Speaker 1: returns have come down because the industry is so much
• 26:36
  Speaker 1: more crowded. Oh and liquidity right mutual UM funds and
• 26:40
  Speaker 1: retail have shrunk, So there's far less liquidity now than
• 26:43
  Speaker 1: there was back then. I fewer companies are going public
• 26:46
  Speaker 1: right with increased UM regulation and scrutiny. CEO s or like,
• 26:50
  Speaker 1: I don't want to go public. If I'm a tech company,
• 26:52
  Speaker 1: I can just go to the go to a big
• 26:54
  Speaker 1: tech private equity firm and and get funded. That way,
• 26:58
  Speaker 1: I don't have to subject myself to this. So for
• 27:00
  Speaker 1: all of those reasons, UM, it's become far more difficult
• 27:04
  Speaker 1: to generate alpha and what you see literally the last
• 27:07
  Speaker 1: good year for most of these funds. And when I
• 27:10
  Speaker 1: say most, one other sort of clarification point we talk
• 27:14
  Speaker 1: about eleven thousand hedge funds. Most of them are single
• 27:17
  Speaker 1: manager funds. They're not multi managers, and they're not multi strats. Although,
• 27:23
  Speaker 1: um so, the actual number of hedge funds, the individual
• 27:27
  Speaker 1: hedge funds tend to be single manager funds, meaning six
• 27:31
  Speaker 1: eight thousand, what what sort of numbers? Probably yeah, I
• 27:34
  Speaker 1: mean I don't know the exact number, but that's the
• 27:36
  Speaker 1: majority of funds, just because in order to be think
• 27:40
  Speaker 1: about it, there aren't who else, you know, there's not
• 27:42
  Speaker 1: that many other funds you can name that are multi managers, right,
• 27:45
  Speaker 1: um uh. And in terms of multi strats, uh, those
• 27:50
  Speaker 1: would be funds like Davidson, Kempner, Golden Triangela, Gordon. These
• 27:54
  Speaker 1: are behe myths that are in multiple strategies and managing
• 28:00
  Speaker 1: thirty billion or whatever it is dollars. There aren't that
• 28:02
  Speaker 1: many funds that look like that. Most funds are are
• 28:05
  Speaker 1: actually quite small. Most hedge funds are. I think the
• 28:09
  Speaker 1: two thirds of hedge funds are two fifty million or less.
• 28:13
  Speaker 1: So this is like a cottage industry of two bit
• 28:15
  Speaker 1: players for the most part. Um But I have to
• 28:18
  Speaker 1: jump in and ask you this question because you you
• 28:20
  Speaker 1: said something previously that um, you just reminded me of,
• 28:25
  Speaker 1: which is it's a myth that being a hedge fund
• 28:30
  Speaker 1: manager is the route to personal riches. I'm paraphrasing somewhat,
• 28:35
  Speaker 1: but you you've said that previously, your explanation of this,
• 28:40
  Speaker 1: that the vast majority of hedge funds are single manager
• 28:43
  Speaker 1: funds with a couple of hundred million dollars. Is that
• 28:46
  Speaker 1: what underlies that statement? Um quote you told the Wall
• 28:50
  Speaker 1: Street Journal the biggest myth about working out a hedge
• 28:52
  Speaker 1: fund is it's a quick way to um earn great riches.
• 28:56
  Speaker 1: Is that what's underlying That's absolutely part of what's underlying that.
• 29:00
  Speaker 1: And the other piece which I was getting to that's
• 29:03
  Speaker 1: underlying that is now the difficult the difficulty of generating alpha.
• 29:08
  Speaker 1: So returns have come. So yes, most funds are small,
• 29:12
  Speaker 1: they're inconsequential. You're not going to make a lot of
• 29:14
  Speaker 1: money managing like a couple hundred million, and many of
• 29:17
  Speaker 1: them are even smaller than that um and they're not
• 29:20
  Speaker 1: going to exist. Most of these guys in in or
• 29:23
  Speaker 1: or they'll just be okay, managing a little bit of money.
• 29:26
  Speaker 1: And that's that's a different business model. That's not what
• 29:29
  Speaker 1: you and I are talking about. Right, that's not our
• 29:31
  Speaker 1: client base, and that's typically and those small guys they're
• 29:34
  Speaker 1: lucky if they're in our office because what we're doing
• 29:36
  Speaker 1: with them is we're popping them into bigger funds. We
• 29:39
  Speaker 1: do a lot of acquisition of hedge funds as well,
• 29:41
  Speaker 1: so they'll get gobbled up by the bigger players if
• 29:43
  Speaker 1: there are any good and they should be thankful for
• 29:45
  Speaker 1: that because they'll have now a lot more capital, resources
• 29:48
  Speaker 1: and um artillery for lack of a better word, to
• 29:52
  Speaker 1: be successful. Are they being gobbled up because of their
• 29:55
  Speaker 1: alpha generation or is it because of their assets? Is
• 29:58
  Speaker 1: more of an a A fund like UM Citadel doesn't
• 30:03
  Speaker 1: need the assets of a two d and fifty million
• 30:06
  Speaker 1: dollar funds far from that two hundred and fifty million
• 30:09
  Speaker 1: dollar fund needs Citadel because they can't grow, they don't
• 30:12
  Speaker 1: have scale, they can compete for resources, talent, capital. They
• 30:15
  Speaker 1: are they are inconsequential. However, if they've had good returns,
• 30:19
  Speaker 1: that's a great place for them to be because now
• 30:21
  Speaker 1: they can scale that business. So that becomes an aqua
• 30:23
  Speaker 1: hier Is that a fair tech term to aqua higher? Yeah,
• 30:28
  Speaker 1: it's an acquisition. We're effectively you're hiring, Yes, that's exactly
• 30:32
  Speaker 1: what it is. Um So there's a lot of that
• 30:34
  Speaker 1: that we do as well. But but let me, because
• 30:36
  Speaker 1: this is an important point come back to why um
• 30:39
  Speaker 1: to where we are today? Okay, because we are in
• 30:41
  Speaker 1: a very different place today than we were when this
• 30:44
  Speaker 1: industry first started, when we when I DW first started
• 30:49
  Speaker 1: um so, so, UH, when you look at returns for
• 30:54
  Speaker 1: most funds, again, single manager funds, it's like you look
• 30:59
  Speaker 1: at UH fifteen, sixteen, seventeen, and eighteen, the last four
• 31:04
  Speaker 1: full years, it's a it's really bad. If you add
• 31:07
  Speaker 1: up the cumulative return, it's a sea of red and
• 31:10
  Speaker 1: pointing to not even positive negative returns for a great
• 31:14
  Speaker 1: number of them. Yes, it's like if you add them up,
• 31:16
  Speaker 1: it's basically flat to down. So I look, I think
• 31:20
  Speaker 1: it's just again it's a more difficult environment. It's harder
• 31:23
  Speaker 1: to generate alpha UM And also if when returns come down,
• 31:28
  Speaker 1: when we're talking about fees, if returns come down, it's
• 31:32
  Speaker 1: very difficult to justify that two and twenty fee structure.
• 31:36
  Speaker 1: I'll give you a discrete example. If I'm a fund
• 31:40
  Speaker 1: that historically generated in the good old days returns and
• 31:45
  Speaker 1: by the way, these guys love to quote inception to
• 31:47
  Speaker 1: date returns, which is like nonsense. I mean you you
• 31:51
  Speaker 1: have to they have to say that's great. Now let's
• 31:52
  Speaker 1: talk about words, okay, and then they like go quiet,
• 31:56
  Speaker 1: it's not good. So if you look at the return
• 32:00
  Speaker 1: turns of these funds again very bad for the last
• 32:02
  Speaker 1: four years, and you look at UM asset flows in
• 32:06
  Speaker 1: the industry, they are reflective of what is going on.
• 32:11
  Speaker 1: The total amount of net outflows in eighteen was UM
• 32:17
  Speaker 1: thirty seven billion. Do you know where we're at to
• 32:19
  Speaker 1: date in terms of net outflows? Go ahead over six
• 32:25
  Speaker 1: and was a year we saw a lot of big
• 32:28
  Speaker 1: fun shutdown, right. We saw high Fields chose to shut down,
• 32:33
  Speaker 1: URBIOND shutdown, Criterion Ivory, fold your Hill, Glen Hill, three Bays.
• 32:38
  Speaker 1: I'm it can go on and on and on. And
• 32:39
  Speaker 1: yet we are fifty percent higher this year than last
• 32:43
  Speaker 1: year in terms of net outflows to the industry. So
• 32:45
  Speaker 1: LPs are pretty um disappointed in terms of where things
• 32:50
  Speaker 1: are at. And so back to my example. If I'm
• 32:53
  Speaker 1: a fund which UM returned, let's say the let's just
• 32:57
  Speaker 1: say I know it's up higher, but let's say the
• 32:59
  Speaker 1: s m P is up fifteen percent and I'm a fund,
• 33:02
  Speaker 1: a long short equity fund that runs UM fifty percent
• 33:05
  Speaker 1: net long. That means fifty percent of my return one
• 33:09
  Speaker 1: could get an LP could get from just buying the SMP.
• 33:13
  Speaker 1: And let's say I'm up in line with the SMP
• 33:15
  Speaker 1: this year, So fifty percent is beta. Right when you're
• 33:19
  Speaker 1: a long short, your your risk parameters are very different.
• 33:22
  Speaker 1: And no, but if if if, if fifth, If I'm
• 33:25
  Speaker 1: running net fifty percent long, that means that UM fifty
• 33:30
  Speaker 1: percent is correlates to the SMP. That's what that means.
• 33:34
  Speaker 1: So fifty percent is beta and fifty percent is alpha.
• 33:38
  Speaker 1: So if I'm up fifteen and the SMP is up
• 33:40
  Speaker 1: fifteen percent, only seven and a half percent is alpha.
• 33:45
  Speaker 1: Yet I'm charging two and twenty and that tent is
• 33:47
  Speaker 1: on both alpha and beta, So um fifteen So of
• 33:53
  Speaker 1: fifteen percent is three percent three plus two is five.
• 33:56
  Speaker 1: I'm charging five p on a U m uh five
• 34:00
  Speaker 1: percent divided by seven and a half percent. Just follow
• 34:03
  Speaker 1: me with the math, and you know, um, your your
• 34:06
  Speaker 1: your listeners can uh yeah, I'm sure they can kind
• 34:11
  Speaker 1: of work this out for themselves. It's a Mathew group.
• 34:15
  Speaker 1: That means two thirds of the alpha. By that equation
• 34:18
  Speaker 1: is going to me, the hedge fund manager, and one
• 34:22
  Speaker 1: third to the LPs. That's not a winning construct. But
• 34:25
  Speaker 1: then you have hedge funds like the multi managers, where
• 34:28
  Speaker 1: it's all alpha. Everything they generated alpha. It's uncorrelated, it's
• 34:32
  Speaker 1: low volatility. That's why. And and so that's a totally
• 34:35
  Speaker 1: defensible business model. And jumping onto another subject, the startup environment.
• 34:40
  Speaker 1: While so few funds can scale, and we have so
• 34:44
  Speaker 1: we have more closures than startups these days. The exception
• 34:47
  Speaker 1: to that rule are funds that splinter off from the
• 34:53
  Speaker 1: successful multi managers. That's why we saw Exodus Point have
• 34:57
  Speaker 1: the biggest launch and hedge fund history last year at
• 34:59
  Speaker 1: eight billion. That's why this year you see Woodline and
• 35:02
  Speaker 1: Candlestick Um to Citadel spinouts launched with anywhere somewhere between
• 35:07
  Speaker 1: one and three billion UM. Candlestick I think was between
• 35:11
  Speaker 1: one and two and will be and uh Woodline is
• 35:14
  Speaker 1: between two and three. These are exceptions that prove the
• 35:18
  Speaker 1: rule and also shine a light on the efficiency of
• 35:22
  Speaker 1: this of the hedge fund universe. You have hedge funds
• 35:24
  Speaker 1: that are struggling to come up with a fee structure
• 35:27
  Speaker 1: that can address the lack of value creation and then
• 35:30
  Speaker 1: you have funds like Element that are charging two and forty. Again,
• 35:33
  Speaker 1: it's it's it's efficiency. Our last time, when you discussed
• 35:37
  Speaker 1: all sorts of really fascinating things, I wanted to circle
• 35:41
  Speaker 1: back to UM in particular about the shifts and where
• 35:47
  Speaker 1: institutions are putting their money and the fee structure. So
• 35:50
  Speaker 1: so let's start with with the fees. One of the
• 35:53
  Speaker 1: things I've seen that's been kind of interesting, and you
• 35:56
  Speaker 1: explained earlier why institutions hate to pay alpha prices for
• 36:01
  Speaker 1: beta is the rise of a so called Falkrum fee
• 36:05
  Speaker 1: where there's a very modest fee on assets and the
• 36:10
  Speaker 1: actual profit sharing fee the typical two and twenty. Part
• 36:16
  Speaker 1: of the fee is not on what the SMP provides,
• 36:20
  Speaker 1: but only on the excess performance, so it might be
• 36:23
  Speaker 1: instead of two and twenty five basis points and thirty.
• 36:27
  Speaker 1: What what do you think of those sorts of fee
• 36:29
  Speaker 1: structures that they have any longevity? I think that we
• 36:34
  Speaker 1: need to UM. We need to move to a model
• 36:38
  Speaker 1: which is closer for if you're if funds are going
• 36:40
  Speaker 1: to charge what they charge whatever, which is sizeable, UM,
• 36:46
  Speaker 1: we need to move to a structure where LPs are
• 36:49
  Speaker 1: paying for alpha. That's the bottom line. So whether it
• 36:53
  Speaker 1: is they lower their fees UM or the just charge
• 36:56
  Speaker 1: on alpha that has to be where the industry is going.
• 36:59
  Speaker 1: Or and or here's another thought. There are hedge funds
• 37:03
  Speaker 1: which UM really and this is true of a of
• 37:07
  Speaker 1: a lot of the single manager long short equity cubs
• 37:10
  Speaker 1: long short equity funds, whether Tiger cubs or related. Some
• 37:14
  Speaker 1: of these guys are really best at generating long alpha.
• 37:18
  Speaker 1: They're really not that good on the short side, and
• 37:20
  Speaker 1: if you look closely at the composition of their return,
• 37:24
  Speaker 1: the shorts are actually volatility enhancers and alpha detractors. But
• 37:29
  Speaker 1: they have to short because they're hedge funds, right. They
• 37:31
  Speaker 1: can't charge two and twenty without with just having a
• 37:34
  Speaker 1: long only model. And it's very hard to short when
• 37:37
  Speaker 1: the market has, at least for the first half of
• 37:39
  Speaker 1: this bullmarket just rampage straight up from O nine to twenty.
• 37:43
  Speaker 1: Let's called it's just it's not there. It's they're not
• 37:46
  Speaker 1: it's not what they do best. There are UM and
• 37:49
  Speaker 1: they're also not set up UM to do it as
• 37:53
  Speaker 1: well as the multi managers that have much broader and
• 37:59
  Speaker 1: deeper resource. Is UH to help these guys be successful.
• 38:03
  Speaker 1: UM with respect to with respect to managing factor volatility
• 38:07
  Speaker 1: and coming up with single name alpha shorts. So the
• 38:10
  Speaker 1: best thing these more concentrated directional managers could do would
• 38:15
  Speaker 1: be to say, Okay, I'm best degenerating long alpha. Therefore
• 38:22
  Speaker 1: let me set myself up in a way where I
• 38:26
  Speaker 1: maybe they create an alternative long only fund where and
• 38:31
  Speaker 1: I think this is the way of this is how
• 38:34
  Speaker 1: a lot of these funds are going to go UM.
• 38:37
  Speaker 1: I mean you recently saw in the last year so
• 38:40
  Speaker 1: a band even it really converted most of their assets
• 38:44
  Speaker 1: to long only. And so the idea being, UM, if
• 38:48
  Speaker 1: I'm best degenerating long alpha and I'm not that good
• 38:51
  Speaker 1: at managing short term volatility and coming up with UH
• 38:55
  Speaker 1: with alpha with alpha shorts, alpha alpha generating single name shorts,
• 38:59
  Speaker 1: but I need two to three or four years to
• 39:03
  Speaker 1: let my thesis play out. Then you know what, you know,
• 39:06
  Speaker 1: maybe you just charge on alpha at the end of
• 39:08
  Speaker 1: that time period, and so you have to and it's
• 39:11
  Speaker 1: a totally different structure, but that's the point. You need
• 39:14
  Speaker 1: to figure out what you're best at. It's so hard
• 39:17
  Speaker 1: now UM to generate consistent alpha, and you need to
• 39:20
  Speaker 1: figure out what UM structure is going to enable you
• 39:25
  Speaker 1: to be competitive, and that may mean locking up capital
• 39:29
  Speaker 1: for a longer period of time and charging less or
• 39:31
  Speaker 1: just charging on alpha. But the idea that one size
• 39:35
  Speaker 1: fits all when it comes to fees, no matter what
• 39:37
  Speaker 1: you're investing style is or how much beta you employ
• 39:42
  Speaker 1: um is ridiculous. You know, the guy charging to the
• 39:45
  Speaker 1: same it's the same fee structure for the guy running
• 39:47
  Speaker 1: NET thirty and running NET sixty. So I think there
• 39:51
  Speaker 1: should be a hurdle um with respect to how much
• 39:53
  Speaker 1: is alpha and how much is beta. You mentioned how
• 39:56
  Speaker 1: many hedge fund closings that were in eighteen. Typically when
• 40:01
  Speaker 1: a fund shuts down, does that money leave the space
• 40:05
  Speaker 1: or does it just rotate to a different hedge fund?
• 40:08
  Speaker 1: Um at least from an institutional perspective, Well, given the
• 40:12
  Speaker 1: trend line I shared with you earlier, which is we
• 40:15
  Speaker 1: have now sixty billion of net outflows to the industry,
• 40:18
  Speaker 1: that's that's net outflows, UM, I think money is actually
• 40:22
  Speaker 1: leaving the industry. That's where I think things are going.
• 40:25
  Speaker 1: And so it could go to another fund, But the
• 40:27
  Speaker 1: problem is there are so few good options where it
• 40:30
  Speaker 1: doesn't want to go to another fund that has had
• 40:32
  Speaker 1: the same me or crappy performance. A lot of the
• 40:36
  Speaker 1: better funds candidly are closed. That's the truth, um so.
• 40:41
  Speaker 1: And that's why you see when when guys splinter off
• 40:44
  Speaker 1: from the funds that are closed and LPs are salivating
• 40:48
  Speaker 1: for access to they they're the ones that scale overnight.
• 40:50
  Speaker 1: And there're only so many of those. So that's why
• 40:53
  Speaker 1: I think we're seeing the the aggregate amount of net
• 40:56
  Speaker 1: outflows and also the trend line. The thing on the
• 40:59
  Speaker 1: trend line is the only other year in hedge fund
• 41:03
  Speaker 1: history where we had four consecutive quarters of net outflows
• 41:07
  Speaker 1: was two thousand and eight to two thousand million. We
• 41:10
  Speaker 1: are probably Q one was the only other time in
• 41:14
  Speaker 1: hedge fund history we saw four consecutive quarters and that
• 41:18
  Speaker 1: was and and Q one. This year we had fifteen
• 41:22
  Speaker 1: billion of net outflows, where now at sixties something, so
• 41:25
  Speaker 1: I guarantee you we're now in our sixth quarter of
• 41:28
  Speaker 1: net outflows. That is first time ever in hedge fund history. Wow,
• 41:31
  Speaker 1: that's amazing. So the I don't want to call it
• 41:34
  Speaker 1: the flavor of the month, which it's a little too
• 41:36
  Speaker 1: uh glib, but it's clear that private equity is the
• 41:41
  Speaker 1: shiny new thing. Lots of money seems to be flowing
• 41:44
  Speaker 1: in that direction. Is that who is the beneficiary of
• 41:48
  Speaker 1: the outflows from hedge funds As if you're an institution
• 41:52
  Speaker 1: and you know you expected returns for equity is going
• 41:55
  Speaker 1: to be five or six percent and bonds yielding less
• 41:58
  Speaker 1: than two percent and alter enoughers are promising. Do these
• 42:03
  Speaker 1: outflows end up going to private equity? UM? They do.
• 42:07
  Speaker 1: But you know, interestingly, and and it's true that in
• 42:10
  Speaker 1: the last four or five years, while hedge funds have
• 42:13
  Speaker 1: suffered because their returns have come down UM, and for
• 42:17
  Speaker 1: most of them, fees have had to readjust or in
• 42:19
  Speaker 1: the process of readjusting, private equity was was had the
• 42:24
  Speaker 1: hot hand because rates were low and UH, and it
• 42:27
  Speaker 1: was you know, it was easier to to buy companies. UM.
• 42:32
  Speaker 1: I think that. But it's but you know, I think
• 42:35
  Speaker 1: what we're seeing now is the merge merging of UM
• 42:39
  Speaker 1: public in private. You see private equity firms trying to
• 42:42
  Speaker 1: get into the public markets. You see UM hedge funds
• 42:46
  Speaker 1: UH developing their private investing expertise, and so I think
• 42:52
  Speaker 1: each one is trying to capitalize upon the other's revenue stream.
• 42:55
  Speaker 1: That that's quite interesting. UM. One of the things I
• 43:00
  Speaker 1: read about you that I thought was pretty amusing. There
• 43:04
  Speaker 1: was a event, a gala that you helped put together
• 43:07
  Speaker 1: earlier this year, and one of the co producers of
• 43:10
  Speaker 1: the gala was Stevie Cohen of Now Point seventy two,
• 43:14
  Speaker 1: and he discussed what a challenge it's been for so
• 43:18
  Speaker 1: many hedge funds and basically said, no one's winning the
• 43:21
  Speaker 1: hedge fund game. There's this recruitment process where people go
• 43:26
  Speaker 1: from one fund to another to another, and the only
• 43:29
  Speaker 1: one who wins is you. He kind of dragged you
• 43:32
  Speaker 1: a little. No, it was just to be clear. The
• 43:35
  Speaker 1: gallo was in honor of me. I was so we
• 43:38
  Speaker 1: So it was a little bit of roasting, takeing bit
• 43:40
  Speaker 1: of roasting, I think, I hope. I think it was.
• 43:43
  Speaker 1: He was introducing me. I was the honoree. So I
• 43:46
  Speaker 1: think it was mentioned it was good nature and okay,
• 43:49
  Speaker 1: because when you read it, it's like, Wow, Stevie Cohen's
• 43:51
  Speaker 1: really dragging a lot, but it's nothing. I think it
• 43:53
  Speaker 1: was seen that way. I think his point was, um,
• 43:56
  Speaker 1: there is a war for talent because they're so little
• 44:00
  Speaker 1: of it right there. Only I said it myself, there
• 44:02
  Speaker 1: are only so many people I put in that first
• 44:04
  Speaker 1: bubble of best in class in the JASSA class. That
• 44:07
  Speaker 1: is true. Um, and you see it with the returns
• 44:09
  Speaker 1: of funds. Are only so many funds that are performing
• 44:11
  Speaker 1: and only so many people within those funds. P and
• 44:15
  Speaker 1: L doesn't lie. That's what I love about this industry.
• 44:17
  Speaker 1: It's real time. It's mark to market. You know where
• 44:20
  Speaker 1: you stand at all times. Um. Uh. But um, you
• 44:25
  Speaker 1: know the so and we so that is true. It's
• 44:28
  Speaker 1: there's an intense competition to attract the best. It is
• 44:31
  Speaker 1: also true we tend to be in the mix of it. Um.
• 44:33
  Speaker 1: But the the other thing that's true is as much
• 44:36
  Speaker 1: as there are only so many good people, they're also
• 44:40
  Speaker 1: so there are only so many places those people are
• 44:43
  Speaker 1: going to be attracted to. And Steve runs a great shop.
• 44:46
  Speaker 1: Point seventy two is one of them. Um. Other places
• 44:50
  Speaker 1: like Citadel, Millennium, Davidson, Kempner, Golden Tree, you know there
• 44:54
  Speaker 1: are there are there are places that have built something
• 44:58
  Speaker 1: unique and are going to be able to do something
• 45:01
  Speaker 1: special to attract talent and make them more successful because
• 45:06
  Speaker 1: of the very fact that they are on those at
• 45:09
  Speaker 1: those funds or on those platforms. And that's what creates
• 45:12
  Speaker 1: a symbiotic relationship between talent and the best places that
• 45:16
  Speaker 1: exist and myself. At the end of the day, we
• 45:20
  Speaker 1: I d W has been very deliberate about who we
• 45:24
  Speaker 1: choose to work with. I mean, I'm not going to
• 45:26
  Speaker 1: name names, but there are places plant no no no
• 45:28
  Speaker 1: in terms of the ones we choose not to work
• 45:31
  Speaker 1: but because we need it is as good as I'd
• 45:34
  Speaker 1: like to think we are at the end of the day.
• 45:37
  Speaker 1: The people we are dealing with on the talent side,
• 45:40
  Speaker 1: they are very sophisticated, they are very smart and and
• 45:44
  Speaker 1: and um, They're not going to go someplace that isn't
• 45:48
  Speaker 1: a market step up from where they are today with
• 45:52
  Speaker 1: a pathway that is unique, and nor would I feel
• 45:55
  Speaker 1: good about trying to convince them to do that. So UM,
• 45:59
  Speaker 1: I have tremendous conviction around the I have to have
• 46:03
  Speaker 1: tremendous conviction around the um um what around our clients
• 46:09
  Speaker 1: and what they've built and what they can provide for
• 46:11
  Speaker 1: talent and um and and so again. I think it
• 46:15
  Speaker 1: was a joke, but at the end of the day,
• 46:17
  Speaker 1: there are only so many places that also talent really
• 46:19
  Speaker 1: wants to go. Can you stick around a bit? I
• 46:22
  Speaker 1: have so many more questions. We have been speaking with
• 46:25
  Speaker 1: Alana Weinstein. She is the founder and CEO of the
• 46:29
  Speaker 1: I d W Group, a leading boutique for hedge funds,
• 46:33
  Speaker 1: family offices, and private equity, starching out top talent. If
• 46:37
  Speaker 1: you enjoy this conversation, we'll be sure and come back
• 46:40
  Speaker 1: for the podcast AFTRAS, where we keep the tape rolling
• 46:42
  Speaker 1: and continue discussing all things hedge fund and alternatives. You
• 46:47
  Speaker 1: can find that at iTunes, Google Podcasts. That's your Spotify,
• 46:52
  Speaker 1: wherever your finer podcasts are sold. We love your comments,
• 46:55
  Speaker 1: feedback and suggestions right to us at m IB podcast
• 47:00
  Speaker 1: us at Bloomberg dot net. Give us a review on
• 47:02
  Speaker 1: Apple iTunes. Check out my weekly column on Bloomberg dot com.
• 47:06
  Speaker 1: Follow me on Twitter at ripolts. I'm Barry Hults. You're
• 47:10
  Speaker 1: listening to Masters and Business on Bloomberg Radio. Welcome to
• 47:16
  Speaker 1: the podcast, Alanta. Thank you so much, um for doing this.
• 47:20
  Speaker 1: I've been looking forward to this. You really are somebody
• 47:24
  Speaker 1: who is maybe in one of the most unique spots
• 47:29
  Speaker 1: in the entire alternative space. You see everything, you know everybody,
• 47:34
  Speaker 1: your perspective as to what's going on in hedge funds,
• 47:37
  Speaker 1: private equity, and maybe not quite as much venture capital,
• 47:40
  Speaker 1: but I know that's certainly an area that is not
• 47:43
  Speaker 1: outside your UM observations. Is unique too strong a word.
• 47:49
  Speaker 1: I don't think anybody else has the vantage point that
• 47:53
  Speaker 1: you do about what's going on in the industry. I
• 47:57
  Speaker 1: I I mean, yes, it's it's completely accurate. Means it's
• 48:03
  Speaker 1: accurate precisely because what we do every day is meet
• 48:09
  Speaker 1: with the most talented people in the industry, not because
• 48:12
  Speaker 1: they're looking for jobs, but because they want our perspective.
• 48:15
  Speaker 1: And it's a virtuous loop. All If all you do
• 48:17
  Speaker 1: is meet with really smart people that are best in class,
• 48:20
  Speaker 1: you build a picture, a composite of what is driving
• 48:24
  Speaker 1: the industry and what the opportunity said is and where
• 48:28
  Speaker 1: it's going and UM and so we have so we
• 48:32
  Speaker 1: have insight into what is going on at every single fund,
• 48:36
  Speaker 1: who is making money, how lumpy the pool of talent is,
• 48:40
  Speaker 1: how how precarious each fund is, like what situation they're in,
• 48:46
  Speaker 1: UM like I mean, I often say, if LPs knew
• 48:49
  Speaker 1: what we know, UM, you know, they'd be pulling capital left,
• 48:53
  Speaker 1: right and center and reallocating to the places that we
• 48:57
  Speaker 1: tell them too. I have a very clear sense, as
• 48:59
  Speaker 1: does team on what's what? And And you know, I
• 49:03
  Speaker 1: don't think anyone else does because the level we're recruiting at,
• 49:07
  Speaker 1: both in terms of breath um and uh and and
• 49:12
  Speaker 1: just the sheer talent that we have coming in the
• 49:14
  Speaker 1: door across every assa class and every geography I think,
• 49:19
  Speaker 1: I think is second to none. And it does give
• 49:21
  Speaker 1: us insight into what to look for and what differentiates
• 49:25
  Speaker 1: the bs from the non bs, the good from the great.
• 49:28
  Speaker 1: There's there really specific things we're looking for. So let
• 49:31
  Speaker 1: me ask you a little bit about something related to that.
• 49:34
  Speaker 1: You know, when when I look at different funds, and
• 49:38
  Speaker 1: I've spoken to a lot of people from a lot
• 49:40
  Speaker 1: of different funds, very different personalities, who founded them, who
• 49:44
  Speaker 1: are running them, the corporate cultures seem to very dramatically
• 49:49
  Speaker 1: oak Tree Capital very different than Bridgewater, very different than
• 49:53
  Speaker 1: point seventy two. How important when you are looking to
• 49:57
  Speaker 1: match somebody for a very in your position is that
• 50:02
  Speaker 1: corporate culture? Um, it's definitely important, But I don't know
• 50:09
  Speaker 1: that there's um is much variability as you as you
• 50:16
  Speaker 1: might think. UM, I might over emphasizing Bridgewater because it's
• 50:21
  Speaker 1: such a unique I mean, yeah, that's sort of an
• 50:24
  Speaker 1: outlier into itself, right, So let's just full full disclosure.
• 50:27
  Speaker 1: I've had ray On three times. I love him, I'm
• 50:30
  Speaker 1: fascinated by him. He's a brilliant um guy. Some people
• 50:34
  Speaker 1: find him quirky. I just find him really fascinating. But
• 50:37
  Speaker 1: there there can be no doubt that Bridgewater is not
• 50:41
  Speaker 1: the typical So let's let's put that sort of to
• 50:44
  Speaker 1: the side. Um. I think the biggest differentiators are um
• 50:50
  Speaker 1: how much it's look, no one wants to work in
• 50:53
  Speaker 1: a jerky culture, so it neither do I want to
• 50:56
  Speaker 1: work with jerky founders. That's not I'm using intentionally, and
• 50:59
  Speaker 1: I sir word, I'm thinking really right, So that's consistent,
• 51:06
  Speaker 1: that's not you know, and and people. And at the
• 51:09
  Speaker 1: end of the day, what's really interesting to me is
• 51:11
  Speaker 1: there are certain founders who are dear clients and friends
• 51:14
  Speaker 1: of mine who you know, there's this perception that they're
• 51:18
  Speaker 1: like big bad wolf and really just tough and and
• 51:22
  Speaker 1: make crazy decisions and like, you know, I can be
• 51:26
  Speaker 1: there one day and blown out the next, And the
• 51:28
  Speaker 1: reality is these are some of the most measured down
• 51:33
  Speaker 1: to earth and I will say it good people I know,
• 51:37
  Speaker 1: but they also have great commercial instincts. And are not
• 51:40
  Speaker 1: afraid to make tough decisions. And if you're really talented,
• 51:44
  Speaker 1: you want to be an environment where you can shine
• 51:47
  Speaker 1: and aren't going to be dragged down by a bunch
• 51:50
  Speaker 1: of deadwood around you, where your your your compensation gets
• 51:53
  Speaker 1: netted every year because the founders just like too wimpy
• 51:57
  Speaker 1: to make tough decisions. You know, So let me push
• 51:59
  Speaker 1: back on you a little bit there. I won't even
• 52:01
  Speaker 1: say the funds because we'll see if you have a
• 52:05
  Speaker 1: sense of what I'm talking about. There are funds where
• 52:08
  Speaker 1: people get hired at and they know from the day
• 52:11
  Speaker 1: they're hired, I will eventually be fired for either good
• 52:15
  Speaker 1: cause or not, because that's the way this manager operates.
• 52:19
  Speaker 1: Is that a fair assessment about some funds? No, I don't.
• 52:24
  Speaker 1: I mean, I don't. I there may be funds that
• 52:26
  Speaker 1: fall in that category. That's not my client base. It's
• 52:29
  Speaker 1: really not. Um uh, there are I come back to
• 52:33
  Speaker 1: there are there are. I think the best founders are
• 52:36
  Speaker 1: also great business builders, and when they look at their
• 52:40
  Speaker 1: investment talent, they don't view it differently than a portfolio.
• 52:45
  Speaker 1: They double down on their winners and they cut their losers.
• 52:48
  Speaker 1: And and that's what I want if I am a
• 52:51
  Speaker 1: talented investment professional, because the biggest issue in this industry
• 52:55
  Speaker 1: from talents perspective is UM is not confidence compensation deflation.
• 53:03
  Speaker 1: It's it's if a fund does poorly and I did poorly.
• 53:06
  Speaker 1: It's a pay for performance industry. I get that I'm
• 53:09
  Speaker 1: not going to get paid, and I'm okay with that.
• 53:11
  Speaker 1: The biggest issue is when I said at a fund
• 53:14
  Speaker 1: and this is not exceptional what I'm telling you, this
• 53:18
  Speaker 1: is par for the course. I said, at a fund
• 53:20
  Speaker 1: that is eight billion of a UM or ten billion. Okay,
• 53:24
  Speaker 1: these are big, these are big funds UM. And I
• 53:28
  Speaker 1: am one of two or three people that consistently drive
• 53:32
  Speaker 1: P and L every single year. And remember, the last
• 53:35
  Speaker 1: three or four years have been really tough. Present year excluded,
• 53:38
  Speaker 1: but again a lot of beata in the returns for
• 53:40
  Speaker 1: this year, and also snap back from being down last year,
• 53:43
  Speaker 1: right right, just riding the market back up. So you
• 53:45
  Speaker 1: look for the last four years excluding this year, and
• 53:48
  Speaker 1: even this year, I am the I am one of
• 53:51
  Speaker 1: two or three primary P and L drivers at a
• 53:53
  Speaker 1: fund which has sizeable assets. And what are the other
• 53:57
  Speaker 1: people doing year after year? They're noting their weight, They're
• 54:01
  Speaker 1: not really contributing, and I'm getting netted because the founder
• 54:04
  Speaker 1: having to take from my pocket to pay them, right,
• 54:06
  Speaker 1: so those guys have to head out the door stroke.
• 54:09
  Speaker 1: So so this idea of like, I have job security,
• 54:12
  Speaker 1: but at the end of the day, um well, I said,
• 54:15
  Speaker 1: you know, of course you do. You're the star within
• 54:17
  Speaker 1: the fund. And the bigger question is why do the
• 54:20
  Speaker 1: other people have job security? They should be like the
• 54:22
  Speaker 1: founder has a fiduciary duty to Hale's LPs to be
• 54:26
  Speaker 1: retiring and retaining the best people. And part of retaining
• 54:29
  Speaker 1: them is getting rid of the ones that aren't performing
• 54:32
  Speaker 1: and making room for you know, better people. Am i
• 54:35
  Speaker 1: am I hearing you say that people think hedge funds
• 54:38
  Speaker 1: are cut throat, and you're suggesting some of them aren't
• 54:40
  Speaker 1: cut throat enough, then order or say it less emotionally
• 54:44
  Speaker 1: less um inflammatory Lee, there are a lot of funds
• 54:50
  Speaker 1: that simply aren't acting as a meritocracy. I think that
• 54:55
  Speaker 1: founders are often very loath to make tough decisions, and
• 54:59
  Speaker 1: we can all that not acting as a meritocracy, or
• 55:02
  Speaker 1: not being cut throat, or just candidly being whimps. I
• 55:05
  Speaker 1: think that there's an element of the optics of what
• 55:07
  Speaker 1: are LP's going to think if I fire these three people.
• 55:10
  Speaker 1: LPs would be very smart when they do their all
• 55:14
  Speaker 1: their operational due diligence. If I was an LP, here's
• 55:16
  Speaker 1: what I would be asking. I'd want to know that's
• 55:20
  Speaker 1: the way. Okay, what so let me ask you the
• 55:22
  Speaker 1: question what should LPs be doing and what aren't they
• 55:26
  Speaker 1: doing today? So UM, and everybody knows LPs limited partners,
• 55:30
  Speaker 1: not the fund managers or the actual general partnership. I
• 55:34
  Speaker 1: think that they should UM, they should find out from
• 55:38
  Speaker 1: the founder. And you know, it's hard because if it's
• 55:41
  Speaker 1: a single manager fund, the founder at the end of
• 55:45
  Speaker 1: the day is the ultimate decision maker, right if what
• 55:47
  Speaker 1: goes into the portfolio and how the portfolio is constructed.
• 55:50
  Speaker 1: But ask him, and I'm going to use along short equities,
• 55:53
  Speaker 1: one because it's the hedge fund universe, and two just
• 55:56
  Speaker 1: to be illustrative, it's an easy example to understand. Ask him, Okay,
• 56:01
  Speaker 1: where did your winners come from this year? In what industry?
• 56:04
  Speaker 1: Was it industrials? Was it t MT? Was it healthcare? Uh?
• 56:07
  Speaker 1: It was healthcare? What about last year? What drove pan
• 56:09
  Speaker 1: l oh Again? It was healthcare and industrials? What about
• 56:12
  Speaker 1: the year before, what about the year before? And we
• 56:15
  Speaker 1: get that at the end of the day, the founder
• 56:16
  Speaker 1: again is the ultimate decision maker, but again just behind
• 56:20
  Speaker 1: the scenes that's more gray than you. Those people have
• 56:23
  Speaker 1: tremendous influence if they're senior and they're good on the portfolio,
• 56:27
  Speaker 1: so UM the so LP should also be asking where
• 56:31
  Speaker 1: did where were your biggest losers? And you're gonna see
• 56:33
  Speaker 1: patterns across the biggest winners and across the biggest losers.
• 56:36
  Speaker 1: And then they should be asking the founder, what are
• 56:39
  Speaker 1: you doing about getting rid of the guys who are
• 56:41
  Speaker 1: covering the three sectors that actually have been a net
• 56:44
  Speaker 1: drain on pan L. What are you doing about um
• 56:47
  Speaker 1: developing the three sector heads that have generated the most
• 56:52
  Speaker 1: pan L. How do you manage paying those guys when
• 56:55
  Speaker 1: you have to when you have these other guys that
• 56:56
  Speaker 1: you have to pay like these are the tough questions
• 57:00
  Speaker 1: that founders really need to be held accountable for. And
• 57:04
  Speaker 1: and also LP should be looking at who left Were
• 57:07
  Speaker 1: those people that were p m L generators to the
• 57:10
  Speaker 1: fund or were those people that were that were pushed
• 57:13
  Speaker 1: out right because they didn't do well? And if what
• 57:15
  Speaker 1: they're seeing as a trend line of the best people
• 57:17
  Speaker 1: leaving and they have to figure out a way to
• 57:19
  Speaker 1: get it that. We know that because we're interviewing these
• 57:21
  Speaker 1: people and we see the compositive the entire p l
• 57:24
  Speaker 1: of the fund and who did what. If the best
• 57:26
  Speaker 1: people are leaving, you should be pulling capital. And if
• 57:29
  Speaker 1: and if the people who um did not make money
• 57:33
  Speaker 1: are the ones who were leaving and being managed out,
• 57:36
  Speaker 1: then you should deploy because that's a founder who understands
• 57:38
  Speaker 1: how to manage his team and is managing them again
• 57:42
  Speaker 1: like a portfolio, unemotionally and making decisions in their best
• 57:46
  Speaker 1: in you're really answering a question I was about to
• 57:49
  Speaker 1: ask you, which is what should founders do to retain
• 57:52
  Speaker 1: their best people? And what you're effectively saying is pay
• 57:55
  Speaker 1: and bonus the high high performers and cut the people
• 58:00
  Speaker 1: in the night. And I'll go one further. I think
• 58:02
  Speaker 1: that founders need to be willing to go to zero
• 58:07
  Speaker 1: for themselves in times where they don't have much of
• 58:12
  Speaker 1: a performance fee. And that has been true for the
• 58:15
  Speaker 1: last four years. Even this year, a lot of funds
• 58:17
  Speaker 1: may be doing better, but they have a high water
• 58:19
  Speaker 1: mark from the previous year or a group of year,
• 58:21
  Speaker 1: meaning that what you've took as a profit um as
• 58:24
  Speaker 1: a profit distribution. Once we fall off of those market highs,
• 58:30
  Speaker 1: you don't take another profit distribution until you get back
• 58:33
  Speaker 1: over that you lost money last year. You first have
• 58:35
  Speaker 1: to make that back up before you start to get paid. Right. So,
• 58:38
  Speaker 1: if I'm a guy who for the last three or
• 58:41
  Speaker 1: four years is generated tremendous pan L for the firm,
• 58:44
  Speaker 1: and there are guys who come in to meet with
• 58:46
  Speaker 1: us who literally are of the pm L of the
• 58:49
  Speaker 1: fund for a hundred of the p L, other people
• 58:53
  Speaker 1: are a dragon exactly, if the founder would be wise
• 58:56
  Speaker 1: to go into his pocket, go into his management fee
• 59:00
  Speaker 1: and and pay that person right so that they don't
• 59:03
  Speaker 1: that's what they need to do, and and and also
• 59:05
  Speaker 1: be clear about how they're coming up with the number.
• 59:08
  Speaker 1: For many of these guys, if they're not sitting at
• 59:10
  Speaker 1: a multi manager which is formulaic, or they don't have
• 59:14
  Speaker 1: even if they have points in the fund a lot
• 59:16
  Speaker 1: of the times, how UM there's a jump bowl which
• 59:19
  Speaker 1: is discretionary if they don't. If the if the absolute
• 59:23
  Speaker 1: number is disappointing because times are not good and there
• 59:25
  Speaker 1: isn't much of a performance fee, and also assets have dwindled,
• 59:28
  Speaker 1: so the management fee is smaller. Founders need to give
• 59:32
  Speaker 1: people insight into how they're coming up with the numbers,
• 59:35
  Speaker 1: so it's not this black box. Um they they again
• 59:38
  Speaker 1: it comes back to running a business, not just managing
• 59:42
  Speaker 1: a p n L. And that's a mind shift for
• 59:43
  Speaker 1: a lot of founders because they grew up. What they
• 59:46
  Speaker 1: know best is investing, right, not managing people. They need
• 59:50
  Speaker 1: to manage their fun like a business, not because not
• 59:54
  Speaker 1: like a cliptocracy, which is how a lot of these
• 59:57
  Speaker 1: guys view it, that that work the cliptocracy. So let
• 59:59
  Speaker 1: me lip the question from what founders need to do
• 1:00:01
  Speaker 1: to retain their best people to some of those best
• 1:00:05
  Speaker 1: people that talent. What are they looking for? What makes
• 1:00:09
  Speaker 1: them decide not only that I'm ready to move, but
• 1:00:12
  Speaker 1: I'm going to go there or here? What What are
• 1:00:15
  Speaker 1: they looking for? So the most important So the things
• 1:00:18
  Speaker 1: they're looking for having change, they're just more difficult today
• 1:00:21
  Speaker 1: to come by. They're looking for stability right when you
• 1:00:24
  Speaker 1: see funds like big funds back and we started with
• 1:00:27
  Speaker 1: Eaton Park and Perry going out of business and then
• 1:00:30
  Speaker 1: all the others I mentioned last year, and they'll be
• 1:00:32
  Speaker 1: more to come. Um that means that there's no more
• 1:00:35
  Speaker 1: terra firma under their feet. And by the way, you
• 1:00:38
  Speaker 1: even look at funds that are still that are big,
• 1:00:41
  Speaker 1: that that are well known names, they're still existing today.
• 1:00:45
  Speaker 1: It may be interesting for your listeners to look at
• 1:00:48
  Speaker 1: the a U M drops of these funds. Green Light, Okay,
• 1:00:51
  Speaker 1: and this is by the way, I'm going back to
• 1:00:53
  Speaker 1: not circle two thousand and three or two thousand and set.
• 1:00:56
  Speaker 1: Let let's say right before the crisis two and seven
• 1:00:59
  Speaker 1: or two. I'm talking about in the last few years.
• 1:01:01
  Speaker 1: So this is how precipitous the a U M drops were.
• 1:01:04
  Speaker 1: Green Light was twelve billion now it's sub three billion.
• 1:01:06
  Speaker 1: Corvis was seven billion, now it's two billion. Discovery was
• 1:01:10
  Speaker 1: fifteen billion, now it's three billion. For Tree was thirteen billion,
• 1:01:13
  Speaker 1: now it's five billion. Scopia a year ago, one year
• 1:01:17
  Speaker 1: ago was almost seven billion. You know what it is
• 1:01:20
  Speaker 1: today under two billion. So these are again like only
• 1:01:24
  Speaker 1: so many funds even get into the billion dollar territory, right,
• 1:01:28
  Speaker 1: So these are the these are the sort of the
• 1:01:30
  Speaker 1: bigger names, the bigger guys, and they are a shell
• 1:01:33
  Speaker 1: of their former selves. So stability is like very hard
• 1:01:37
  Speaker 1: to come by these days. And you may think, oh,
• 1:01:39
  Speaker 1: that's a well known fund that's stable. NA. Not not
• 1:01:43
  Speaker 1: the case. Um. The second thing that's really important is netting,
• 1:01:47
  Speaker 1: which we talked about not being in a construct where
• 1:01:49
  Speaker 1: you're not going to continuously get netted, right, I mean
• 1:01:52
  Speaker 1: went by netted. You mean your payment is a little
• 1:01:56
  Speaker 1: bit of a kibbutz where you're not necessarily well winning
• 1:02:00
  Speaker 1: all of your uh, your pan l. It gets spread around.
• 1:02:04
  Speaker 1: As a guy just said to me the other day,
• 1:02:06
  Speaker 1: and I love this phrase, and I told him I'm
• 1:02:08
  Speaker 1: going to steal it. He said, I feel like labor arbitrage.
• 1:02:11
  Speaker 1: That's that's what's got your high performer. They're a low performer.
• 1:02:14
  Speaker 1: And everybody I'm generating all this pan L, no one
• 1:02:17
  Speaker 1: else around here is pulling their weight. And every year
• 1:02:21
  Speaker 1: I'm paid a fraction of what I should be paid.
• 1:02:24
  Speaker 1: So that's a guy right to be pent. And does
• 1:02:28
  Speaker 1: management not understand the frustration of a high performer, like
• 1:02:32
  Speaker 1: we are not talking about um a low octane sort
• 1:02:38
  Speaker 1: of people work on an hourly basis. This is these
• 1:02:42
  Speaker 1: are people who are willing to live and die on
• 1:02:46
  Speaker 1: eating what they kill. And it's it's a really um
• 1:02:52
  Speaker 1: aggressive industry. It sounds like some firms are sort of
• 1:02:57
  Speaker 1: trying to soften it and make it more of a group.
• 1:03:01
  Speaker 1: I think there's a look, there's a lot of inertia
• 1:03:03
  Speaker 1: in this industry. We saw this with LPs, to this
• 1:03:06
  Speaker 1: pace of net al flows is only just picking up now.
• 1:03:09
  Speaker 1: For a long time LPs were sort of just hoping
• 1:03:11
  Speaker 1: things would get better. Well, the consultants always say to them, hey,
• 1:03:14
  Speaker 1: this is an off year. Just given another two or
• 1:03:17
  Speaker 1: three years and we'll be fine. And if to ten
• 1:03:19
  Speaker 1: years of hearing that people finally figured out and it
• 1:03:21
  Speaker 1: ain't gonna be fright right, so um So I think
• 1:03:24
  Speaker 1: there's an element of hoping that things change, hoping that
• 1:03:28
  Speaker 1: the performance gets better. Um And and and you know,
• 1:03:32
  Speaker 1: you have to understand, these senior people that we're speaking
• 1:03:35
  Speaker 1: to have been where they've been for in many cases
• 1:03:38
  Speaker 1: over a decade. They have a real relationship with the founder,
• 1:03:40
  Speaker 1: they helped build the fund um they are partners where
• 1:03:43
  Speaker 1: they're sitting, so it's not as transactional, you know, as
• 1:03:47
  Speaker 1: one might think. And I and they feel loyal, they
• 1:03:51
  Speaker 1: feel embedded. But at a certain point, the chickens do
• 1:03:54
  Speaker 1: come home to roost. And I think we're kind of
• 1:03:56
  Speaker 1: at that tipping point. We really are at a tipping
• 1:03:59
  Speaker 1: point in the industry, both with respect to frustration on
• 1:04:02
  Speaker 1: the part of talent, frustration on the part of LPs, UM,
• 1:04:08
  Speaker 1: UH and UM. You know, I think that it's it's
• 1:04:11
  Speaker 1: the shakeout. Is it's happening. We see we see money
• 1:04:14
  Speaker 1: leaving the industry and the guys who figured it out
• 1:04:18
  Speaker 1: are the absolute clear winners, and they're going to gobble
• 1:04:21
  Speaker 1: up the best talent and UM that's they've represent stability,
• 1:04:26
  Speaker 1: they don't net their talent. And the other few things,
• 1:04:28
  Speaker 1: just to answer your question, are that these guys do
• 1:04:31
  Speaker 1: best the winners UM talent. Also what you asked me,
• 1:04:34
  Speaker 1: what talents looking for? They want to be made better,
• 1:04:37
  Speaker 1: They want to improve. So, you know, in an environment
• 1:04:40
  Speaker 1: where returns are so hard to come by, how can
• 1:04:43
  Speaker 1: I be better at shorting? How can I be better
• 1:04:45
  Speaker 1: at managing UM volatility? UM? How do I how do
• 1:04:49
  Speaker 1: I improve? And the and the best places, which are
• 1:04:52
  Speaker 1: typically UM that have really sophisticated UH technology and data
• 1:05:00
  Speaker 1: UM and risk management are the best multi managers. They
• 1:05:03
  Speaker 1: give these guys an unbelievable feedback loop. So they say
• 1:05:07
  Speaker 1: to them, listen, let's look at your P and L um,
• 1:05:10
  Speaker 1: you are a lot of it came from um you know,
• 1:05:16
  Speaker 1: it's actually not like a lot of it came from
• 1:05:18
  Speaker 1: beta or came from factor exposure. That's not repeatable. So
• 1:05:22
  Speaker 1: giving them transparency into how they make money sets them
• 1:05:26
  Speaker 1: up for better success in the future. And and there
• 1:05:29
  Speaker 1: are very few places that have the same tools and
• 1:05:32
  Speaker 1: resources um as some of the guys that I mentioned,
• 1:05:35
  Speaker 1: all the big scalable giant shops that that are not
• 1:05:39
  Speaker 1: afraid to spend them, but ones. But that's the last
• 1:05:41
  Speaker 1: part of your sentence is key. There are funds. It's
• 1:05:43
  Speaker 1: amazing how few funds use scale to their competitive advantage.
• 1:05:47
  Speaker 1: There's a fun time thinking of which is north of
• 1:05:49
  Speaker 1: twenty billion. They have nothing internally. They basically they have
• 1:05:54
  Speaker 1: two people that manage half the a U M. Those
• 1:05:57
  Speaker 1: two people literally have like two people in beneath them,
• 1:06:01
  Speaker 1: and there's no infrastructure. There's no there's like five data
• 1:06:04
  Speaker 1: scientists at the entire firm. There's no real They haven't
• 1:06:08
  Speaker 1: built the fund in a way which bestows competitive advantage
• 1:06:12
  Speaker 1: on its people. And the problem with that construct is
• 1:06:15
  Speaker 1: if the two golden geese leave the fund, there's no interest,
• 1:06:20
  Speaker 1: there's nothing there after that, So you you hinted at
• 1:06:23
  Speaker 1: something earlier. I want to get explicit about regarding partnerships.
• 1:06:28
  Speaker 1: How should these firms be thinking about succession planning? Not
• 1:06:32
  Speaker 1: just if the founder is hit by a bus, but
• 1:06:35
  Speaker 1: what happens when they retire, what happens when they want
• 1:06:37
  Speaker 1: to spend more time away from the office. What should
• 1:06:40
  Speaker 1: firms be doing about that? Well, you know, the industry
• 1:06:44
  Speaker 1: is still relatively young, so we haven't had that much
• 1:06:48
  Speaker 1: succession that's gone on. Right, So the same way I'm
• 1:06:51
  Speaker 1: still running I DW and I'd like to think I'm
• 1:06:54
  Speaker 1: still young, right, thank you. Many of these funds that
• 1:06:58
  Speaker 1: started about the same time, there's no succession going on.
• 1:07:01
  Speaker 1: These guys are in their forties, right but for but
• 1:07:04
  Speaker 1: for the But there are some um that have done
• 1:07:07
  Speaker 1: it successfully, and I think we can look to them
• 1:07:09
  Speaker 1: for how to do this one. It can't just be
• 1:07:13
  Speaker 1: a found one founder in his brain that LPs are
• 1:07:17
  Speaker 1: investing in right and and and a like a bunch
• 1:07:20
  Speaker 1: of UH investment analysts around him. They have to feel
• 1:07:25
  Speaker 1: like there is um UH an infrastructure there which will
• 1:07:31
  Speaker 1: continue to do as well with or without him. And
• 1:07:33
  Speaker 1: I think there are two models that lend themselves to it.
• 1:07:36
  Speaker 1: One is the multi manager construct, where there are multiple
• 1:07:39
  Speaker 1: pms right that have autonomy and are managing capital, and
• 1:07:44
  Speaker 1: there's also sophisticated risk management in house to help them
• 1:07:49
  Speaker 1: be as successful as possible. That's not the founder every
• 1:07:52
  Speaker 1: day walking the floor making sure these guys are thinking
• 1:07:55
  Speaker 1: about the world in the right way and and sifting
• 1:07:58
  Speaker 1: through their ideas and say this is interesting, this isn't
• 1:08:01
  Speaker 1: let's size this, let's short that this is. This is
• 1:08:04
  Speaker 1: the car that sort of you know, runs on its
• 1:08:06
  Speaker 1: own UM. And then the other model would be the
• 1:08:10
  Speaker 1: multi strategy model UM. And we saw this very recently
• 1:08:15
  Speaker 1: with UM Tom Kempner stepping down name on the door,
• 1:08:18
  Speaker 1: Davidson Kempner one of the original founders and turned over
• 1:08:21
  Speaker 1: the reins to Tony use Off and they did not
• 1:08:24
  Speaker 1: miss a beat. And the reason they were able to
• 1:08:26
  Speaker 1: do this is it's a real partnership with fourteen engage
• 1:08:30
  Speaker 1: partners UM. Decision making is done in unison. This is
• 1:08:34
  Speaker 1: it's not like partnership a lot of hedge funds. Partnership
• 1:08:37
  Speaker 1: is a nice thing to put on the business card,
• 1:08:39
  Speaker 1: but at the end of the day, it's still this
• 1:08:41
  Speaker 1: sort of partner there. It's exactly so this is. This
• 1:08:45
  Speaker 1: operates kind of like I think it was modeled in
• 1:08:47
  Speaker 1: some ways after the old Goldman Sachs partnership. It really
• 1:08:51
  Speaker 1: UM is a group of engage people who make the
• 1:08:55
  Speaker 1: important investing and operating decisions for the firm. And when
• 1:08:59
  Speaker 1: they when Tony moved up, they very wisely took two
• 1:09:02
  Speaker 1: of their people of that group of fourteen and made
• 1:09:05
  Speaker 1: them um CO deputy managing partners, signaling to l P
• 1:09:09
  Speaker 1: S there's already a plan in place when and if
• 1:09:11
  Speaker 1: Tony retires, and the place operates again in a way
• 1:09:15
  Speaker 1: where the strength of the firm and its secret sauce
• 1:09:19
  Speaker 1: is not just one guy at the top. So I
• 1:09:21
  Speaker 1: have to ask you a question, because you and I
• 1:09:23
  Speaker 1: are both talking about this guy and that guy. Guys, guys, guys,
• 1:09:28
  Speaker 1: what is to be said? I'm going to man splain
• 1:09:32
  Speaker 1: the lack of women and hedge funds to you would
• 1:09:34
  Speaker 1: be pretty hilarious. Why are there such a lack of
• 1:09:37
  Speaker 1: women in the industry? UM? Generally speaking, it's true in finance,
• 1:09:42
  Speaker 1: but it is really acute in hedge funds. Why is
• 1:09:46
  Speaker 1: that and is that ever gonna change in our lifetimes?
• 1:09:51
  Speaker 1: I have thought about this question a lot. UM So
• 1:09:56
  Speaker 1: there are a couple of things. One is, there is
• 1:09:59
  Speaker 1: a twenty two at work where look, people are attracted
• 1:10:04
  Speaker 1: to industries and into roles where they see people like
• 1:10:08
  Speaker 1: themselves having success. Has to be a role model somewhere.
• 1:10:11
  Speaker 1: There isn't right now. So are there any high profile
• 1:10:14
  Speaker 1: women hedge fund managers? Um, there is really hardly Annie.
• 1:10:21
  Speaker 1: There's Leader Braga who spun out of Blue Crest, and
• 1:10:25
  Speaker 1: there is um uh Dawn Fitzpatrick, who's the c I
• 1:10:31
  Speaker 1: O of Soros. But those are really the only two
• 1:10:36
  Speaker 1: that come to mind that runs scale businesses, and Dawn
• 1:10:39
  Speaker 1: didn't found Soros, right, that's so that's a different I think.
• 1:10:43
  Speaker 1: So yeah, like General Custer's white horse? Right? Um? What
• 1:10:48
  Speaker 1: what color was that? Uh so? Um? Uh so, so
• 1:10:53
  Speaker 1: you know there are women quote unquote air quotes running funds,
• 1:10:56
  Speaker 1: but there are two bit players like they don't you
• 1:10:59
  Speaker 1: know they It just it's not influential funds and so
• 1:11:03
  Speaker 1: and and again think about the fact that back in sixteen,
• 1:11:06
  Speaker 1: ten of the a u M, which was around two
• 1:11:08
  Speaker 1: point nine trillion back then, was controlled, So ten percent
• 1:11:13
  Speaker 1: of hedge funds controlled the u M. So that's even
• 1:11:16
  Speaker 1: smaller now it is very much a fat headlong tail.
• 1:11:19
  Speaker 1: It is not the normal distribution, right, So back to women,
• 1:11:23
  Speaker 1: so the one they don't really have role models to. Again,
• 1:11:26
  Speaker 1: the industry is still fairly young. When you compare it
• 1:11:29
  Speaker 1: to finance, like investment banking or UM. You compare it
• 1:11:33
  Speaker 1: to consulting, or you compare it to medicine. Those are
• 1:11:35
  Speaker 1: all industries that have been around much longer, so they've
• 1:11:38
  Speaker 1: had more of a chance to catch up to for
• 1:11:40
  Speaker 1: you know, to make it for for women to UM
• 1:11:44
  Speaker 1: have a bigger percentage. But when when we look at
• 1:11:47
  Speaker 1: things like law and medicine and consulting, women are forty
• 1:11:52
  Speaker 1: plus percent. When we look at finance, there's been a
• 1:11:54
  Speaker 1: lot of gains in the past decade, but it's still
• 1:11:59
  Speaker 1: really tilted towards the male side. UM. I can name
• 1:12:03
  Speaker 1: two dozen chief economists, uh market strategists. I mean, there's
• 1:12:09
  Speaker 1: tons of women in very visible places today that didn't
• 1:12:13
  Speaker 1: exist twenty years ago. But find it's still very It's
• 1:12:17
  Speaker 1: still so much better than the hedge fund industry. It
• 1:12:20
  Speaker 1: really is. So that the hedge fund industry is worse
• 1:12:23
  Speaker 1: than finance. So finance is bad, right, So fine, So
• 1:12:28
  Speaker 1: that's my man explaining about the lack of women. If
• 1:12:30
  Speaker 1: I always find my always laugh at myself when I'm like,
• 1:12:33
  Speaker 1: are you man explaining this too harsh? And know it's
• 1:12:35
  Speaker 1: more about this stuff than you ever will, but it's
• 1:12:38
  Speaker 1: true there are so few women. So we need to
• 1:12:40
  Speaker 1: do a better job of pulling women in earlier and
• 1:12:43
  Speaker 1: explaining to them that this is an industry that is
• 1:12:47
  Speaker 1: not just hospitable to women, we are dying for women.
• 1:12:51
  Speaker 1: It is rare that I do a search, um where
• 1:12:54
  Speaker 1: the client at some point does not say to me,
• 1:12:58
  Speaker 1: you know, we love for the a successful candidate to
• 1:13:01
  Speaker 1: be a woman and and the problem but the problem
• 1:13:03
  Speaker 1: is we have a fiduciary duty to hire the best person,
• 1:13:08
  Speaker 1: not the best woman. And so by the time we
• 1:13:11
  Speaker 1: get involved, which is really at the most senior end
• 1:13:14
  Speaker 1: of the industry. If you think about a mountain, if
• 1:13:16
  Speaker 1: at the base there are so few, you know, it's
• 1:13:19
  Speaker 1: the pool you start out with, and then by the
• 1:13:23
  Speaker 1: time we get there very much against right. And so
• 1:13:27
  Speaker 1: I think that that, um, that's the issue as well
• 1:13:30
  Speaker 1: as UM the fact that there's something about the P
• 1:13:34
  Speaker 1: and L and the volatility of the P and L
• 1:13:36
  Speaker 1: that is that is um. You know, it's it's you
• 1:13:40
  Speaker 1: can't control it. Even in private equity, you have more
• 1:13:42
  Speaker 1: control than you do in the public markets. You have
• 1:13:44
  Speaker 1: ten uere money, you have full information, you're one of
• 1:13:47
  Speaker 1: eight on a deal team. Trump tweets something that portfolio
• 1:13:49
  Speaker 1: isn't going to go. Hey, you can be the darling
• 1:13:55
  Speaker 1: of the industry one moment and be out of business
• 1:13:58
  Speaker 1: the next. And that is not that all so um,
• 1:14:01
  Speaker 1: you know, can be scary. So I don't know, UM,
• 1:14:04
  Speaker 1: I don't know if that is less appealing to women,
• 1:14:07
  Speaker 1: but maybe that factors into it as well. Huh. That
• 1:14:10
  Speaker 1: that's that's quite fascinating. So in terms of coming trying
• 1:14:16
  Speaker 1: to bring women into the industry earlier on last week,
• 1:14:20
  Speaker 1: and I am trying to you know, I'm doing what
• 1:14:22
  Speaker 1: I can. Last week, I actually um went out to
• 1:14:26
  Speaker 1: the University of Michigan to be the keynote speaker for
• 1:14:30
  Speaker 1: the their Undergraduate Investment Conference, which is like the sound
• 1:14:34
  Speaker 1: conference for for exactly for undergrads, and uh really to
• 1:14:38
  Speaker 1: signal to them that this is an industry that wants
• 1:14:41
  Speaker 1: women and try to encourage all these undergrads to come
• 1:14:44
  Speaker 1: if they're interested, Like this is a this is a
• 1:14:48
  Speaker 1: um uh play, this is an industry that is salivating
• 1:14:52
  Speaker 1: for talent and UM, it is totally meritocratic and if
• 1:14:57
  Speaker 1: you're talented, nobody cares if you're a man, woman or otherwise.
• 1:15:01
  Speaker 1: It's just this is like, you know, it's that's a uh,
• 1:15:05
  Speaker 1: that's what the focus is on. And one of the
• 1:15:07
  Speaker 1: women towards the end when we had the Q and A,
• 1:15:10
  Speaker 1: asked me the question of what can women do? How
• 1:15:14
  Speaker 1: do we become more, UM, fearless? How do we go
• 1:15:19
  Speaker 1: for it? How do we set ourselves up to be
• 1:15:22
  Speaker 1: more successful in life? And I, you know, I answered
• 1:15:24
  Speaker 1: the question in terms of just UMU having you know,
• 1:15:29
  Speaker 1: you may not have the confidence early on, but that
• 1:15:31
  Speaker 1: comes with success and UM building it over time and
• 1:15:35
  Speaker 1: just sort of not you know, going for it. That's
• 1:15:37
  Speaker 1: the bottom line. But I but I UM. What bothered
• 1:15:41
  Speaker 1: me about the question is I do think that there
• 1:15:44
  Speaker 1: is a UM sometimes a little bit of a orientation
• 1:15:50
  Speaker 1: of like, how do we how can we be UM,
• 1:15:53
  Speaker 1: how can we set ourselves up better for success? How
• 1:15:56
  Speaker 1: can we be more as you put it, fearless? Why
• 1:15:59
  Speaker 1: are we at the world as though we have a handicap.
• 1:16:02
  Speaker 1: Everybody's scared when they're young, everybody's scared to make a
• 1:16:05
  Speaker 1: mistake every you know, but you just whether whether you're
• 1:16:08
  Speaker 1: a man or a woman, you have to sort of
• 1:16:11
  Speaker 1: buck up and and as I said, go for it.
• 1:16:14
  Speaker 1: And this idea that, um, because we're female, we're somehow
• 1:16:19
  Speaker 1: disadvantage by our very nature pisces me off. And I
• 1:16:22
  Speaker 1: sort of said that to her. I said, there's, like,
• 1:16:25
  Speaker 1: you know, this sort of cont impacted idea that you
• 1:16:27
  Speaker 1: need special handling or there's something about you that we
• 1:16:31
  Speaker 1: need to treat differently. Why. I mean, you know, as
• 1:16:34
  Speaker 1: long as we're all being good actors and behaving correctly,
• 1:16:39
  Speaker 1: why should we Why do why do we need sort
• 1:16:41
  Speaker 1: of a different way of treating you? That as that
• 1:16:44
  Speaker 1: as long as is a loaded phrase because I recall
• 1:16:47
  Speaker 1: the early days in my career on a trading desk.
• 1:16:50
  Speaker 1: It was horrific. That can't go on anymore. And it doesn't.
• 1:16:53
  Speaker 1: You see ken foot happen with ken Fisher's contra, right,
• 1:16:56
  Speaker 1: So it's my good business, it's not good business. It's
• 1:17:00
  Speaker 1: not gonna lead to a successful outcome. And come back
• 1:17:03
  Speaker 1: to at the end of the day, there's so few
• 1:17:05
  Speaker 1: talented people. If that person happens to be a woman,
• 1:17:09
  Speaker 1: There is no hedge fund manager in his right mind
• 1:17:12
  Speaker 1: that will do anything to make the environment inhospitable to her.
• 1:17:15
  Speaker 1: Not to mention, it's you can't get away with that
• 1:17:17
  Speaker 1: stuff anymore. So the world has changed completely. I don't
• 1:17:20
  Speaker 1: know if it's changed completely. I'm again, like you know,
• 1:17:24
  Speaker 1: we just saw with Fisher. There are still people who
• 1:17:26
  Speaker 1: act out of turn. But in an industry that is
• 1:17:30
  Speaker 1: measured minute to minute, and you're only as good as UM,
• 1:17:34
  Speaker 1: your last p m L, you cannot do things which
• 1:17:38
  Speaker 1: are going to scare away the very people that can
• 1:17:42
  Speaker 1: have a real impact on your business. It's just, it's
• 1:17:45
  Speaker 1: so there's so much clarity in terms of who the
• 1:17:48
  Speaker 1: winners and losers are. And to have half the population
• 1:17:51
  Speaker 1: UM not be a source of talent is insanity. And
• 1:17:54
  Speaker 1: there's no hedge fund manager that would think that way
• 1:17:57
  Speaker 1: and that's going to be successful. But when we see
• 1:18:00
  Speaker 1: the academic studies on male versus female mutual fund managers UM,
• 1:18:05
  Speaker 1: the data shows that the women tend to do better
• 1:18:08
  Speaker 1: than the men. The women don't have the same ego issues.
• 1:18:11
  Speaker 1: They certainly don't suffer from the test what some people
• 1:18:14
  Speaker 1: have called testosterone poisoning. That they are more measured and
• 1:18:18
  Speaker 1: less aggressive in a negative way than the male fund managers.
• 1:18:23
  Speaker 1: So the data even supports female fund managers can outperform
• 1:18:28
  Speaker 1: male fund managers with without any change to who they
• 1:18:31
  Speaker 1: are with. You know, it's funny. I had drinks with
• 1:18:34
  Speaker 1: a woman that I'm not going to name her, but
• 1:18:36
  Speaker 1: I was so pleased when she did end up being
• 1:18:38
  Speaker 1: this successful candidate for search we did a year ago,
• 1:18:42
  Speaker 1: very successful PM. One of the few who ran a
• 1:18:44
  Speaker 1: lot of capital where she was she ran two billion.
• 1:18:47
  Speaker 1: Now she's running four billion as a real team underneath her.
• 1:18:50
  Speaker 1: And we were talking about somebody that she recently had
• 1:18:52
  Speaker 1: to let go, and it was just so I had
• 1:18:54
  Speaker 1: such a smile playing on my face as she was
• 1:18:56
  Speaker 1: describing how emotional he was and he wasn't making rational decisions,
• 1:19:00
  Speaker 1: and he was constantly complaining about, you know where where
• 1:19:03
  Speaker 1: his p n L was at? And she's like, I
• 1:19:05
  Speaker 1: know where you're p P and L is at. I'm
• 1:19:07
  Speaker 1: watching it, get with it and fix it, and so
• 1:19:09
  Speaker 1: you know, it's anyway, it's just a sort of sidebar
• 1:19:13
  Speaker 1: on there is no difference these flighty emotional men. I mean,
• 1:19:17
  Speaker 1: how can I exactly what I have to deal with?
• 1:19:21
  Speaker 1: But but you know that is a genuine perception issue
• 1:19:25
  Speaker 1: and the reality is how So this was a question
• 1:19:29
  Speaker 1: I didn't get to, but I wanted to ask h
• 1:19:33
  Speaker 1: You have said the people best suited for this industry
• 1:19:36
  Speaker 1: are the ones who remain cool under pressure. That that's
• 1:19:39
  Speaker 1: a quote of yours, which certainly is who's going to
• 1:19:42
  Speaker 1: argue with that? How can you identify that in a
• 1:19:46
  Speaker 1: sort of casual conversation until you see them under pressure?
• 1:19:50
  Speaker 1: How do you know how they're going to react. Well,
• 1:19:52
  Speaker 1: it's less about the person, you know, the how they act,
• 1:19:58
  Speaker 1: so to speak, it's more about the comes. So decision
• 1:20:01
  Speaker 1: is not necessary. I'm looking at consistent pan l over time,
• 1:20:05
  Speaker 1: and whether you do that by standing on your head
• 1:20:08
  Speaker 1: or you know, crossing your fingers and toes and screaming,
• 1:20:11
  Speaker 1: or whatever the case may be. If you can generate,
• 1:20:14
  Speaker 1: particularly in the last four or five years, where has
• 1:20:16
  Speaker 1: been so difficult and there's not been this tailwind to performance,
• 1:20:20
  Speaker 1: if you can generate consistent pan l over time, that
• 1:20:24
  Speaker 1: to me says you're somebody who possesses um a whole
• 1:20:29
  Speaker 1: bunch of other qualities which come with that. You're somebody
• 1:20:31
  Speaker 1: who is flexible and humble. You are You're You're not
• 1:20:36
  Speaker 1: so wetted to your positions that you can't um take
• 1:20:40
  Speaker 1: new inputs and shift you know, on a dime where
• 1:20:42
  Speaker 1: you need to um you um uh and and and
• 1:20:48
  Speaker 1: so so. Looking at pan L over a period of
• 1:20:51
  Speaker 1: time gives me insight as well as some of the
• 1:20:54
  Speaker 1: you know what makes some people vulnerable, which is the
• 1:20:57
  Speaker 1: founder is often more vulneratible than they are in that. Again,
• 1:21:00
  Speaker 1: I'm not talking about behavior, although that comes with it sometimes,
• 1:21:03
  Speaker 1: you know, I mean decision making. It's a guy who
• 1:21:06
  Speaker 1: comes into my office and says, you know, this happened
• 1:21:08
  Speaker 1: two years ago. Um he sat at a large hedge fund.
• 1:21:12
  Speaker 1: He was responsible for a big for a big chunk
• 1:21:14
  Speaker 1: of it, and um uh, even though he was doing well,
• 1:21:19
  Speaker 1: the fund was not, and he had he was the
• 1:21:21
  Speaker 1: most robust uh short, had the most robust short book
• 1:21:25
  Speaker 1: within the fund, which was not the founder strength or
• 1:21:29
  Speaker 1: skill set. And the founder came in over the top,
• 1:21:31
  Speaker 1: took off all his alpha generating shorts, put on index shorts,
• 1:21:34
  Speaker 1: and erased a lot of this guy's pan L. So
• 1:21:37
  Speaker 1: you know enough of that kind of stuff happening is
• 1:21:42
  Speaker 1: you know, it's the differentiation between the founder acting out
• 1:21:45
  Speaker 1: of sort of panic and emotion and not really understanding
• 1:21:48
  Speaker 1: what's going on, and this guy pointing to consistent pan
• 1:21:51
  Speaker 1: l and where he's gotten tripped up is when he's
• 1:21:54
  Speaker 1: been overridden by um, somebody who isn't taking a more
• 1:21:59
  Speaker 1: measured approach. We assume that guy is no longer at
• 1:22:01
  Speaker 1: that fund. We can. I have a million more questions
• 1:22:05
  Speaker 1: for you, but I know I don't have you all day,
• 1:22:08
  Speaker 1: So why don't I go to some of my uh
• 1:22:11
  Speaker 1: favorite questions. This hasn't been too painful, it's been a
• 1:22:13
  Speaker 1: lot of fun. Oh, I'm so glad you've said that.
• 1:22:15
  Speaker 1: So let's jump. And I don't know if you're gonna
• 1:22:17
  Speaker 1: be able to answer this question because you were born
• 1:22:20
  Speaker 1: in Brooklyn and moved to Manhattan. Um, but let me
• 1:22:23
  Speaker 1: ask you the question, what was the first car you
• 1:22:26
  Speaker 1: ever owned? You're making model? Okay, Barry, you don't drive?
• 1:22:30
  Speaker 1: You got it. You are the first person I've been
• 1:22:34
  Speaker 1: waiting for someone to say that to me. And I
• 1:22:37
  Speaker 1: was expecting, like a millennial to say, oh I uber
• 1:22:39
  Speaker 1: or Isaip drive. See I'm ahead of my time. You
• 1:22:42
  Speaker 1: are so you never owned a car, never owned a car,
• 1:22:46
  Speaker 1: never drove a car. I took a feely I took
• 1:22:48
  Speaker 1: a few lessons, uh like ten years ago and I
• 1:22:52
  Speaker 1: was just like, this is a waste of time. I'm
• 1:22:54
  Speaker 1: never I'm never going to create the muscle memory to
• 1:22:57
  Speaker 1: know how to do this. I'll probably kill someone or myself.
• 1:23:00
  Speaker 1: So if we get you on a track, it's a
• 1:23:02
  Speaker 1: lot of fun. Could be surprised. Can we do? Like
• 1:23:04
  Speaker 1: the what do you call them? The bumper cars? Though?
• 1:23:07
  Speaker 1: So now those bumper cars are all electric. There's a
• 1:23:10
  Speaker 1: place called RPM. There's a bunch of them around this
• 1:23:13
  Speaker 1: one in Farmingdale and it's just the most amount of
• 1:23:17
  Speaker 1: I would love to have. It's a blas I should
• 1:23:18
  Speaker 1: do that with my fifteen year old who tells me
• 1:23:20
  Speaker 1: in star contrast to myself he's going to have his
• 1:23:23
  Speaker 1: learners permit when he's sixteen, which well I'm terrified of.
• 1:23:26
  Speaker 1: But you know, it's such a different having that happen
• 1:23:30
  Speaker 1: pre Internet, if you lived outside of a major city,
• 1:23:34
  Speaker 1: a car represented freedom. Now everybody's playing everything. It's just
• 1:23:39
  Speaker 1: such a different So let's talk a little bit about, um, you,
• 1:23:43
  Speaker 1: what's the most important thing we don't know about? Allana Weinstein?
• 1:23:47
  Speaker 1: Although I think you may have just revealed it. I
• 1:23:49
  Speaker 1: think you I may have just revealed it. That I
• 1:23:51
  Speaker 1: never have driven a car, never during a car. Yeah.
• 1:23:54
  Speaker 1: And and you know what everyone in this industry knows
• 1:23:58
  Speaker 1: me is like a very um which is true to
• 1:24:01
  Speaker 1: the point, um, no nonsense, say it like it is
• 1:24:05
  Speaker 1: businesswoman all true. But Barry, I do have a soft
• 1:24:08
  Speaker 1: and gooey center, right, I don't believe that it's true.
• 1:24:12
  Speaker 1: What is your soft and gooey center? Like? What what
• 1:24:16
  Speaker 1: it's meaning? What? Um? So? What is what is yours?
• 1:24:19
  Speaker 1: So maybe this is the thing we don't know about you.
• 1:24:21
  Speaker 1: What you work in a tough industry, male dominated, very sharp, elbowed,
• 1:24:26
  Speaker 1: very competitive. What are you soft and gooey about? And
• 1:24:30
  Speaker 1: you brought this up? Not me? Yeah, I mean it's
• 1:24:32
  Speaker 1: just more you know, it's my it's my alter ego,
• 1:24:36
  Speaker 1: non work persona. It's uh, you have to have a
• 1:24:39
  Speaker 1: yang and yang, my yang or yang or whatever you
• 1:24:42
  Speaker 1: want to whatever. The opposite one is that we're referring
• 1:24:44
  Speaker 1: to is you know, it's just you have to enjoy life.
• 1:24:48
  Speaker 1: And and that's a big part of who I am.
• 1:24:50
  Speaker 1: Fair enough, Who are your mentors? Who has influenced your career?
• 1:24:54
  Speaker 1: Well it might be a cliche answer, but my parents
• 1:24:57
  Speaker 1: are tremendous mentors. Um. Uh my mom in particular, even
• 1:25:04
  Speaker 1: though she was a stay at home mom, she is
• 1:25:06
  Speaker 1: an incredibly bright woman who kind of managed the family.
• 1:25:10
  Speaker 1: I'd say in some ways similarly to a how a
• 1:25:13
  Speaker 1: CEO manages his you know, best employees, but with lots
• 1:25:16
  Speaker 1: of love, very but very no nonsense. Very kind of
• 1:25:20
  Speaker 1: like the advice I gave this girl at you of
• 1:25:22
  Speaker 1: them like, get up and go for it, stop whining,
• 1:25:26
  Speaker 1: just get it done. And um, and that gave me
• 1:25:30
  Speaker 1: you know, and and forcing my and that made me strong,
• 1:25:33
  Speaker 1: um and creates winds and then it creates real confidence. Um.
• 1:25:37
  Speaker 1: Other mentors were just you know. I've cultivated great relationships, um,
• 1:25:43
  Speaker 1: great relationships with my clients who have given me great
• 1:25:46
  Speaker 1: advice along the way. UM. I mean everywhere I've worked,
• 1:25:52
  Speaker 1: I've just um, I've had the good fortune of finding
• 1:25:54
  Speaker 1: great people who um I learned a lot from quite interesting. UM.
• 1:26:00
  Speaker 1: Tell us about your favorite books. What do you like
• 1:26:02
  Speaker 1: to read when you're not out recruiting talent. I love
• 1:26:06
  Speaker 1: books by and I think there's some commonality between them.
• 1:26:10
  Speaker 1: I love John krak Our, Tom Wolfe, Michael Lewis. They
• 1:26:14
  Speaker 1: all right, real stories um that are almost read like thrillers.
• 1:26:21
  Speaker 1: And Tom Wolfe is fiction, but he's really writing about
• 1:26:23
  Speaker 1: moments in time that right, a bonfire, right, even I am.
• 1:26:29
  Speaker 1: Charlotte Simmons is based on you know, real LuFe. Do
• 1:26:32
  Speaker 1: you know that book? It's great, It's uh. I read
• 1:26:35
  Speaker 1: it a few years ago. It's a woman's um, a
• 1:26:38
  Speaker 1: young woman's travails and experience at undergrad. I think it's
• 1:26:44
  Speaker 1: it's meant to be a big Ten's type school and
• 1:26:46
  Speaker 1: everything she goes through. It's a very thick book, but
• 1:26:50
  Speaker 1: I thought it was so on point in terms of
• 1:26:52
  Speaker 1: what the undergraduate experience is like. I'm sure based on
• 1:26:56
  Speaker 1: characters that he knew. Well, maybe Ben his own family.
• 1:26:59
  Speaker 1: Give us some more book titles. You mentioned a number
• 1:27:01
  Speaker 1: of authors. Um, I have to think the Big Short
• 1:27:04
  Speaker 1: is right in your love. In fact, it's funny you
• 1:27:07
  Speaker 1: bring that up. I was on a long flight a
• 1:27:10
  Speaker 1: few weeks ago and I didn't reread the book, but
• 1:27:12
  Speaker 1: I did see the movie again and I actually called
• 1:27:16
  Speaker 1: a number of my clients and said, you have to
• 1:27:18
  Speaker 1: watch this again. And I made my son watch it again.
• 1:27:20
  Speaker 1: It's so good, and I have so much respect for
• 1:27:24
  Speaker 1: how Michael Lewis did that. How he you know, he
• 1:27:26
  Speaker 1: found it's just it's so many. It's a tough subject
• 1:27:29
  Speaker 1: to understand for a late person. He totally explained it well.
• 1:27:34
  Speaker 1: And he takes these stories and builds these not builds
• 1:27:37
  Speaker 1: they were, but brings to life these characters that were
• 1:27:41
  Speaker 1: interesting in esoteric and dynamic in their own ways and contrarians.
• 1:27:45
  Speaker 1: And then there's this That's why I call it a thriller,
• 1:27:47
  Speaker 1: like how is how is it all going to come together?
• 1:27:49
  Speaker 1: And how did they figure this out? And how did
• 1:27:51
  Speaker 1: they all sort of end up interweaving um and tells
• 1:27:54
  Speaker 1: the story which is so multidimensional. I just brilliant. That
• 1:27:58
  Speaker 1: is the Michael Lewis form. Find an esoteric, quirky outsider,
• 1:28:04
  Speaker 1: and we've a narrative not from the center, but from
• 1:28:09
  Speaker 1: the people on the periphery who identify in a contrarian basis.
• 1:28:14
  Speaker 1: Wait what what does everybody seem to misunderstand? And then
• 1:28:17
  Speaker 1: the next level is how can we capitalize on it?
• 1:28:19
  Speaker 1: And you know what, you just describe what we do,
• 1:28:23
  Speaker 1: what you do, what I do as a hunter, What
• 1:28:25
  Speaker 1: I do as a headhunter. It's finding the people who
• 1:28:28
  Speaker 1: who see something, who can come at things differently, who
• 1:28:31
  Speaker 1: are um who are able to generate Alpha consistently over
• 1:28:36
  Speaker 1: time in spite of everyone else, And what do they
• 1:28:39
  Speaker 1: and what does that mean in terms of UM where
• 1:28:43
  Speaker 1: they can be most successful and where the industry is
• 1:28:45
  Speaker 1: going Give me one more book title, UM, because I'm
• 1:28:47
  Speaker 1: curious as to what else you read, And then I'm
• 1:28:49
  Speaker 1: going to share two with you. I'm gonna bet you
• 1:28:51
  Speaker 1: probably well. One of them hasn't come out yet, but
• 1:28:53
  Speaker 1: one of them I wonder if you read. I'm in
• 1:28:56
  Speaker 1: the middle of one right now, which is not something
• 1:28:58
  Speaker 1: I normally read, but someone into to me and I'm
• 1:29:00
  Speaker 1: actually really into it. It's called hacking Darwin. Have you
• 1:29:04
  Speaker 1: read I'm familiar with it. I haven't ready. So it's
• 1:29:06
  Speaker 1: it's written by this UM technology futurist and it's all
• 1:29:14
  Speaker 1: real stuff, which is amazing UM. And he's the premise
• 1:29:18
  Speaker 1: being we can hack the genetic code the same way
• 1:29:20
  Speaker 1: you can have a computer, which we know we can,
• 1:29:22
  Speaker 1: you know, do things now with the genetic code UM
• 1:29:25
  Speaker 1: to make people healthier, to make them smarter. Uh. And
• 1:29:29
  Speaker 1: it's just I'm only midway through it. But it's both
• 1:29:32
  Speaker 1: the UM ethical challenges inherent in that as well as
• 1:29:37
  Speaker 1: the socioeconomic challenges. If we decide something's not ethical, but
• 1:29:41
  Speaker 1: another country decides it is. Does that create sort of
• 1:29:44
  Speaker 1: a superior population to us? You know? There's there's so
• 1:29:47
  Speaker 1: much in it that I think is interesting, and it's
• 1:29:49
  Speaker 1: written in a way that a non um medical person
• 1:29:53
  Speaker 1: like myself can totally understand. Jamie Metzel, yes is the
• 1:29:57
  Speaker 1: author courtesy of Google. So the two books I have
• 1:30:00
  Speaker 1: to ask you about because you kind of describe them both.
• 1:30:04
  Speaker 1: One is The Spider Network, but I think it's David
• 1:30:07
  Speaker 1: and Trust about the libor manipulation scandal, same sort of
• 1:30:12
  Speaker 1: thing where it's a financial book, but it reads like
• 1:30:15
  Speaker 1: a thriller and all the characters are odd and interesting.
• 1:30:18
  Speaker 1: I'm totally going to read that. Yeah, that's it. And
• 1:30:20
  Speaker 1: then the new Greg Zuckerman book on renaissance technologies and
• 1:30:24
  Speaker 1: Jim Simon's The Man Who, um I'm trying to remember
• 1:30:29
  Speaker 1: with the title is the Man Who figure who solved
• 1:30:32
  Speaker 1: the Markets? Another one that reads like a thriller, And
• 1:30:36
  Speaker 1: and how do we figure out um, we figure out
• 1:30:40
  Speaker 1: commodities and futures? How do we apply that and figure
• 1:30:42
  Speaker 1: out equities? Really a fascinating that's such a unknown entity
• 1:30:48
  Speaker 1: and there's so little public information on renaissance Um, the
• 1:30:52
  Speaker 1: Jim Simon's book is really quite fun. Thank you. I'm
• 1:30:54
  Speaker 1: totally picking those two up. Can I tell you? I
• 1:30:57
  Speaker 1: know that the Simon's book is just gonna go crazy
• 1:31:00
  Speaker 1: only because it's, uh, it's a black box. No one
• 1:31:02
  Speaker 1: knows what goes on and post election um everything that
• 1:31:06
  Speaker 1: happened with them, Uh Simon's partner who who had such
• 1:31:11
  Speaker 1: an impact on the Trump candidacy. That that's the I
• 1:31:17
  Speaker 1: just see that book is blowing up. I could be
• 1:31:18
  Speaker 1: completely wrong and what I'm interested in very often other
• 1:31:21
  Speaker 1: people aren't. But I think you would, really, you especially
• 1:31:24
  Speaker 1: would really appreciate both of those done. I'm totally reading them.
• 1:31:27
  Speaker 1: Next question, tell us about a time you failed and
• 1:31:30
  Speaker 1: what you learned from the experience. So I'm going to
• 1:31:35
  Speaker 1: cite something that happened early on in my career, like
• 1:31:39
  Speaker 1: inconsequential looking back, but I remember it because it was
• 1:31:43
  Speaker 1: so scary and crazy at the time. Uh. And this
• 1:31:49
  Speaker 1: was my first as my first job. I was a
• 1:31:51
  Speaker 1: Goldman UM and I had done this analysis and submitted
• 1:31:59
  Speaker 1: it and I got pulled into the partner's office who
• 1:32:04
  Speaker 1: ran my division, and he started reaming me out, like
• 1:32:08
  Speaker 1: totally carrying on and screaming and yelling, and I'm sitting there,
• 1:32:12
  Speaker 1: white knuckles, grabbing the chair, wondering what the heck did
• 1:32:15
  Speaker 1: I do? I worked so hard on this, like, well,
• 1:32:17
  Speaker 1: how did I screw this up so badly? And I
• 1:32:20
  Speaker 1: just I'm my head was exploding. I was listening as
• 1:32:22
  Speaker 1: I said, well, I don't I don't understand what what
• 1:32:24
  Speaker 1: because it had been submitted to some other partner that
• 1:32:27
  Speaker 1: was senior than him, so I can't make this up.
• 1:32:30
  Speaker 1: I had left off the middle initial of the partner
• 1:32:34
  Speaker 1: who was the ultimate recipient of this analysis. I had
• 1:32:38
  Speaker 1: left off I think it was an A. I remember
• 1:32:39
  Speaker 1: to this point, to this day, I remember his name,
• 1:32:41
  Speaker 1: but I remember the middle initial was an A and
• 1:32:43
  Speaker 1: it was so insane. Wait, wait, that's what he was
• 1:32:46
  Speaker 1: upset about. This guy had his higher up. It reamed
• 1:32:50
  Speaker 1: him out because I attention to details, she left off
• 1:32:53
  Speaker 1: my middle initial, so I can't see exactly. Um, but
• 1:33:00
  Speaker 1: on crazy I know, so UM. But you know what
• 1:33:06
  Speaker 1: I ended up doing was calling the guy who was
• 1:33:10
  Speaker 1: the middle initial A guy and asking to meet with him,
• 1:33:14
  Speaker 1: and we ended up having lunch and Um. As it
• 1:33:18
  Speaker 1: turns out, he wasn't nearly as upset as I think
• 1:33:20
  Speaker 1: the guy who called me into his office was just
• 1:33:22
  Speaker 1: having a bad day or you know, whatever the case was. Um,
• 1:33:25
  Speaker 1: but it it taught me about dealing with things head
• 1:33:28
  Speaker 1: on and not letting someone else speak for me, um
• 1:33:32
  Speaker 1: and uh and diffusing the situation um again by just
• 1:33:37
  Speaker 1: having a candid conversation, you know, sort of person to
• 1:33:41
  Speaker 1: person and so UM it was. You know, it stuck
• 1:33:45
  Speaker 1: with me because I it was a ballsy move, but
• 1:33:49
  Speaker 1: it ended up okay as a result. Quite quite interesting.
• 1:33:52
  Speaker 1: What do you do for fun? What do you do
• 1:33:54
  Speaker 1: when you're not um up to your elbows in the
• 1:33:57
  Speaker 1: hedge fun industry? So I've discovered inner athlete in the
• 1:34:01
  Speaker 1: last few years. I you know, growing up in New York,
• 1:34:04
  Speaker 1: I uh, I don't know. I didn't like I went
• 1:34:07
  Speaker 1: to Stuybison. It wasn't like I was. I wasn't a
• 1:34:09
  Speaker 1: big sports person. I took ballet that was about as
• 1:34:11
  Speaker 1: athletic as I as I was. UM. So I found
• 1:34:16
  Speaker 1: that I love cycling. Go on all these cycling trips
• 1:34:19
  Speaker 1: now like all over the world. I have a buddy
• 1:34:22
  Speaker 1: who does that. They have a Chase van and they
• 1:34:26
  Speaker 1: they went through Italy, they went through So I do
• 1:34:29
  Speaker 1: this in style. I'm not like you know, I mean,
• 1:34:31
  Speaker 1: so there is a van that follows us. We stay
• 1:34:33
  Speaker 1: in phenomenal places. We eat crazy copious amounts of food
• 1:34:38
  Speaker 1: because we can. We're cycling fifty six. You see stuff
• 1:34:44
  Speaker 1: you would never see as a tourist, you know, you
• 1:34:46
  Speaker 1: really and we picked places that are just that are
• 1:34:49
  Speaker 1: like you know, they're beautiful to cycle. Where have you
• 1:34:52
  Speaker 1: give us a few names? Provence, Croatia, uh, other parts
• 1:34:59
  Speaker 1: of France. Um which is off the coast of LaRochelle.
• 1:35:03
  Speaker 1: It's kind of like the Hampton's of Paris, Umu, Costa Rica. Yeah,
• 1:35:13
  Speaker 1: that that sounds fascinating. Let me ask you UM this
• 1:35:17
  Speaker 1: question about the industry. What are you most optimistic and
• 1:35:20
  Speaker 1: most pessimistic about the world of finance. So I think
• 1:35:26
  Speaker 1: that this this shakeout is going to be for the better,
• 1:35:30
  Speaker 1: because I really think the industry has gotten tagged with
• 1:35:33
  Speaker 1: the poor performance of the majority of hedge funds and
• 1:35:37
  Speaker 1: if they go away UM or, then I think what
• 1:35:41
  Speaker 1: we're left with are the guys that are actually really
• 1:35:44
  Speaker 1: delivering on um a business model that works for LPs.
• 1:35:49
  Speaker 1: And so I'm I'm as much as this is a
• 1:35:51
  Speaker 1: painful moment in time for a lot of funds. I
• 1:35:54
  Speaker 1: think the shakeout will happen the way it's supposed to.
• 1:35:57
  Speaker 1: Before we get to the pessimistic I meant to to
• 1:36:00
  Speaker 1: quote you something from Jim Chanos who said thirty years
• 1:36:04
  Speaker 1: ago there were a hundred hedge funds. They all created alpha.
• 1:36:07
  Speaker 1: Now this eleven thousand hedge funds, and it's those same
• 1:36:10
  Speaker 1: hundreds that are creating the alpha. Is that a fair
• 1:36:12
  Speaker 1: statement or you Now I don't I don't think that's true,
• 1:36:15
  Speaker 1: or you wouldn't see funds again like Eating Perry and
• 1:36:18
  Speaker 1: I mean sorry, Eating Park and Perry going out of business,
• 1:36:22
  Speaker 1: or High Fields closing its doors or Blue Ridge closing
• 1:36:24
  Speaker 1: its stores. Those two were by choice. The first two
• 1:36:27
  Speaker 1: we're you know, I'm not sure they were. UM and
• 1:36:30
  Speaker 1: and again all those funds that I mentioned that are
• 1:36:33
  Speaker 1: now shells of their former selves. Right, we talked about
• 1:36:36
  Speaker 1: the A U M drops of funds like green Light
• 1:36:39
  Speaker 1: and Corvax and Discovery and fir Tree. So those that's
• 1:36:42
  Speaker 1: not indicative of funds that have delivered great performance for
• 1:36:46
  Speaker 1: the past four or five years. Again this year exclusion.
• 1:36:49
  Speaker 1: So I don't agree with that. UM. I think now
• 1:36:52
  Speaker 1: what what UM is the differentiator? Are really funds that
• 1:36:57
  Speaker 1: have set up an infrastructure that bestows competitive advantage to
• 1:37:01
  Speaker 1: their people. So what sort of advice would you give
• 1:37:04
  Speaker 1: to a recent college grad who was interested in going
• 1:37:07
  Speaker 1: into finance. I think they need to They need to
• 1:37:11
  Speaker 1: understand whether it's finance, whether it's investment banking, or it's
• 1:37:15
  Speaker 1: going directly to a hedge fund or really my advice
• 1:37:18
  Speaker 1: would be no different to whether it's consulting anything. They
• 1:37:22
  Speaker 1: need to be prepared to work harder than everybody else
• 1:37:25
  Speaker 1: if they wanted differentiate themselves. And I tell this to
• 1:37:28
  Speaker 1: my son all the time. Everyone thinks they work hard.
• 1:37:31
  Speaker 1: The truth is is you and I know Barry, most
• 1:37:33
  Speaker 1: people don't actually work that hard. And I think, particularly
• 1:37:36
  Speaker 1: with millennial millennials, UM, they I don't think people these
• 1:37:40
  Speaker 1: days we interview young kids from Goldman even to join
• 1:37:43
  Speaker 1: our firm, to my firm, they're not working the way
• 1:37:45
  Speaker 1: I used to work when I was a Goldman, And
• 1:37:47
  Speaker 1: so I working hard that hard in being that overprepared
• 1:37:51
  Speaker 1: in the beginning is what will set you up for success,
• 1:37:54
  Speaker 1: because you'll be ready for unexpected um questions. UM. It
• 1:38:00
  Speaker 1: sets up a work ethic which UM, I think just
• 1:38:03
  Speaker 1: serves you well in life. You know, and I that's
• 1:38:05
  Speaker 1: that's the ethos I live by still to this day.
• 1:38:08
  Speaker 1: It's the ethos of my firm. It's just it's being
• 1:38:11
  Speaker 1: paranoid that you're missing something and making sure that every
• 1:38:15
  Speaker 1: last stone is uncovered. I've read certain coaches say that
• 1:38:19
  Speaker 1: given a choice between hard work and talent, I'll take
• 1:38:22
  Speaker 1: the hard work. Quite interesting, and our final question, what
• 1:38:25
  Speaker 1: do you know about the world of alternatives and talents
• 1:38:29
  Speaker 1: and recruitment today that you wish you knew twenty plus
• 1:38:32
  Speaker 1: years ago? So I think there's a special cocktail of
• 1:38:37
  Speaker 1: art and science that goes into what makes the best people.
• 1:38:43
  Speaker 1: And when I look at the people I thought were
• 1:38:45
  Speaker 1: good fifteen twenty years ago, you know, when I when
• 1:38:48
  Speaker 1: I see them now, a lot of these people, I'm like,
• 1:38:50
  Speaker 1: what was I thinking? It's just what? So our judgment
• 1:38:54
  Speaker 1: has certainly become a lot more refined as we've seen
• 1:38:58
  Speaker 1: people evolved through different markets. But there are certain things
• 1:39:01
  Speaker 1: that are common traits. Is what we've distilled from that
• 1:39:04
  Speaker 1: that I know now that I wish I knew then.
• 1:39:06
  Speaker 1: So those fall into two categories science and art. On
• 1:39:10
  Speaker 1: the science front, what we're looking for is a defined process.
• 1:39:15
  Speaker 1: We're looking for people who come at things through systematic research,
• 1:39:19
  Speaker 1: through systematic um independent research, not through talking to their
• 1:39:23
  Speaker 1: hedge fund buddies. We're looking for velocity of ideas. I
• 1:39:27
  Speaker 1: want somebody who's constantly thinking out of the box and
• 1:39:30
  Speaker 1: coming up with things, regardless of how tough it. Maybe.
• 1:39:33
  Speaker 1: I want somebody who can UM run a scale business.
• 1:39:38
  Speaker 1: You know, being able to deploy ten million dollars is
• 1:39:41
  Speaker 1: different than a hundred, is different than a billion. For
• 1:39:43
  Speaker 1: our clients, I need the guy who can deploy a
• 1:39:46
  Speaker 1: billion dollars successfully and generate consistent alpha over time. And
• 1:39:49
  Speaker 1: that goes to my last point on science. I want
• 1:39:51
  Speaker 1: somebody who can be effective in different kinds of markets.
• 1:39:54
  Speaker 1: Isn't just a one trick pony. So that's on that's
• 1:39:56
  Speaker 1: a that's a toll order. That's on the science front.
• 1:39:59
  Speaker 1: But you can have of people who have great science
• 1:40:02
  Speaker 1: and no art and can't really generate P and L
• 1:40:06
  Speaker 1: and on the and art is you know, it's a
• 1:40:10
  Speaker 1: I think it's a little bit. You know it when
• 1:40:12
  Speaker 1: you see it, certainly for us, And I'm not sure
• 1:40:16
  Speaker 1: how much of it UM can really be taught. I
• 1:40:18
  Speaker 1: don't think you learned this stuff that Wharton or it's
• 1:40:22
  Speaker 1: hard to It's just it's there's a d N a
• 1:40:24
  Speaker 1: composition to it, and it comes to passion. UM. I
• 1:40:27
  Speaker 1: know it when I see it. I know somebody who's
• 1:40:29
  Speaker 1: really into their subject matter. You can't fake that um
• 1:40:34
  Speaker 1: intensity uh an intense desire to learn and grow. We
• 1:40:39
  Speaker 1: spoke about this earlier, humility, um arrogance as a killer
• 1:40:44
  Speaker 1: in this industry. It's what it's what kills performance. You
• 1:40:47
  Speaker 1: have to be willing to pivot and come at things
• 1:40:49
  Speaker 1: differently and evolve. And I think, but I do think
• 1:40:53
  Speaker 1: the art can be made better if if you're somewhere
• 1:40:56
  Speaker 1: that can make the science better and gives you the
• 1:40:58
  Speaker 1: tools to refine your process and comment research more effectively,
• 1:41:02
  Speaker 1: then you can you can have more confidence in terms
• 1:41:06
  Speaker 1: of relying on things like your non intellectual judgment and
• 1:41:10
  Speaker 1: your willingness to take risk and be wrong. So I
• 1:41:12
  Speaker 1: do think they're all those pieces fit together, and it's
• 1:41:15
  Speaker 1: about being somewhere which can really help you develop the
• 1:41:18
  Speaker 1: right foundation. Quite quite fascinating. Thank you Alanna for being
• 1:41:23
  Speaker 1: so generous with your time. We have been speaking with
• 1:41:25
  Speaker 1: Alana Weinstein of I d W Group. If you enjoy
• 1:41:29
  Speaker 1: this conversation, we'll be sure to look up an inch
• 1:41:32
  Speaker 1: or down an inch on Apple iTunes and you could
• 1:41:34
  Speaker 1: see any of the previous three hundred or so such
• 1:41:37
  Speaker 1: conversations we've had over the past five years. We love
• 1:41:41
  Speaker 1: your comments, feedback and suggestions right to us at m
• 1:41:44
  Speaker 1: IB podcast at Bloomberg dot net. If you're still here,
• 1:41:49
  Speaker 1: uh this deep into the conversation, then you must have
• 1:41:51
  Speaker 1: enjoyed it. Give us a lovely review on Apple iTunes.
• 1:41:55
  Speaker 1: Check out my weekly column on Bloomberg dot com. Sign
• 1:41:58
  Speaker 1: up from my daily reads at Ritholtz dot com. I
• 1:42:02
  Speaker 1: would be remiss if I did not thank the crack
• 1:42:04
  Speaker 1: staff that helps put this conversation together each week. Michael
• 1:42:08
  Speaker 1: Boyle is my producer. Attica Valbrand is our project manager.
• 1:42:13
  Speaker 1: Michael Batnick is my head of research. I'm Barry Ritolts.
• 1:42:17
  Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.