The Systematic Investor #158 | feat. Mark Rzepczynski

you're about to join jerry parker maritz siebert and niels costrip larson on their raw and honest journey into the world of systematic investing and learn about the most dependable and consistent yet often overlooked investment strategy welcome to the systematic investor podcast series [Music] welcome and welcome back to this week's edition of the systematic investors here with mark russinczynski and i'm nils castro larsen where each week we take the pulse of the global markets through the lens of a rules-based investor now for those of you who are regular listeners our conversations are intended to give you as much of the nurture and encouragement as the turtles got in the mid 1980s as jerry likes to put it and if you are new to the show we hope that today's episode will trigger your curiosity to learn more by diving into the back catalogue and listen to all of the past episodes that you may have missed like last week's episode which was with jerry which i think was one of the best we have done together actually it was very deep we went into a number of topics and of course jerry talked about who is likely to be his successor when it's time for him to hang up his boots so if you missed that one i do invite you to go back and listen to it and uh as jerry do he actually we listened a couple of times to get all the nuances of what we discussed now mark it's great to be with you this week how are you doing and what's going on where you are today good the fall is starting and i i could feel that there's a certain amount of tension a rum among investors because they've they're done with all their vacation they're done with alder golf labor day in the united states is through so so that means that everybody is now figuring out what am i going to do to set up for the end of the year and and so if you're a poor manager right now i think that you're under scrutiny from investors and if you're a good manager you might see bigger allocations but surprisingly everyone sort of talks about the end of the year effect but the end of the year is actually set up after labor day and and so the timing of when money flows is not on december 31st so there aren't a lot of people sort of pressing buttons and putting new mandates out for jan 1. it usually is starting to occur right now interesting that you should mention it mark because i think what people and i've teased this a little bit in the in in last week's episode you and i are gonna talk about something today which we haven't really discussed on the podcast before i think it's a fascinating topic and it is in fact to do with you know what goes into selecting managers and and also actually how managers look at investors and all that good stuff so we'll get to that in in a few minutes but uh yes i think this will be something incredibly useful for everyone listening in today now before i dive into my usual rundown i want to acknowledge of course and give a shout out to those of you who left a rating and review this week as you know we so appreciate this and if i could come with a small ask this week of those of you who enjoy the podcast every week i would like to ask if you could take a few minutes this week to share the podcast with three of your like-minded friends as i'm convinced and that's the best way for us to grow our community by doing it together and there's no better way than to have someone like a listener introducing the podcast to a friend a colleague or a family member and who also of course should have an interest in finance and investing and and therefore our content hopefully will be relevant for them so in advance let me say thank you for taking time out to share the podcast with three people this week and to make it super easy for you i've actually created a link called top traders unplugged dot com forward slash share and if you share this link with your friends it actually gives them direct access to all the popular podcast players in a one click so they can choose what works best for them so thank you in advance for doing that so with that said let me just dive into this week's um quick review the bears had the last word this week stocks came for sale with the s p 500 dropping about one percent on friday to extend a whopping in quotations of course 2.3 percent pullback from its high early in the month while the naspa nasdaq 100 it lost about 1.2 percent to record the worst one day showing since may u.s bonds were also under pressure with the 10-year yield rising towards its 200-day moving average which is around 1.37 percent wti crude oil slipped below 72 dollars and gold remained weak at around 17.50 an ounce the vix rose 10 percent to about 21 making its uh it the first back-to-back week close above 20 since march of this year now economic data this week offered something for everyone i would say for those seeing the uptick in inflation as transitory well the consumer price index data was not as bad as feared the month over month cpi fell from 0.5 percent in july to 0.3 in august arguably an improving trend but still rising at an above target pace the year-over-year rate also improved marginally falling from 5.4 percent to in july to 5.3 in august again it's the right direction but still pretty alarmingly high numbers looking into next week the fomc will release their rate decision on wednesday afternoon all eyes of course will be focusing on tapering while several members have been publicly vocal about commencing sooner rather than later it's possible that they will push the decision out for another month now mark let me just bring you in here to touch on what are the things that may have caught your attention from a big picture point of view markets whatever it might be since we lost spoke a few weeks ago well the big issues is the fact that we're hitting tops in in the equity market so so so we're at at sort of market extremes but i think that we're building up a lot of pressure of what we're going to see at the end of the year and what we're going to see at the end of the year is whether there's going to be tapering or not whether there's going to be a continued rebound in in equity markets what's going to be happening in china so i think that right now we're we're in a wait and see period and you could see that in in a market directional move yeah no i agree and actually there's quite a few things going on from a big picture point of view you mentioned china and that's certainly one of the things that i think people need to pay attention to in terms of our performance the overall we saw a small improvement in our trend following strategies in the past week despite the last two days of corrections and a number of trends the performance on our side was largely split between equities and copper suffering losses this week whilst we had energies and grains contributing positively fixed income also did okay with short-term interest rates in the uk so that's the short sterling contract taking the title for the best performing market for the week currency sector was mixed for us and overall it was a pretty flat sector return we saw there my trend barometer finished the week yet again at a weak level 36 so not quite agreeing with what's going on when we get to the industry numbers but certainly more in line with what we've seen over the summer at our firm in terms of volatility friday was the monthly and this week we actually saw the quarterly option expiration as this has been one of the largest expirations by open interest during the last two years the amount of hedging flows were pretty large which also is one of the explanations for the quick reversals after small dips during the week albeit less so on friday as the options expired in the morning the vix term structure flattened in the front end while remaining unchanged for the longer dated expirations all of the weekly actions originated really friday afternoon a pattern that has also been seen and repeated itself for a while now friday also showed us how nervous the markets really are as the front month vix uh increased by 1.4 which is about one and a half times what the s p uh declined in terms of percentage all in all on our side the volatility strategy was pretty uneventful week really with the exception of friday maybe but again you know about three tenths of one percent for the week on my trend following portfolio side where of course i can go into more detail it was a negative week pretty much mainly due to friday's action uh i will say so it leaves it down almost three percent 2.99 for the month uh still up six and a quarter or 6.28 for the year so far performance as it breaks down between the three groups group 1 classical trend down 1.13 for the month group 2 long biased trend following down 83 basis points in groups 3 which are the fast reacting models they're down about 1.03 percent top three markets so far this month or sectors i should say is base metals energies and a little bit of profit in precious metals and the worst sectors this month really are equities bonds currencies and short-term interest rates uh come in almost you know tight on third place and if we drill down by markets um the the top performance are aluminum natural gas nikkei so not surprising if you look at the charts and at the bottom we find um kind of an equity equity theme dax smi and nasdaq others are the worst performance in terms of the trading this week not a lot went on the week started out with the model entering a short signal in live cattle then tuesday it exited a long german bun position on wednesday it went long a couple of gas oil and heating oil signals and took some profits in a long smi position so went out of that thursday it took a short signal in gold and friday was mostly about the dax so the shorter term models where there were some long exits and also a long exit in the u.s 10-year note as they came off and the risk to stop meaning that if everything got stopped out on monday what is the expected loss in the portfolio it's sitting at 8.4 percent which is up fractionally from last week eight point one three percent so pretty much unchanged during the week that's about it now we need to dive into um a question we got in from brett it's a little bit of a long question but actually it uh it's pretty interesting so let's try and deal with that together mark before we dive into this wonderful study that you have been part of so brett writes i wanted to start by thanking you for all that you're doing in terms of educating the public on trend following and rules-based investing since finding your podcast back in april of last year i've continued to educate myself and think more on probabilities with my trading while adhering to risk management principles in my trading systems so thank you so much for that and for giving me the inspiration to explore further you're very welcome brett my question will be a little long so i just want to explain my thoughts feel free to edit it and the question deals with risk bucketing and how you think about it okay as correlations are non-linear and constantly evolve some trend followers probably disregard them whereas others might look at them and how their portfolios behave as a whole do you group your contract's positions into risk buckets such as commodities currencies equities rates and you could even split the commodities into soft metals energies and give a max exposure to each bucket so that's question number one let me just answer it from my perspective mark then you can give your thoughts on on this so so actually you could say i i'm kind of in in two camps here so on the done side we actually want to treat all markets equal meaning we although we can see what exposure we have in in in each sector we actually let the risk exposure be determined on the market level so you could say there's no specific sector limit the limit is made up by the limits for each of the markets but in general we want to treat everything the same because we don't know where the next big trend is going to be now we do take into consideration correlations though but that we do more on the overall risk budgets that we have for the full portfolio so so yes we take it into account but maybe not in the way you describe it just here for my own trend following portfolio i actually don't look at correlations at all so i just purely look at market by market similar to i think what you know jerry and moritz do in the sense that we just take we we've constructed our portfolio not based on correlations per se we are aware of them but we basically say okay we want to trade these markets and therefore when we get a signal we just treat that signal in isolation we take our uh whatever 25 or 30 or 50 basis points risk and we don't change the position based on changes in correlation or anything like that so that's kind of how where where i am mark what are your thoughts on on this thing about whether you should split your portfolio up in sectors and having risk for that market or whether you should look at markets individually right or something in between i think that most people and myself included would use a hybrid approach and a perfect example is let's look at the energy complex so you have crude oil you'll have gas oil you'll have heating oil r bob which is gasoline those are going to be all highly correlated and what happens is that they'll often trend together and so in some sense you may want to cap the maximum exposure you have as a group at the same time you'd say natural gas natural gases you could be considered by name part of the energy complex but natural gas at the same time seems to behave differently so in that sense is that grouping by name is not appropriate grouping by historic correlation tells you what your maximum exposure would be at the same time this is that you'd say you could have things that are highly correlated so you get two markets that have a high correlation but when you put it through your trend following model that they could actually have one could have a long position in a short position so the fact that markets are correlated doesn't mean that trends are always going to be in the same direction now yes i will sort of say that that uh the best performance for trend followers often occurs when markets are highly correlated so that means that many markets are moving in the same trend and so you'll actually increase your exposure overall because of that high correlation and those are also the times when you're going to see your maximum risk so for example is that you could be trading a number of different global bonds futures so this is that you're going to make your most money if all uh global bond futures are moving in the same direction because there won't be any canceling out effect at the same time is is that uh and that's because they're usually going to be highly correlated at the same time your ma your risk is going to increase when all those trends are moving in the same direction at the same time yes completely agree with all of that i just want to make sure also brett that you're aware of course the conversations that i've had with jerry from time to time where he also kind of mentions this but where we also agree that sometimes and we are hunting for outliers let's not forget that and sometimes we get these outliers where one seemingly highly correlated market with everyone you know everything else in your port in your sector just takes off and goes much much further than anything else in the same sector so that's also something you need to be aware of which is why i think in a sense that when it comes to following the the actual signal treating them individually is very important because they could really run for much further than maybe some of the other markets in the same sector and i would also commented is that when generally there are rules of thumb that people use when they talk about uh you know futures trading so they'll say okay i do bond trading i'll do equity indices and then i'll say i have a exposure to commodities and they lump all commodities together whether you look at correlations or not what you find out is commodities are not the same and so oftentimes when they they're thrown in as this this broad generalization i trade the commodity exposure in reality that they're surprisingly uncorrelated and they don't move together so now base metals may move together precious metals may move together but but one of the great values of commodity trading is the fact that commodities are not as highly correlated as what most people think yeah no completely agree all right let's move on with brett's second question here if you are only risking 50 basis point or whatever on a certain trade that risk can really add up if you have on say 10 equity indices that are most likely highly correlated your risk to stop for the whole portfolio will keep your risk in check by limiting it to say 12 or whatever on all positions but do you try to have a max risk per type of asset class or does that not matter so just to answer that on my side brett no once i've decided on the portfolio that i want to trade i don't currently put a cap on say the max risk to stop i think you could potentially say okay if it gets to 20 maybe you would do want to put a cap but then you would have to adjust all positions in your portfolio accordingly i don't know if there's any value in in in doing that but but you you could i think it's more to do when you say yeah you could have 10 equity markets that are highly correlated yeah but then just choose eight if you're worried about that don't you know so or you could say okay i have these 50 markets and if i look at my my risk instead of taking 50 basis points on the whole portfolio per trade let me just take 40 basis points and then i mean i'm in a comfortable situation i think those are the ways i would look to kind of just resolve the issue of having too much risk on and always be aware that if you do a back test and you see what what what drawdowns you would have incurred using a certain level of of risk per trade you should always expect that to be higher in real time and going forward so that's how i would would look at that um anything you want to add no i agree and this actually moves back to the first part of the question is this is that if you're trading 12 global equity indices this is that you have to expect that there or your maximum risk is the fact is what happens if all 12 of them are are trending in the same direction what happens to your overall risk so so you should account for the fact is that what happens if the directional risk also moves in the same as your maximum exposure and i think this is the reason why a lot of trend followers have you know relatively low margin to equity ratio because they could have a situation where markets uh that they're trading a lot of markets within the same category and then they all start to take the same position and then your risk could actually increase significantly but those are also times of maximum gain and so this is the classic problem with trend followers versus you know we'll call it traditional portfolio managers the trend followers say is that if i'm trading let's say 10 global stock indices and all 10 of them have a long trend i want to be in all those markets and i want to take the maximum exposure the market trends are telling me exactly what to do the traditional manager might say oh my god i have too much exposure in equities i'm going to have to sort of cut back my exposure so at the exact time when you might have your maximum potential gain your you're taking exposure off the table and a trend followers view is that that's exactly what you don't want to do yeah volt targeting is right it's it's a lot of people it's the micro uh it's the micro uh behavior of vol targeting you talk about vault vault targeting seems to make perfect sense in and i i'd do it at the portfolio level because you want to have some you want to be able to talk to clients and be able to say this is what you should expect from what we're doing at the same time on a micro level what you're doing is you're going to have to then start to that you might be taking you might have similar positions across many markets that all might be working and you're going to have to take exposure off the table yeah no absolutely all right let's uh do the last bit of the question and then we get into um the big study and brett writes since there are way more currency pairs out there to trade than soft commodities your portfolio natural will have more exposure to currency moves since statistically you have a better chance of having one more currency position in the book in theory that means every position isn't equally weighted since the sector slash asset type will be skewed in one direction depending on how many you have in the book sorry to be long-winded but hopefully my questions make sense yeah no absolutely brett i think they're good questions i think they're important so let me deal with that as well you're absolutely right there are more currency uh pairs out there than there are soft commodities but it doesn't mean you have to trade all the currency pairs out there right i think you need to choose a number of currencies that you think are somewhat different i mean there's no need if i mean if you were just choosing two and you chose the euro and the swiss it's pretty much the same thing more or less so you wouldn't want that but you might want to change take the you know australian dollar instead or the end to get some kind of diversification so yes you again think about the total number of currency markets you want to trade and and maybe maybe that let me back up one second the first thing i think you should think of if you look at your portfolios to say okay how many markets do i can i realistically trade taking you know in into consideration my risk budget my account size et cetera et cetera once you've determined that let's just say for argument's sake that that number is 20. then i think you need to decide between you know with yourself and say okay how much allocation do i want to commodities and how much do i want to financials then you divide the pie in whatever relationship you want that to be in and then once you have that then you can say within my financial part how many how much should be currencies how much should be fixed income how much would be short-term interest rates how much should be equities that's your financials and then you look at your commodities and you say okay how much should be base metals how much should be precious metals you know soft screens energy all of that good stuff meats um for that matter you know maybe you want some crypto i don't know but i think just keep it simple once you have that and you have your 20 markets you've selected them then you can decide on your risk per trade and then you can run your simulation and see how it went it's not going to be like that in the future but it gives you an idea of the profile let's put it that way profile of the portfolio look at your average wins look at your average losses there needs to be certainly a good ratio ratio between those look at your drawdowns make take into account it will be bigger in the future can you stomach that things like that i would just say keep it simple at that stage i will just add to the previous question that i'm very familiar with firms that since i work for one that does risk that does run an overall risk budget meaning there are certain limits that we will don't want to go above on a daily basis for the full portfolio so we don't target volatility but we do have a risk budget a maximum risk budget now that budget can change on a daily basis that's one of the dynamic features of our risk management system it can change but there is a budget and i think that's the important part to know that you have some certain boundaries that you follow and then of course you need to be familiar with the what controls that that those boundaries anyway mark anything you want to add before we dive into your big topic here yeah i think you covered it uh but we're gonna discuss this a little bit in when we talk about due diligence is that portfolio construction is one of the most important features that investors want to understand from managers and i think we're touching on that key issue is that you know i think a lot of managers and trend following the world they'll they'll talk about well here's my uh i don't want to say they'll talk about the secret sauce but they'll say here's what i do for trend following here's how i look at a market here's when i enter and exit which are all very important but a key component from an investor's point of view is how do you construct the portfolio how do you take uh we we want to know how you look at one market but when you have trade 50 markets how are all those integrated into a system and this is the issue that that is uh is of most importance to investors oh couldn't couldn't agree more portfolio construction is actually one of those things that people don't think enough about but actually is critical to long-term success in this business [Music] now i've teased enough about it but today we are going to talk about a topic that i find really interesting in a sense i've been dealing with this for 30 years because i've always been on the client-facing side of this industry so now to have a paper and i will say it's not public yet so you're getting a sneak preview which is absolutely fantastic that mark has been able to uh help us with he's one of the two authors of the paper so of course uh he has good connections there but but it is wonderful to have this paper to uh to discuss um because it's the study that marked it with the kaya association i think you're going to find it really interesting even if you're not a manager or an investor in hedge funds today simply because the topics are what are the key drivers for manager selection and i think we can all learn a lot about that when we dig into this i think before we dive into all the sub headlines that the paper covers i would like maybe for you mark to kind of set the stage the background story a little bit as to how this came about when was it done you know maybe we talked a little bit about how many people participated in it so on so just to set the stage before we go into some of the the findings let's first talk about due diligence in general and i i call this the black hole of investing because it's not often discussed uh there's not a lot of research from academics and the practical work of due diligence is not always always testable and so let's look at the uh sort of the classic way to view it or how an academic would view it or a quant would view it they would sort of say find a list of managers sort them according to what is the sharp ratio and or return or some you know quantitative factor and go out and just buy the ones at the top and you know this is a search problem and it's a quantitative problem or that's the way that academics would view this then you go into the practical world and always in the back of your mind and on the bottom of a lot of is the disclaimer past performance is not indicative of future success so all of a sudden that that you're warned that you should not use all of the quantitative tools that you just use to search to find the managers and then also what you find out is and i've been on both the buy and sell side working for managers and then also doing allocations and i always sort of have this view that financial products are not uh uh you know bought they're actually sold what i mean by that if you're bought then then the buyer would just sort of look for his criteria and choose choose managers and so in an efficient market world those people who are the best manager should see all the all the money moved to them and all the poor managers should be out of business but in reality what you find out that there there has to be something else going on that affects how people make decisions and this is the basis of what we're trying to get at at the at the survey so i actually went to kaia and i said you know as the chartered alternative investment alternative investment association you want to be able to sort of say this is that for both your readers and for members said how do people go about this due diligence and and how do they actually make decisions uh because i see that there's this big disconnect and the disconnect is is that uh most work is done by quants but most of the discussion about managers is qualitative and neil's you you probably have gone into meetings this is that they'll look at the numbers but then most of the questioning is qualitative of like what do you do how do you do it tell me about the about what's going on inside the firm tell me how you make decisions it's not quantitative it's more of how to it and the second issue is that you find this is that there's a tremendous amount of focus in the due diligence process operational or business risk this is especially post madoff you think that we have all of these tables that report performance yet when you look at due diligence a lot of time is spent on just looking at operational issues so what is the business risk so it doesn't matter if you make an extra couple hundred basis points in return if there's a risk that you could be going out of business and i'm gonna have to do that workout i may not invest with you so given these disconnects given this black hole you know i went to kaia i said look this might be an interesting survey so i work with black over at kaya they developed a sort of a set of surveys and we went out and we surveyed the membership but we asked them only if you're involved in the due diligence process and we broke it up into two parts we asked first to have a survey for investors and then a survey for the managers and the reason why we wanted to look at both components is because we wanted to find out whether there is a perception and difference between how an investor looks at due diligence versus how the manager looks at due diligence so again we focused on asked only people who are actually involved in the process we got a wide variety of both large firms small firms family office pensions cios analysts people who work on the operational side people who work on the investment side so we think we got a good sample of people who are involved in this decision process and we were able to sort of get a good handle on how this is actually done and how people go through the through the process and what we find this is that there's actually a sort of two major components or two two parts to due diligence one is the investment side which you know i think that uh for your listeners that's what we often talk about on this podcast is that how are investment decisions made but there's a second part is what is the operational uh or business risk associated with uh the firm so uh because if you're investing in a management company or investing with a manager what you're actually doing is investing in their business and so the question is can they execute on the investment style or thesis that they're actually bringing to the investor and what you find out is this is that uh in the investment side it's actually a combination of both quantitative and qualitative and and this operational business risk oftentimes has veto power over the in investment side so we tried to get at is is that how difficult is it to do uh due diligence on alternative investors and what we find that people find that doing analysis on traditional managers is is actually fairly easy they're well-known benchmarks so if you if you're an equity loan only manager you could find let's say the s p benchmark you if you're a small cap you could use let's say a russell 2000 um given regulatory environment there's a fair amount of transparency and what happens is that you can get to know the manager through databases so surprisingly traditional management both on fixed income and equity is fairly quantitative is fairly easy because there's transparency and benchmarking that allows you to determine how to choose a manager on the other hand alternative investments is much more difficult given the fact that there's not the same level of transparency and there's not the same type of benchmarking so i think that gives you a little bit of of maybe an overview of what we are trying to uh to to look at uh but we could now talk about a little bit more specific of so how is this done yeah yeah no i mean as i said i thought it was fascinating because you're absolutely right this kind of study i don't think it's ever really been done to try and dig deep into what really is important to an investor in terms of when they make that decision but also how that differs from perhaps how the manager sees it which is quite interesting uh i think it was really good that you made that comparison because i do think we as managers have a different perspective on these things and it's kind of funny this is about due diligence to to a large extent right and it just reminds me that um one of the reasons for me to starting the podcast all those years ago was really because i felt at the time rightly or wrongly that i could ask better questions of managers than the people coming in from the outside having to do due diligence on on on on managers like a trend follower and so on and so forth i'm not sure whether i succeeded in that um but that was actually one of my key motivations because i thought at the time that everybody was asking us the same questions they were all using the aim due diligence questionnaire at that point and you kind of always were asked the same question so anyways just a little anecdote from from that you touch on a very interesting issue and um you know i we end with sort of like the disconnects between managers and investors but you touched on one of the disconnects is that most of the managers think that the due diligence process should be easy you know they say well you know i i know my field i know trend following so therefore i expect that uh they should see my value fairly easily relative to other firms and investors are generally generalists so so they're they're not uh specialist in managed futures systematic investing so they uh what you find as a manager should be easy they find fairly difficult so that's a disconnect that is a disconnect and i actually fully appreciate that you know you know i would have no idea how to go about doing due diligence on a you know credit manager or anything like that so i completely agree with that but i've also as you alluded to in the beginning i mean i've sat through you know hundreds if not more than a thousand of these due diligence meetings over the years and you do get surprised sometimes with the questions that you get where you just think why is that important i mean it's you know for example people would ask okay so what's the exact length of your moving average that you're using not that we're using moving average i mean things like that we just think well whether it was 30 days or 40 days it doesn't doesn't really matter so just be you you're pro priding a little too much into the secret sauce anyways let's leave my story war stories and dig into your into your survey i have a list of things that i kind of and maybe i mean i i'll read them out because um these were things that are topics you can then say well you know whether you have the answer for it or we can jump over it but i just want to make sure we cover a lot of these kind of interesting sub headings from the survey so one of the first thing you that the survey talks about or tries to establish is a little bit about you know how long does it actually take to do these kind of due diligence because again i think managers might have a different perspective than investors in terms of how long these things actually take so so i want to ask you about that and also maybe you can talk a little bit about who actually decides then on the manager selection from the investor side sure is it's surprisingly is is that if you actually have a call in your you know sort of say that there's actually some presentation done that you're actually sharing some information manager then in most cases say two over two thirds of the chance it's it's going to be done within you know zero to six months that uh you know there will be an um you know sort of on-site visit that's changed in the pandemic world there'll be an operational due diligence but generally that uh and some might think that that's a very long process but within uh you know sort of zero to six months a decision will be made about most of the managers now sometimes it can draw uh be drawn out for years but that's because there may not there be a disconnect because they're waiting on information they're waiting on scheduling there may not be interested in your specific strategy at a given time so you're put on the back burner but i would sort of say that that happens fairly quick so so if if you're not moving forward within six months from a manager's perspective it's probably not going to happen now i will sort of say and this is another one of the disconnects is that most managers think that the decision is made by an individual and that's because they're usually interacting with one person as a point person for their for their discussions in reality is that most investment decisions concerning managers and due diligence it's done by a committee and what you find is is that the committee process will have different interest groups you know one will be the analyst who's presenting to the committee uh you'll have the cio uh who is not going to be as quantitative is probably going to be much more qualitative focused so so he's going to be wanting to know us and said tell me about the culture tell me about the manager tell me about uh you know sort of the intangibles and then you'll have the operational guys and uh i'll sort of half joke is this is that the operational guys or the doctor know of investment decisions and that in some in some cases our survey shows that about one-third of the time you know a rejection will be given to a manager not because of the investment side but but because of the operational people that it doesn't pa as operational due diligence and so uh this may be disheartening for smaller managers but it's the uh you might have a great investment thesis but again it's an issue of whether you have the operational expertise to be able to run the money that'll often determine whether people will allocate to you or not just a quick comment on that uh that i just personal uh sort of a personal view that i find interesting i mean i completely agree with what the server has found there's no surprise there and i think you're right that most decisions nowadays are made by committee what i find interesting about that because i do think it's a little bit different from when i started in the industry often we would meet with the decision maker as well there's always like one guy that kind of really took the decision and if you could get in front of him or her and make a good impression so to speak the likelihood of of of of something happening uh would be much higher so my my concern is that when you now do all of these things by committee and as you say in reality there may only be one person from that committee who've actually met the manager met the team etc etc my view is that what to a large extent investors are buying is people you know it's the people behind the firms it that's the important part that's what they need to understand how they think and and all of that plus i do think and and this may sound silly but i do think it also there also has to be a good chemistry between the people on the buy side and the cell side so to speak to have a good working relationship so i find it a little bit concerning that nowadays that aspect is kind of lost uh because it has to be funneled through one individual has to explain to his committee oh you know i think jerry's a nice guy this is how he is this is what he you know all you know moritz is he's great you look at this he's you know you lose that i think when you when you do it um and to me that's that is a concern just a personal view oh now there is uh unfortunately that uh well i think you're touching on a really important issue because we'll sort of say that uh when people think about the edge they'll say that the one of the key factors that they call edge for an investor is experience so which is a people issue uh then it might be the research process but experiences is one of the key edges that people have that managers have the other is this is that on the qualitative side one of the important issues is the integrity of the firm and an alignment of interest and we'll say that when you talk about integrity and alignment of interest that's that's a very person specific and i think i i'll agree that they're probably 20 years ago there's more of a portfolio manager who's making decisions so you can actually go out and meet them they get to know you and and there's probably more relational decision-making now i will sort of say from an integrity and culture issue this is that there's the old story of that that you know people would take uh managers or go out to to dinner or lunch with managers and then they would see exactly you know how they treated wait staff to determine uh whether they're a person of integrity uh that that these are certain intangibles but generally we'll sort of say that that there are qualitative features that help determine whether you would make a allocation to a manager that are not written down and cannot be measured through some quantitative factor yeah and this actually goes into uh so we asked the question what are the factors that could predict future performance of a manager so because you want to sort of say like well you know do you think that there's persistence in sharp ratio do you think are there certain things that you look at to try to sort of help you predict even though we know that uh past performance is not indicative of future success and they'll say the respondents say that it was that qualitative factors were highly or most important in trying to predict the future so in some sense they say i see the numbers but i need to know the process and the person to be able to determine whether i think that they could make money in the future yeah i think that makes sense so uh what we find out is is that in general this is that there are huge differences in difficulty uh and now some of this might seem obvious but i guess i'd sort of say that some of it is surprising this is it now it was found or we found that venture cap is the hardest to do a due diligence on uh because there's no benchmark very little transparency they might be doing some one-off portfolios so you really have to sort of make judgments about the management team and their ability to choose firms in a venture cap fund so and that seems obvious but surprisingly the number two hardest strategy was systematic the number three was global macro then we had private equity and then ctas so we listed all the different uh strategies that you of an alternative investment you know from real estate long short equity and such and try to say i said well tell us which one you find the most difficult to do versus what are the easiest and surprisingly no or not surprising traditional assets were the easiest uh equity hedge funds were you know relatively easy because you could sort of say that if they're doing long short investing this is that well i understand how a traditional manager might make investment decisions so let's uh so we're also now going to include how they run a short book and so and it seems easy to understand why venture capital might be so difficult but surprisingly this is that the systematic managers were were very difficult even though they're they're very model driven and they sort of say that they use more of a quantitative process still about 20 percent of or a fair amount of the decision of how to choose a manager is qualitative even for systematic and trend following and the viewer what we're trying what we tried to tease out from the data was the fact that okay you can have the data and you can hear about the models but you need to have someone tell you or walk you through the interpretation of what's being done and the qualitative due diligence is based on you know sort of this assessment of walking through how a system works and you can't extract that from just looking at numbers you have to have someone tell you about it you have to sort of talk about philosophy you have to talk about how portfolios are constructed and as we talked earlier in in the the podcast today is this is that the one thing that are is very important for managing uh for or for managers to explain to investors is what is portfolio uh portfolio construction risk management and idea implementation those are almost equal in terms of what's important for the investment committee to understand from a qualitative perspective this is that and this is sort of the black box because you can see the return numbers but you want to say how did you get them so what's the performance attribution and contribution so you want to know the portfolio construction how do you handle risk and then idea implementation to a lesser degree they're also looking for when they look at a performance track records they see the numbers that they're also looking for managers to explain outliers so if you had a really bad month you can rest assured that you're going to be asked explain why you lost money in that month and similarly if you had a a great month and it seems that it's an outlier on the positive side people are going to ask you how did that occur or why did that occur so those are things that are very uh very important in terms of of what's uh what investors are looking at from a from a qualitative perspective i'm just going to jump in here mark just trying to sort of catch up on some of the topics that i also mentioned but i want to go back to just seeing about you know the the people side of things and and as as i said i thought it's it's important that people actually meet the people and so on and so forth but i can also think of one thing that is kind of a a challenge because when you do it like that when people come in to really meet with the team so to speak and especially kind of the research teams the head of research or the co-heads of research what however you have your group structured then it also becomes about i i think this is my my my assumption i think is that it actually also comes down to how do they come across how good are they at so quote unquote presenting i mean and and so i think that the challenge for the analyst or whoever meets them is to separate a little bit you know how they present because you can have and i've met some of the smartest people in the world but who may not come across so well when they have to do a presentation of things right they they can be a little bit distracted and and and nerdy and and whatever and then you have on other sides you have people who come across incredibly elegant many of them have been on the podcast so so and i think that can actually put some people at a disadvantage because they actually are really really good but they were never expecting that because they're good at math or physics or designing systems that they also had to be good at making presentations et cetera et cetera so i just think that that's a challenge that the analysts need to be aware of and try to kind of separate a little bit you've actually touched on another paper that i actually wrote for the journal of alternative investment it has not been published yet and it's about narrative and the investment process and narrative or storytelling is critical to success in raising assets and except success in explaining what you do to investors and when i say narrative and storytelling is that your ability to weave and uh uh for investors a story about how you can make money how you've done it in the past how you do it currently and how this is going to continue in the future and what are the environments you're going to do well what are the environments that you're not going to do well and then how do you actually go about your research to make sure that you're constantly improving yourself and we'll sort of say that there's no question for example that albert einstein was a great physicist but he was actually also a great storyteller and all of science is associated with good storytellingness is that so so when even if you uh read a journal article this is that well you could just have a table of numbers and say i ran these tests and these are the results no usually what happens is that there's a narrative about like how does this fit in why is it important what did you do that's unique and so the same thing that's being done in science actually also applies in due diligence when you're um when you're a manager and this is the qualitative aspect uh that that i think that the academic research or the idea of looking at just sharper issue don't doesn't get at you you sort of say i see your turns i should see your sharp rape ratio you meet some minimum standards now i need to know how did you do it why are you able to make money and why is this going to persist and that's a narrative and unfortunately is that if you're not good at telling the narrative this is that it's going to be hard for you to be able to raise money now surprisingly you know say marketing material and websites that the we'll call it and i put this in quote the slickness of your materials is really not that important to investors but your ability to articulate your risk management and research process or portfolio construction is very critical and that's something that they can't get from the numbers yeah and let me just expand on that so i would go as far as that storytelling is not just important in science storytelling is important in all of human life right what's the first thing we we do when we're babies we're told stories our parents read to us every night when we fall asleep so our brains as far as i'm aware and i'm not a complete expert here but i think i've heard that our brains are somehow somehow wired to hear stories and that there are some quote unquote filters that kind of goes down when we start hearing stories because that's really what we've been programmed for and of course what is history history is stories right that's how we learn history we these are stories so so no no i mean narrative and we let's do that another time right because that's a fascinating topic and i didn't know you had written another paper on that so i'm thrilled to hear that because i think this is something that we can all improve and be better at so let's do that i want to dive into one question and i don't know how far down you are in your list but one thing that surprised me a little bit from what i thought it would be the answer and that is external consultants how important are they because at least in my experience a lot of these institutional investors have been so have been surrounding themselves by consultants so it's been really hard to even get to the investor themselves because you had to go through the consultants and and so on and so forth i've actually did a um i did a podcast episode a couple of a few years back now with three of the largest consultants in the world and so that that episode can be found i think it's under the round table series but i would love to hear your uh what your survey found in terms of how important consultants are in this process right it's that's a very interesting answer we got to the question and and i was also surprised by that it showed the consultants have very little impact in the decision process and that most of it is uh internal generated and decisions and i probably sort of say that for you know government pension plans consultants are very important uh and for some other groups you have to be uh also to say if you're in a ria group uh so that they'll often you know use consultants at times so that you have to be on the consultant's uh buy list to to make any headway the survey says that that's not the case and i went deeper into the data and will probably sort of say that because most uh well all the respondents who were kaia members they've been certified or they passed your kaya test so they have some more experience in alternative investments we'll probably sort of say that some of these are larger shops that it may have been a bias associated with the sample of who we were surveying but it says generally that the consultants are not that important to the process now i think that there's you know buy less from consultants i think that people use that list but you know they'll also sort of talk with other managers there may be a higher hurdle for you to pass to be able to get it over this consult you know not being on a consultant list but that even if you're on the consulting list there is still a committee that's making that decision and and it's not the consultant that's driving the ultimate decision to be very transparent i i have kind of a love-hate relationship with consultants everybody does more about okay fair enough and i think it's more about the process because what i've experienced in in in my career at least is that you are often told by the investor oh yeah but you have to go through the consultant and the consultant then has this approved list right and the only way you can get on the approved list is is if they would even do a review of of your firm and i know for a fact that some consultants even though our firm has been around for 47 years some firms have not done a review on on our firm for more than a decade and when when i asked about it so why don't you come and do a you know a review i mean after all we've been around for a while they say oh yeah but and we only do reviews if we have enough of our underlying clients request a review of you as a manager and i just think well that's kind of crazy because isn't it your job to present interesting managers i mean if the investors were to identify us an interesting manager they don't need a consultant in the first place and and furthermore since we don't know who their clients are it's very hard for us to go and say well couldn't you ask for a review of us so that we can start having a proper conversation and i worry and this is kind of back to some of the risks that i generally see in in not just in our industry but in the whole world and that is you end up and i guess the aum numbers of our industry uh suggest that you end up with hyper concentration among the largest managers the few managers who attract all the assets is because they are on the approved list so that all the institutions that really large allocators might only be able to choose from five or ten managers in the world so they get all the allocations and you miss out a lot of the on a lot of the talent who falls outside of that that's my that's my concern and that is also why it's a little bit frustrating now to hear from your survey that actually investors don't put too much you know weight on the consultants well okay well if that's the case why should they you know have this important role as gatekeepers and and disallowing investors or managers to have direct contact with with the investors anyways that's a little bit of a personal this is an important issue because i i think that i i would like to tease out more of this and one thing we weren't able to do with this we did a survey but you know a survey is a tease it doesn't get at the heart of the issue is that you'd like to also do interviews with with people too to sort of tease out more of that and sort of this is not my full-time job this is sort of a labor of love so i guess i sort of say that that that would be an interesting area for further discussion but the one thing i found out is is that when you look at for example is that what disqualifies managers and so most important are return risk and experience the so so if you don't have good returns the the that that'll be a disqualifier if you're a fear too risky relative to their targets that that'll be a disqualifier and now surprisingly the third most important disqualifier is just experience they're looking for you know managers that have had a strong level of experience and sort of say that they they've been through a number of different market cycles now the things that are not important for disqualification are fees fund terms and size and so uh so most of the investors say that size doesn't really matter we asked also what uh what really matters this is it and i found this sort of interesting and also i'd like to tease this out more is that growth matters which suggests that there is a bandwagon effect with investors so that you know if it doesn't matter whether if you're a big or small firm but if let's say you're growing very fast and so there's a lot of assets coming into in the door for you then then all of a sudden that that causes a lot more interest with investors so they say like well if if other if my peers are investing in a manager well i want to also at least take a look at them and i might invest with them and so there is this seems to be a bandwagon effect now even for uh emerging managers size doesn't seem to be a key determinant at least from the survey participants but what but what will does matter is sort of the quality of operations or business risks so so i think for a lot of the smaller managers they say well how do i get to be a larger manager and i'll probably sort of say it's it's not so much uh if you've got good returns if you're you know controlled risk you have a good story or have some experience it's it's quality of operations that matters so so and that's something that i think that when you look at the disconnects managers don't sort of put as much a high of value on that operational issues [Music] i just want to intersect something here i'm not sure i truly agree with that statement that size doesn't matter when it comes to investors because i cannot count how many times i've heard the argument from investors saying i'm not really going to look at you because you're total aum might actually be okay but the fun that i need to invest in i don't want to be more than 10 of that so i can't invest because it's only 50 million dollars and i want to give you 50 million dollars if i'm going to invest so i think size really does matter for institutional investors um maybe not for a family office but once you're an institution i really feel that size matters uh and also the other thing and i agree with the importance of of operational qualifications and and all of that stuff but the other thing i have found is that i think the reason why size matters in reality and that is that people investors analysts they don't want to take the career risk of having suggested a small manager right we used to joke by saying oh yeah you know you're never going to get fired by investing with wynton right because they're like the brand name of ctas right but you might get in you might get uh you know fired if you invest with a small manager so i actually will say from for me that part of the survey i don't think fits so well with my practical experience with investors and i think that the the this becomes complex in being able to tease out so so one of the key determinants of of edge is experience so if you're a new manager and you don't have experience because you haven't worked at a large shop and and what you know for example next to years of work as measures of experience is what were your pla past employers so if let's say that you've worked in a uh asset management area or in trading for you know 15 years and you're coming from goldman sachs and you're a small quote-unquote starting out as a small manager you probably will get over these hurdles if you're a junior person who's in is still in his late 20s does and have a lot of experience uh doesn't have a pedigree in terms of coming from a strong past employer then it's going to be much harder now i hear you on on the size issue i would sort of say that especially with erisa you there's limits to how much you can be in a given fund another way to view this is is that instead of using the word size i would sort of say that you have to show that there's economies of sk that you're scalable and scalable means this is that you still have to meet operational due diligence and i go back to this again and again because what happens is that the operational due diligence will have their own separate checklist or qualitative measures and what they're going to do is they're going to sort of say that i don't care if you're a 100 million dollar or 50 million dollar firm or a billion dollar firm this is what we expect from an operational due diligence this is where we have to have division of of responsibilities we have to have uh you have to have a back office you have to have redundancy in systems and the small managers because of the economies of scale they just don't have the ability to be able to do that so they get disqualified so people say well it's not a size issue but what happens is that we're not going to cut you any slack on operational due diligence and that means is that if you don't have a certain size you can't be able to meet their criteria and you're going to be dropped out yeah no i agree with that as well that that is certainly uh one another filter i will also before we maybe we wrap up with some of your last points you want to highlight but i will say another thing when you just said before that's one of the least important criteria is fees i didn't i didn't react to it internally when i heard that i thought okay that's interesting but then i realized hmm my experience and this is in europe of course but the way things have changed over here nowadays is that one of the key important criterias for investors is something called total expense ratio so if they make an investment they actually i think there are laws now or rules for a lot of types of investors where they have a certain budget of expenses that they can spend so if they choose a really low cost manager uh and and it's not just the managers fees actually including the expenses of the fund which is why again big funds have low expenses because there are more assets to to pay for them so they have this budget and so if you have too high expenses as a manager and and with your fund vehicle they may simply not be able to invest with that because it ruins their total expect total expense ratio that they have to stay within so so that's another thing where i feel my practical experience doesn't fully tie in with fees are not so important i think actually it's one of the most important things for many investors nowadays in europe is okay so where do you come in on the total expense ratio before we go any further right i probably sort of say that to uh and i look at the geographical breakdown of the survey participants majority are still in the u.s so so that may not have been captured i think that the way you view it is they say like well what are when we look at this is that what disqualifies managers and in some sense this is that let's assume that you have quote high fees that's not a disqual qualifier if let's say that your your your actual returns are still very high the way i interpret the results that we have is this is that that you got to generate returns if you uh generate if you don't generate returns you say like well but i'm cheaper than everybody else that doesn't matter and so so you think about this is that uh the difference between you know you know 2 and 20 and 1 in 20 if you're a and you break that down into how much before uh what it's costing you in performance on a month-to-month basis it's actually pretty small it's under 10 10 basis points okay so would you uh that's not a key criteria for determining whether you'll invest in a manager you're first going to look at what's the return risk and experience and then then you might look at fees so the negotiation of fees only comes after the after you meet this other criteria if you if you're not a good manager it doesn't matter whether you're going to sort of give you a discount or you're a low fee manager no i think i mean it really should be like that that is really about the net return right i mean you can have someone like renaissance technologies that charges i don't know five and 46 and they still make i don't know right 40 net return so you would think that that's a great manager but i can assure you if even it now it's obviously closed and its own partners money and all of that stuff but even if it was opened and you were trying to wrap that into a usage fund i would say most investors couldn't buy it because the fees that's going to show up on their total return calculation is just so absurdly high that you know the regulation all the rules they have to stay within wouldn't allow it so anyways let's wrap up with the last few points that you want to uh highlight there are so many things and of course as i said this is really a really lovely sneak preview because the the this study doesn't come out for a few months so what would the most surprise maybe i could just ask you about that what were some of the most surprising things that we haven't covered yet um that you found and also i want to ask you specifically if you did i mean i read the survey as well i want to ask you about esg as well what investors said about that so esg first is that really isn't at least in the alternative investment area that really hasn't isn't that important at this particular point i think that probably even since i've done the survey which is last year that we last fall that we were actually sort of you know collecting data and such i probably would sort of say that it's become more important with alternatives as more people have invested esg in indices for their core portfolio now they're looking at how do i increase my esg exposure through my alternatives so i think it's becoming more important at the time we'll sort of say it's less important so now overall what were the surprises no i can sort of say i didn't put that in quotes because i i sort of expected it but i also was verified this is it as a quant i probably sort of say that yeah this is a very this should be a very cut and dry decision and i'll sort of say that the survey suggests that qualitative does matter okay that i suspected that i always knew that but this probably measures it and tells it this is that in that there's almost an equal value between operational due diligence qualitative assessment and quantitative that that there's this those are the three areas within the qualitative is this is that culture matters and that means is that your integrity your alignment of interest your communication matters the other thing that that i think that people don't put as much emphasis this is that is that team matters it's a team effort that uh that investors are often looked at looking at it's not a single person they're looking at how do you integrate with a team how do you work as a team and how does that experience translated to in investment ideas so so i think that culture team qualitative assessment your ability to articulate your story and be are all more important than just the numbers and finally i guess i sort of say that on benchmarking this is that what you know i think most managers show okay how do i compare against the s p 500 how do i compare against uh you know fit within a portfolio survey says this is that they're just looking at peer groups and and we'll sort of say that the more sophisticated managers have customized peer groups so this is a competition and it's a competition against your peers and you're constantly being assessed not against how you do against a traditional investment but how do you do versus other managers that are similar in style to you this is it so if you don't think this is a competitive market think again you're constantly being assessed versus your peer group yes no that very interesting indeed one thing that another takeaway that i had from the survey that i thought was quite interesting and that is that a lot of people responded that word of mouth and referrals are the best way for them to find managers and actually that capital introductions from prime brokers is not an important source of finding managers i thought that was quite interesting yeah just the way the industry is built that could be another whole podcast is that you're railing against uh consultants this is that probably managers could have say the same thing about cap introduction yes indeed no i'm i'm sure we're going to come back to this is great i mean that now we have a foundation to kind of work from i'm sure there will be more things i might actually i think it would be interesting and i'll put that out as a little challenge to all our co-hosts at the podcast to hear some of their views experiences to see if they agree with with the findings of the survey the other thing i want to maybe to finish off with is just to ask you a little bit about whether you think i mean i i i feel that the due diligence process per se i mean it's evolved of course but i don't think it's evolved that much if if i think about how it's done the questions we get asked etcetera etc and i and this is where i find it interesting so if if we can agree to some extent that one of the really really important bits that investors invest in when they pick a manager is the people behind the manager right it's the it's really people they're picking to a logics and even if it's the systematic manager it's the people behind the systems that they're picking up absolutely so so my my thought here is thinking a little bit out loud here is why isn't there kind of a set of questions that are more behavioral why are we not asking more behavioral questions because we're trying to identify the right people and people we know that behavioral is is very important when you want to kind of assess a person so maybe it's a facet for for you mark to take on and develop a new kind of questionnaire for doing due diligence but i actually find that behavioral questions must be important somehow i'm not sure how but somehow they should be important when you're trying to pick good people am i wrong here no i think that uh well i guess the integration of behavioral finance with the manager behavior and how that can be teased out by investors is seems to would be a very interesting uh topic for further research now i will sort of say it when you sort of say how is it how has it changed uh and you know as we both agree i think it's people related i will sort of say that as investors become more and more educated whether it's through you know kaya cfa mbas you know their educational level is this is that the threshold of what you have to provide to investors and how you and the depth of analysis that is done on managers is much stronger than what it was five years ago 10 years ago 20 years ago and so there is a i want to say an arms race but the level of sophistication on the investor side is higher so that it requires more transparency on the part of managers to explain what they do because investors demand it i think that's true although i also think that there is a there should be a kind of a line in the sand where managers should be allowed to say you know i really can't go into this level of details because it's kind of part of my ip so to speak but i will i want to say one more thing about this before we leave today because you brought up a good thing an interesting point and it as you said as more and more of the institutional investors are filling up their research areas with people with a kaya designation an mba or whatever whatever here's the thought and i don't mean to thrash these designations these are difficult studies etc etc you know i don't have any of those accreditation so you know but but i i i'm pretty sure they're pretty difficult to get my worry is though that we see the same kind of thinking they've read the same books that take the same exams now they have the same kind of thinking in all of these places right so my my concern is always how do we start to think differently if everyone is reading the same book that because i do think that that's also important in the research areas of of a of a systematic manager or any manager you need to bring in different perspective different ways of looking at things if we were and and this is why and again i don't i don't want to sound critical as it's a really bad idea but but you know there are managers who as part of their marketing they'll say oh yeah but we're associated with this university so we have all this collaboration we're getting all of these people in that is true and and i'm not saying it's not valuable but what i'm just saying also is that yes but it could also be a little bit of a danger because you're sourcing all your ideas from the same source and then you get them in and you mold them thinking the way you think instead of trying to get people in who have complete diverse kind of thinking to try and actually move the needle is this completely oh no no no crazy this is another topic that we could spend an hour on because and i think the perfect example is this is that uh and uh you know let's let's talk about the elephant in a room this is that let's say the old traditional trend followers like you know and and those would be you know turtles you know done the language that they use is so that jerry uses to explain his portfolio versus the language that someone who has a cfa an mba or kaya is very different and so what happens is that there's a disconnect in how he would explain what he does versus someone who's been trained at a major university and uses sort of you know i do alternative risk premium factor investing and here's the factors i look at and and everybody's not in their head because they learned that from their kaya test or they learned that from their mba class and so that makes sense and then jerry comes in or you know let's say someone from dunn comes in or you know if it will sort of say back from uh if john henry came in and they started talking about well here's how i built my system here's how i think about markets here's what i do and you know like i don't put as much you know focus on perhaps correlation because this is how what i've learned from the markets given my experience that that's actually discounted because you do have people thinking the same way and they use a certain language if you come in and you speak a different language or describe a process that's in a different language than what people are used to it's harder to overcome that you know that is actually a great way of explaining that and i actually think i actually think that that might be one of the reasons why we saw at least for a time maybe still that some of the old style and these were mainly us-based managers with the longest track records in in in the industry so the most experienced not growing nearly as fast as a lot of the scientific managers that came in later uh a lot of them from europe uh using as you rightly say they came from it with a different set of language different ways of explaining it and frankly they were incredibly successful in in building their businesses and raising the assets and now that you say it it kind of makes sense maybe they were just speaking exactly the same language as the people sitting on the other side making the investment decisions and as simple as that may sound could be a reason why we saw that shift in gear in terms of where all the aum went i think you're absolutely right on that right and and i think that if if you are an outsider in terms is that you don't use the language of what is being taught in mba schools today is going to be harder to raise money so so you have to actually reconvert what you do into their language if you want to be successful and and and i think that that's that that is a whole process and uh of of true iconoclasts are fine we'll have it more difficult and that's even for example if i could go into high-frequency trading high-frequency traders you know have a very different view of how they look at the world than you know say a traditional portfolio manager and if that's the case is is that then you could sort of say their language is different how they think about risk a multi-strat guy so if let's say you know a millennium or whatever how they sort of construct a portfolio is very different than how a traditional guy would look at it in some cases they might have difficulty because the investor who's been trained a certain way wants to put you in a certain box if you don't fit the box then they have a problem and they can't invest yeah no absolutely let's leave it for now here on this topic i think this was amazing i hope the people really took a lot of notes i thought your survey and the work you've done with kaya is fantastic i think it's going to be a great contribution to the conversation i can't wait to get into the next paper you've done about narrative and investing obviously robert schiller wrote a book called i think narrative investing uh so that you know there is definitely a lot to it it's something that i truly believe in so yeah definitely something that would be uh good to spend some time on but you need to give me at advanced notice mark if i have to read up like i had to read up for this this weekend's uh recording because it was a certainly uh a good chunk of of content to catch up on now let's go to the performance of where the industry is now the numbers i'm going to call this as a thursday night friday was not a good day as far as i can tell for all for a lot of inve for a lot of trend followers so i think the numbers are not nearly well they're not as positive as they are right now but right now as of thursday ctas are still doing pretty well frankly uh beats up 50 up 1.2 percent of almost nine percent for the year cta shock structure nct index up one percent up seven point six percent for the year trend index almost up two percent for the month up ten and a half percent for the year short-term traders index as we talked about last week they're down for the month 0.4 and they're actually also now down for them for the year 0.2 so there's definitely a change my trend barometer as i mentioned in the beginning it's it's weak it's at level 36 it's been stuck in that lower bound range for a while something that corresponds more with the returns we've seen on our side had done for the last three months but the industry has kind of coped overall so there is obviously some differences in that and msci world index for a change is actually down for the for the month uh down 1.4 still up 15 for the year and the government bonds they got sold off this uh week and therefore this month it's down 36 basis points next week i'm joined by richard he's back so this will definitely be very fun and another i'm sure educational master class from him talking about speaking a different language he has a different way of explaining trend following compared to some of us and it's really useful really helpful and so i can't wait until we get on to another episode to talk about trend following from the perspective of down under so make sure you send the questions in as you normally do um we we think it's really fun to answer those questions that you send in so info top traders unblock.com that's the best place for you to send them and also as i said in the beginning if i could ask you to do us a big favor this week take a few minutes out and use the link forward slash toptradersunplot.com send that link to three like-minded friends or family members colleagues whatever it might be and let's see if we can't get them involved in the conversation and then the podcast that would be absolutely incredible and i will keep an eye on the numbers to see whether i see a difference so i'm making you a little bit accountable on that side anyways i can't thank mark enough for you know preparing this study and allowing us to give you a sneak preview so from mark and me thanks ever so much for listening we look forward to being back with you next week until next time take care of yourself and take care of each other thanks for listening to the systematic investor podcast series if you enjoy this series go on over to itunes and leave an honest rating and review and be sure to listen to all the other episodes from top traders unplugged if you have questions about systematic investing send us an email with the word question in the subject line to info toptradersunplug.com and we'll try to get it on the show and remember all the discussion that we have about investment performance is about the past and past performance does not guarantee or even infer anything about future performance also understand that there's a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their products before you make investment decisions thanks for spending some of your valuable time with us and we'll see you on the next episode of the systematic investor [Music] you

Channel: Top Traders Unplugged

Views: 194

Rating: 5 out of 5

Keywords: niels kaastrup larsen, systematic investor, top traders unplugged, investing, hedgefund, trading, trend following, managed futures, risk management, popular traders, investing money, investing for beginners, trading news, investment news, investment advice, trend following updates, news for traders, top investors, investing podcast, Mark Rzepczynski, funds, futures, bandwagon effect, AUM, risk buckets, currencies

Id: 3j8E5KhpwJM

Length: 90min 56sec (5456 seconds)

Published: Tue Sep 21 2021