Gerard: [00:00:00] Good evening, everyone, thanks for joining us. My name is Gerard Cafaro. I lead our Workflow solutions team within LSEG, and that's predominantly our desktop solution Workspace and a couple of other nuances there. And that's why we work very closely with this gentleman here, Michael Smith, that works as part of our strategy and execution team. And a quick thank you to Erika and Alice and Augustina from our marketing team for putting this together. And I think what you're starting to see more from LSEG are community events like this and building out community among our customers. And also giving an opportunity for all of you to connect with one another. A couple of weeks ago, we did something not similar to this in terms of a podcast, but it was a commodity-specific event down at our headquarters at 28 Liberty Street. And speaking to a friend of mine who's a sales trader at Goldman. He's like, you know, you guys got to keep doing this. Build out the community within those specific asset classes and businesses. It's just really unique in the business. We're not here to pitch our products. We're just here to talk about the business as a whole and something that all of you will take away from networking and hearing a couple of good stories, which we hope to hear tonight. So, without further ado, I'll hand it over to Michael and we'll kick off.
Mike: [00:01:24] Thank you. Gerard. So, the podcast came about I don't know, what two years ago. Three years ago. So, yeah. So, part of the pandemic, I guess we were looking for a different way to connect with clients and just the industry. Erika and myself started like ideation process on what did we want it to be? How do we want to tackle this? And we really came about was the world of hedge funds for those that are not living in it, every day is like a mystery. It's like, what do those guys do? Who do they talk to? Where do they go? Where do they drink? We want to hang out with those guys. They're a lot of fun. And then this particular one came about because I've always been bugging Jamie, who is our normal podcast host, to turn the mic on him. And then I had read Derek’s book, and I was like, I got to get this dude on a podcast because this is awesome. And then Derek recommended Tracy, and I thought, that brings us full circle. So, we have and we'll do the intros, but we have a PM, a trader, and then sell side coverage for the hedge fund Industry. And what we're going to get into tonight is really the realities of the day. We'll talk about some serious stuff and how they see relationships with their clients and counterparts, but also really like what's real, what's not. Maybe get Derek to reveal a name or two on who's the idea behind the story. Which ones are him? Which ones are told to him? So, we'll record this podcast and you'll be able to find it in your podcast player probably in a few weeks. But we recommend you listen to some of the other episodes. The podcast really has some really cool ones. Our first episode was awesome. It was about one of our colleagues who started a hedge fund, and then it completely failed. And he talks about like what they did wrong, what they wish they would have known. So, the idea for the episodes all the time are to educate people, have some educational tilt to them. And again, we really try to stay away from our products, and we just try to talk about things in the industry. So, I will bring up my guests on this one. So again, I'll introduce. I am Director of Customer Strategy for LSEG in the Investment Management Execution Solutions arm. So, I work, as Gerard was saying, with our desktop for buy side. And some of our execution platforms are OMS and EMS platforms. So, Derek Wallace is going to join me. Jamie McDonald and Tracy Castle Newman. I thought we would start out with if you each would give an intro. So, we'll go here next to me. So, an intro of what you did in the industry. Kind of what you're what you're up to now and really how you got into finance. What got you into finance initially? Jamie, I’ll start with you.
Jamie: [00:04:21] Yeah. Well good afternoon, everyone. How are you doing? Good. Isn't this great to get together and talk about hedge funds? How cool are we? So very quickly. I'm from England. Basically, I read economics at university. And in England we have something called the milk round. I don't know if people are familiar with that. That's when all the fancy companies come round trying to poach so god talent from certain universities. And at the time UBS Warburg, I went and did an internship with them, and I ended up being a salesperson for UBS for three years. I was absolutely terrible at my job. I remember my I think my bonus was £5,000 after two years, and I was doing cartwheels, more money than I ever got in my entire life. And they legitimately told me it was the lowest bonus they awarded in the whole company that year. But as it happens, I was a broker, and I was talking to a hedge fund at the time who was then called Walter Capital. So just for those of you who may or may not know who Steve Cohen is, that's who I ended up working for. And a bit like the Tiger Cubs, there were some offshoots from SAC Capital. Rich Walter went to London and started Walter Capital, which was really ten guys trading stocks in a room. And for some reason they thought I'd be good at it. So, I got the job and this is 2006. And back then you were an analyst for about ten minutes. Now you're an analyst until you're in your mid-40s. But, you know, I was like 26 years old, and they gave me $50 million of capital. And I ran a long, short book for a few years, and then I transferred to New York to SAC Capital here in 2009, and I ran a global financials long short equity book all the way till 2014 until I retired. Is that what we're saying? Retired, Derek. And. Yeah. So that's my that's my story so far. So, I'm very familiar with having a trader, having a centralised trader, obviously speaking with the sell side constantly. How did I get into finance? I guess, I just liked money, I suppose was a pretty good start. And because I'd done economics that felt like a good fit. But yeah, I had 15 great years. And since leaving I've been working with LSEG and various other media platforms since then.
Mike: [00:06:33] Awesome. Tracy.
Tracy: [00:06:35] Hi Tracy Castle-Newman I recently retired from Morgan Stanley after almost 29 years, but I spent 35 years in financial services. And you'll think I'm a dork because when I was in eighth grade, I wanted to be an accountant. And not that there's anything wrong with accounting, but I really did know what I wanted. I knew I wanted to be in business, and so when I applied for school, one of the things I was looking for was to get directly into the business school and not do liberal arts and then switch. So I went to Virginia Tech, and I did accounting for the first two years and realised, oh wow, I really do not like this. And I looked around and I said, oh wow, finance is accounting with a personality, and it can take you down any path. And for me, that's really what happened. I graduated; I worked for Bank of New York for four years. I was in a retail training program. It was 1990, and I loved it because I built this amazing network of people to help clients solve problems. And that was really my first point of realising that power of that network. Through that network, I got hired at Bankers Trust, now Deutsche Bank. I was there for two years in Treasury during the structured note boom. It was our largest funding instrument at the time. For any of you that remember that are close to my age, we got in a lot of trouble because of Gibson Greetings and Procter and Gamble. Two trades that went horribly wrong. Well, for me, it became an opportunity because all of a sudden, they changed the accounting treatment. We needed to understand what the value was of the option within these notes we were issuing. I got to know the derivatives desk really well because guess what? They had to value the options. They didn't like me so much, but I made this process to make it very easy for them. And sure enough, somebody left there and came to Morgan Stanley. And when I got called for Morgan Stanley, I got called to be a product controller for now, one of the largest hedge funds in the industry. It was one of our prop trading teams, and after four years, I ran every product area within controllers and said ready to do something else. A job opened up called Client Focussed marketing year 2000. Believe it or not, our largest clients were not hedge funds. It was big asset managers. We had a few hedge funds. Julian Robertson, obviously, more was out there, but there weren't a lot that were there. And then that growth really started to come up post the tech blow up 2002, 2003, 2004. And then I built out our client segmentation strategy. And over the course of those 28 years, I ran our client business. I built a ton of businesses solving clients’ problems. And last April, I decided to tell them, I'm giving you a year and I'm retiring. And now I'm looking forward to the next thing.
Derek: [00:09:33] My story is not going to be any use to anyone, because I was a backpacker coming through New York, and I got a part time job working for George Soros. I didn't know who George Soros was. I didn't know what a hedge fund was. I was there two months, and the Nasdaq crashed and they fired everybody and no one knew I was there. And so yeah, I mean, I wasn't important enough to get fired, basically. And then I lasted 13 years at a firm where I think the average tenure is about what do you think about a year and a half, two years, something like that. Yeah. Went to a Soros spinoff, was there for ten years, went to another Soros spinoff and then decided to pack it in and retire. Write a book. So. Yeah. And that's it. Yeah.
Mike: [00:10:15] So you guys all have experience obviously, in the industry, in different fashions. So, I guess my first question we kind of alluded to in the intro is there are a lot of kind of unknowns out there, but there are a lot of I'll call them unsubstantiated opinions on what hedge funds are like. What's something that's maybe a common misconception, either working there or working with them. What's kind of one of those common things that are really not right about hedge funds that you might hear, oh, they're like this or they do that. So, Derek, I'll start with you. What's, what's what do you think something that people get wrong about hedge funds?
Derek: [00:10:54] You know that it's now a profitable business with under $1 billion in assets. I think there's too much regulation. There are too many cheaper ways to do the product. Like, you're much better white labelling and just working for Citadel. Right. So, I think there's still some romance around the business, but, I mean, when I first got in the business, a $300 million hedge fund was an awesome place to be. And now you couldn't make money with a $300 million hedge fund.
Tracy: [00:11:26] So I think a couple things. I'll take the first point of the mystery - these are just people that like to invest. And I think one of the misnomers is that it's all fast money, that everybody at a hedge fund is turning over their book, and that's just not true. Yes. There are some funds that turn over all the time. Obviously, the quants, the turnover is really great, but there's a lot of funds where it is just basic, fundamental investing on the long and the short side. And the way they turn the book over is not it might not even be daily. And so, to Derek's point of not being able to be profitable unless you're $1 billion, what started to happen in the hedge fund world is that many hedge funds now have built long only products as well. And so, I think for some people they go, really a hedge fund has long only product, but if that's what the client wants and they just want your long side alpha, that is what you're going to create. Because at the end of the day, even if you have the best track record, it is not easy to raise assets anymore. If you think about what's happened in the market, the private markets, they've not gone public. There's not a lot of liquidity for the asset allocators. So then what happens? There's not a lot of money to go around. There's a big push into the multi strats. So, if you are a PM that's had this great track record you say oh my allocators, they've said that they'll allocate to me. The bottom line is it is really hard. And in the old days people would think 500 million was a great launch. A billion was a great launch. Now people think 50 million is a great launch, 100 million is a great launch because they recognise it's going to take them time to actually grow. But you have to get the first 50 and the first hundred in the door. But to Derek's point, it's hard to run and hire talent. So, there's a lot of outsourcing now that goes on. And people are not hiring that talent immediately, but that is the one thing I would say has really changed is this idea that you have a great track record, you can leave. You're going to raise assets immediately. It's just a tougher environment.
Jamie: [00:13:39] Yeah. I mean my answer would be a little bit more to do with what the environment was like working there. I mean, I came from UBS, where I remember my dad once told me when I was young, so I'm going to tangent, but it might be interesting. He said you should make a decision early on whether you want to work at a big company or a small company, and it never really made that much sense to me. But the more I got older, the more it does actually make sense to me. Because, you know, if you like working at a big company and you sign up to the corporate life, there is a political game that you play. All your yearend reviews are subjective for your boss and things like that, and you kind of have to carve your way through the industry. Now, what I found when I went to work at Point72 was just how lean the whole thing was. I mean, the numbers speak for themselves. To be honest, they didn't care where you worked from or what you wore or what your hair was, you know, are you putting up the numbers? And there was a real you know, meritocracy there, which I actually found relatively refreshing. I mean, when I was there anyway, I mean, it is stricter since I left in terms of risk parameters, but you really were left to your own devices to an extent. And the numbers were the numbers. And if you were putting them up, then you got more capital and there weren't that many conversations in and around it. And I did find that very, very refreshing. So, you know, that was a big difference for me is just how much I could just, if you want to bet on yourself, work at a small company where it's more meritocratic. And if you want to kind of build a career and be there longer than a than a big company was the way to go, which wasn't for me.
Mike: [00:15:07] It's an interesting take. It's you don't think about that. Like it's really a small business, right?
Jamie: [00:15:13] I mean, for me, it was a business of four people. I never spoke to anyone else unless Tom Kahini was calling me, for I was down on the month or something, but it was me, my analyst. I had three traders, one in Hong Kong, one in London and one in New York. Is this an opportunity to tell funny stories or not?
Mike: [00:15:30] You tell whatever you want. Yeah.
Jamie: [00:15:34] I mean, I did global financials, so there was one time. Is this being recorded! Anyway, it doesn’t matter. I was in a nightclub in Miami. I mean, I was 30 years old. It was Thanksgiving. And I remember the earthquake in Japan happened, and I was like, your phone goes and it's your trader. And it was Dave Tuttle. Great guy. He was like, listen, there's a tsunami heading towards Tokyo. I'm like, shit, this is terrible. I've had like five tequila vodkas at this point. And I traded insurance companies, which was bad. But that was the thing. It was like, I'm a team of one. He was like, what do you want to do? I remember calling my analyst and he didn't pick up. And actually, his wife picks up and she picked up and she said, she goes, I knew this day would happen. Which jail are you in? And I wasn't. I was somewhere else. But I spoke to my analyst, I spoke to my three traders, and that was it. And it was like sink or swim.
Mike: [00:16:23] So you were kind of talking about working with the analysts. What's that relationship like for you Jamie, we'll start here, like with your trader, with your sell side coverage, or as a PM. Are you letting the traders handle, like talking to someone like Tracy? Like, who's your main contact? Is it those two? The trader and the analyst. How does that work? Is it real symbiotic?
Jamie: [00:16:48] Yeah. So, I mean, the way it worked for me was you've got your portfolio and you're really building it up with your longs and your shorts. And what I was really trying to do anyway is basically you're constantly trying to work out where consensus is. I mean, I was an equity long short trader. So, there were three consensi. Consensuses? Is there a Latin expert here with a plural of consensus? There's many consensuses. And it's like when you've got your Bloomberg consensus, then you've got where the street is.
Mike: [00:17:13] Sorry, I’m going to interrupt. You mean I/B/E/S consensus?
Jamie: [00:17:16] Ah, sorry! Don’t mention the word! Anyway, there's the street. There's like where people really are and, you know, in yourself and, we used to speak to sales all the time. And, obviously, I mean, sorry, not obviously, but a lot of the times it wouldn't be necessarily idea generation, but it would be like, okay, what are people saying about these results coming up? How are people positioned? Because positioning is so much of it. And then your trader gives you the second thing. He's like, they know where these big trades are happening, and you need to know what the long only's are doing. I mean, I don't know, like as of today, what the situation is, but if pension funds start buying a certain stock, particularly if it's a mid-cap, you don't want to be in the way of that. And traders give very good colour on that. Now, when I started, I used to do all my own trading. I used to do all my own trading, was to phone up the sales trader at Merrill's and Goldman or whatever it was, and do it all. And then we had centralised trading, so that relationship did change. But yeah, we had our own analysts for idea generation. We used to speak to the street as much as we could because we needed to know how people were positioned. And our traders, other than doing great execution, would also tell how people are positioned, because, you know, that's a very important part of how stocks are going to move.
Mike: [00:18:18] Tracy, I'm going to come to you first on this. For you, the relationship. What's the stress like what are you trying to find for a Derek or Jamie in your teams? Like what are you urging them to do? Is it speed of information or is it something smart. Right. Because Jamie's saying he doesn't need you for idea generation. He just wants info.
Tracy: [00:18:42] Yeah. I mean, it varies, right. And so, what I would always say to salespeople is you have to understand how your client works and what their workflow is. And depending on who you're talking to, whether it's the PM, the analyst or the trader, it's going to be very different. And the timing of it's like if you're dealing with a trader, it's more tactical. If you're dealing with a PM, it may be a little bit more slow moving, but it depends on the type of client that you're dealing with. So, the way that we used to tell our salespeople to differentiate is you have to find the signal through the noise, especially when markets are moving as fast as they are. And you see what's been happening with the markets lately. And that's going to go on now for the next four years. To be a good salesperson, you can't just call up and say, oh, such and such analyst said this in their note today. They can read the note. They already read it. But they want the perspective they want to hear, to Jamie's point, what are others doing and what do you think about what those people are saying? Do you have a view on what they're saying? It's really about that perspective and that sales role and the sales trader role has really evolved over time, because now they're very connected with Prime Brokerage and understanding what the short exposure looks like. And if there's been covering overnight. And so, it's really about that 24 hour information that you sit on top of, but then synthesising it to draw the insight that actually matters at the right time for that client. If you talk to a client about Apple and they don't own Apple? Well, then you are a horrible salesperson.
Mike: [00:20:25] I did that once. Derek, as a big firm, how does that differ for you?
Derek: [00:20:33] Yeah. So, I've got I've got two answers. So, the big firm is if I'm calling someone like Tracy, then there's a problem. So, the if a trader is calling a salesperson, you know, proactively something's gone wrong. And, Soros had a $300 million commission budget. It means that something's gone wrong and there's going to be a price to pay, basically. Otherwise, I'm just calling the trader. So, at a big shop you're just executing and that's it. In a small shop, a trader now is part of operations. It's part of research. It's part of IR, you're involved in every part of the business. So, the role has definitely changed. To some extent when I didn't realise the role had changed and I was just in an execution position, I got fired. And so, I had to reinvent myself and you have more expanded thing, you know, if you're in a small shop, you're carrying your reputation for resources. If you're at a big shop, you have all the resources.
Mike: [00:21:38] Yeah. So, staying sort of on this topic a little bit, what do you wish, and Derek will stay with you here because we're just going to kind of keep going back and forth if you haven't noticed that. What do you wish your coverage knew better? So, when you're sitting on the desk, what do you wish something that they did better, or they could help you with more that you maybe never got or never really saw?
Derek: [00:22:01] I guess probably two answers here. So, the first is, I think, the most valuable thing a trader at a big fund can do is, devil's advocate the position. So, if we're long industrials what could go wrong. And so, the analyst and the PM they all want to be longer. They all see the positive side of it. It's a trader's job to go. Here's the negative paradigm. Here's what the shorts are thinking. Here's what the shorts are doing. Here's the average, the turnover in the stock is every nine months. If we want to own it for two years, there's an opportunity. It's that sort of colour. What do I think they do better? I think you've got to know when a business is commoditised. So, nobody needs another algorithm.
Mike: [00:22:47] Tracy, what's something as a salesperson that you wish the clients either understood or like maybe were a little more compassionate about?
Tracy: [00:22:58] I think the more transparent you are, the better the solutions that are delivered will be. And I often would say to salespeople, you do not sell products. You deliver solutions. And so, the thing that you have to do is actually build a relationship with your client so that you understand where their biggest pain points are. And so, to Derek's point, at two different funds, the way he operated was very different. If the salesperson treated Derek the same exact way at both those funds, they actually were failing at their job because his problem set at the smaller fund was much broader than his problem set at the bigger fund, believe it or not, because his responsibility was so much broader. So really building that relationship with the person and for the buy side to be really transparent around what the pain points are and trust you that you are not going to waste their time, and that you will leverage the platform of your organisation to deliver the right solution to them.
Mike: [00:23:55] Jamie, I'm going to change it a little bit for you because you mentioned it before. What do you wish the risk managers knew more of? Like, they're just looking at numbers, but is there a conversation to be had with those guys?
Jamie: [00:24:10] I've got this theory of why risk managers are not as, they don't do things the way they should. I'm never going to get a job as a hedge fund manager again. So here we go. The way it worked. And I don't want to mention any names because you can get in, like, legal actions and things, but at these big shops, whoever's at the top can trade people like stocks. So, for example, for whatever reason Germany's going to have a run. Okay, get me my German banking specialist. I want their top three picks. I want to be long German banks. I think Australian miners are going to have a rough time. Get me my Australian person who's on the hottest run. Give me their top three shorts and you're trading people more than you're trading stocks. I mean, in fact, you see which portfolio? Because I'm a pod shop. I'm running $300 million of long short insurance companies. And like, insurance is boring at the moment. Interest rates are low. There's not much wind. There are not many hurricanes. Okay. But when it is, let's speak to that person. Trading people. So, this is about the risk manager is think about this. They're just staring at 100 portfolio managers all the time. Where am I allocating capital? Just like me as a portfolio manager I have $100 million. Where am I allocating to which stocks? So, I always thought like, why don't risk managers look at portfolio managers who have an excellent track record, who really are good at what they do and are on a bad run and allocate them more capital, which never happened. If you were having a bad run, you had capital taken away from you. But in the same way, like if you've got a price target of $60 on a stock and it's at 50 and it goes down to 40, you buy more if you've got conviction in that stock. But what never really happened with portfolio managers, if they went on a bad run, they would never be allocated more capital. So anyway, that was always one thought that I was surprised never happened more than it did.
Mike: [00:25:54] It's a good story. So, I want to stay kind of on this theme but thinking about things a little bit differently. You put some big trades on. You had big risks.
Jamie: Yep
Mike: What was that like when you had a big bet on. Was it hard to go home and like leave or shut the computer off? Like, how did that impact you as a PM?
Jamie: [00:26:17] 2011 the stock was ING. I'll tell you about this story. This involves Steve and I absolutely shat myself. So in in Europe they were doing a rights issue, which basically means, they don't do them so much in the States. But anyway, you issue your right to buy the stock at a cheaper value, and you have a right to trading period of two weeks. And there's something called tail swallowing. I'm really trying to remember now, but basically lots of people who own the stock sell the rights, so they have enough room to be able to buy the new shares at a cheaper price in the future. Sorry if this is very boring, but basically there's a technical reason why there's one stock which was ING at the time was just going down and down and down and it was my top pick. Okay, not a good place to be. Whatever it was trading at €10 a share. And I remember getting up at 230 every morning because obviously Europe opened up at 3a.m. when I was here and just sitting there and thinking, this is a terrible job that I have. I don't know why I'm doing this. Messages coming from all of the, the top teams. And I just remember there was a real inflection point. And this is where I'll say this guy's name because he really was a legend. Jimmy Haber, just one of the greatest financial traders at the time. And I remember it just changed at that moment. And let's say I had a $10 million position at that moment. It went up 5%. And me, I was like, relief. I was like, right, I'm going to sell some because obviously it's up 5% today. And then he messaged me and said, I just, I just bought twice as much. And for me it was just such a sign of a of a brilliant trader versus me, where I just wanted to get out and like not have to deal with this anymore. And he was like, no, the tides turned.
Mike: [00:27:47] How often would you say, maybe not at that level because you obviously remember that a few years back. But how often are you getting that, like, your stomach is turning, you're just like, oh, I don't know if I'm right here. And this is moving.
Jamie: [00:28:04] Those days are really rough. Really, really rough. I remember them vividly. Actually, we used to walk to the pub on 54th Street and have a Jameson's. That's the only thing I could think to do, because it was like, sometimes the best thing to do was do nothing. But, there was those days where I'd walk in, being a portfolio manager, you'd stare at your stocks and your lungs were up and your shorts were down. You're like, this is the easiest job in the world. I don't know why everyone isn't doing this. It's so easy. And then things came in and you're like, your longs were down, your shorts were up. You're like, this is, I never want to do this again. I never want to do this again. It was it was really, really hard. And I did have that churn in the stomach. Like, literally. I remember being, like, not being able to eat and days like that. And you really, you really feel it. And it's funny you mentioned the stomach because like, there's people who get like ulcers and things because the stress is so much you're watching a stock go down and it's just, you're watching millions fall out of your portfolio. And we used to have this expression, you walk up the stairs, but you take the elevator down like you can build a portfolio that's you're just knocking out 2% a month and you think you're going from bottom left to top right. You get one thing wrong, and it could be a stock that you just have on as a hedge that you haven't done enough work on gets taken out, and suddenly you're down 5% in a month. And it really stings. So, it's not for the lighthearted, which is why I left.
Mike: [00:29:17] Yeah. Tracy, Derek on line one. He's pissed. What goes through your mind?
Tracy: [00:29:24] I'm like, Oh no. Who screwed up? You know, listen, every day you get calls from clients with some form of I'm not going to say complaint. It's usually something that is valid. We can't please everybody. When you run a business where you have over 4000 clients, and it's probably even more now it's very hard to please everybody all the time. And if you think about the demand that is out there for things like capital markets, corporate access, help on cap intro, well, you only have so many people in your organisation that can help with that. And so, I actually spent a lot of time on client segmentation and figuring out how you look for the opportunity, not necessarily what the black and white numbers were on the paper, but where the opportunity was. And how could we drive the ROI with a certain client? You don't always get that right, but I think if you are honest about what the situation is like, I would always say at our big conferences where the demand was just crazy, I would just say very honestly, listen, you are not going to get the meetings you want, but if there are three meetings that you really want, let us focus on just those. And so it comes with the job. You know, some days are great where, you know, you feel like you made everyone happy, but you can't do that every day. I think the hardest days, quite frankly, are the days when your clients aren't doing well because the sales side can't exist unless the buy side exists. And so, we're constantly cheering for the buy side to be successful. That's the ecosystem. When the buy side is doing poorly, they're probably the hardest days for us, especially when you have deleveraging going on in the system, etc., because there's a lot of risk that happens. It actually impacts us from a risk standpoint as well. So, I think, being a portfolio manager or a trader or one of these large funds where the market's going haywire and you can see your P&L on your screen tick by tick. I think that is a really stressful job. I think the mirror of that is if you are a trader on the other side, on the sell side, I luckily was in sales, but you deal with stresses regardless because of what goes on in the client base.
Mike: [00:31:46] What's the most stressful thing or what's that area of stress?
Derek: [00:31:52] There's two ways to answer it. So, the first is when you are when you're selling out of a position or closing out a position and it's going against you. I found that nine times out of ten, if I wanted to blast out of it, I'd get up and go to the bathroom, where I'd walk outside and I'd come back, and the stock would always be higher. Always. So that's intraday markets. You know, dealing with counterparties. I wish I'd done this more. But one thing I think I did pretty well was I was very proactive in building goodwill. So, I would call our friend Karen Katz and they would say, look, we don't have enough people or for some conference to see some company. And I'd go see an analyst and then I'd make them do work and they'd figure this stuff. And so, Soros was going to go see them or Marlow would send analysts even though we had no interest in it. So, we were trying to help out people, introducing new clients, that kind of stuff constantly. And then when you need something in return, you're more likely to get it.
Tracy: [00:32:50] Yeah, yeah, that's a great point. I think if you if both sides are doing business well, you're really partners. There are things that the sell side has that can solve problems for your clients. Clients are solving for two things assets and alpha. And we have access to things to help deliver those. If you are a partner and you're transparent and as you said, in a situation where, hey, I need help here, this corporate is in town. We only have five seats filled. We need ten. And you do that. You build a relationship that is a longer term partnership so that when Derek calls and says, I really need this, he's most likely going to get it.
Jamie: [00:33:31] Can I ask Tracy a question?
Mike: Well, you're the host. You can do whatever you want!
Jamie: [00:33:36] I have a question for you. How much do the buy side open up to you in terms of like their positioning? Did you find it was a very like open relationship? Because I remember when I was there, we were always told to be a bit, you know, keep our cards close to the chest because somewhere there's a chat going around Morgan Stanley, hey, Point72 is buying Starbucks or whatever, you know, like, oh, trust me, it'll stay between us. So, to an extent, you wanted to keep your cards close to your chest, but how do you get them to like, trust you?
Tracy: [00:34:02] The world has become much more transparent for multiple reasons. One, if you think about long only funds that have had to really pivot and utilise the ETF wrapper, well, the ETFs are transparent. So, they're doing this on existing mutual funds. They're creating tax efficient transparent product because they want to retain and grow assets. And that's been a pressure point in the industry. From a hedge fund standpoint. There's been a huge growth of SMAs. So, if there's a huge growth of SMAs, what happens? The fund provides transparency to the allocators. So, there is more of an openness and willingness. Probably in the past, I would say 3 to 5 years to be more transparent around positioning.
Mike: [00:34:46] Were you guys transparent, Derek, or were you trying to hide positioning or did it change over the time?
Derek: [00:34:53] We wouldn't talk about our positions at all. And sometimes we would get ambushed because, someone would say on television talking about Soros, for instance, and they would say we know you like gold. And he'd be like what? We bought the GLD and that was in the 13F filing. But we would also tell people. And also, the other thing is you can't keep this stuff secret. One of my Soros colleagues over there, and he used to trade a lot of FX and chicken tikka was buying Euro. Everyone knew who that was, right. You know, it was Bank of India, right. So, you know, there's code words everywhere. This sort of stuff. I don't know, I didn't overthink it.
Mike: [00:35:37] Do you guys think. And we'll stay with you? Derek, do you think the rise of electronic trading changed a lot of that, the way the kind of information flow happens? I mean, you mentioned before like, sorry, like, you know, we don't need another algo, but a lot of people were going are going to algos.
Derek: [00:35:52] Yeah, yeah. That's true. I mean they may not say that say account 513 buying Cisco. But you know everyone knows they cover Soros, or they Sach, Sach is a bit different. You know, they're a little a little more circumspect. So, people knew what was going on. And, and, and trading flows around that kind of stuff. It just depends on the year. So, you know, but yeah, electronic trading changed a lot of it. Maybe you would trade the first 50% electronically and then give somebody the rest of the trade or you know.
Mike: [00:36:26] Yeah. Jamie, as a PM, do you care, or did you utilise risk versus straight execution when you were trading? Or if the trader got the order, did you care how they executed? As long as it got to come somewhere close to a price you wanted.
Jamie: [00:36:39] Well, I got to go back a little bit because when I first started, we did all our own trading. And actually, what was interesting about this is, I think the way that hedge fund managers make money now is just so different from where it was like ten, 15 years ago. And a lot of it's to do with time horizon. And I think it's a really big part of how you make money is that nowadays when you're putting on a trade, you are thinking about a month, two months out. And when I was back there trading at the beginning, I was thinking sometimes half an hour out like that was the way we, you know, I want to buy 50,000 Facebook. I call up Morgan Stanley. They gave me a price. I'm moving on to the next idea. I don't even have to think about it.
Derek: I thought you traded insurance.
Jamie: [00:37:14] I did trade insurance. I’m trying to talk to the people here! I remember when I was at UBS and I got and I got hired by Walter Capital, the guy at UBS came up to me and said our loss ratio was like 110%. It was like every, you know, we just lose money on every trade with Walter Capital. But they were a hedge fund, and they were paying a lot of money in other ways. So, it was it was a huge change for me because when I was doing my own trading, I had that relationship with the sales trader at Goldman and Morgan and, you know, everywhere else. But so, I'd phone them up, I'd get a price, I'd log it in and I and I knew what it was and I was if I saw it move later in the day by a percent or two, I'd unwind the trade. And that was the thing. If you're, you know, this is the thing is everyone's trying to like, what can you find a stock that's going to move 20% in a month? I'm like, dude, I'm looking for something that moves 2% by lunch. That's, you know, because, you know, a piece of news would come out in the morning. They've released results. You go right. What should it be up today? Okay. It should be up 3% today. I think forecasts are going up 3% today. It opens up 1%. I'm buying as much as I can because I'm going to sell it up 2.5%. Sorry. You know I buy it up 1% and sell it 2.5%. And making 1% a day is way better than 20% over a month.
Mike: Do the math on that. Yes.
Jamie: Yeah. Well, business trading days, I guess.
Mike: [00:38:37] But, I'm going to do a little pivot here. So, we covered sort of the tactical aspects of the day, the business side of the things. I'll call it business adjacent. Right. And get to maybe after hours
Jamie: Client entertainment? Is this where we're going?
Mike: [00:38:45] Entertainment. You forgot the air quotes! Or actually it depends. How many nights a week are you going out on a regular basis?
Jamie: [00:39:02] Probably 2 or 3 pretty hard. But Sunday was the worst. I mean, still to this day, I mean, I have little kids now, so it's changed. But still to this day, I never set my alarm on a Monday morning because I lived in fear for about ten years. So, every Sunday people are like having a glass of wine at lunch. I didn't because that's when Steve would call. He'd be like, call on a Sunday afternoon and be like, what's your best idea? And I would just crumble and start crying. So, I never enjoyed a Sunday, and I always hated a Monday morning, just the fear of what was about to happen. And honestly, Monday, Tuesdays, Wednesdays I pretty sad going to bed at 8 or 8:30. And then you just blow the doors off on a Thursday or Friday night because you've just had such a stressful week. So, I was probably in every bar in Soho til about two in the morning on a Thursday or Friday. But just to loop it back to Hedge Fund Huddle for one for one second. If I was to, you know, talk about all the psychology episodes we've done and the portfolio managers we've spoken to, that is one thing I've really seen change over like ten, 15 years is the way people take their health over the past 15 years in terms of being in this game. People genuinely take their nutrition seriously. They take their health seriously, and it does make you a better trader. Like, there's no question about it. Like being in the right frame of mind when you approach work every day does make you a better investor. And my approach, which was somewhat at extremes, didn't do me any favours.
Mike: [00:40:19] So, Tracy, from the sales side of things. And especially as you got further along in your career and managing sellers. So, you're probably going out maybe a little bit less. But what's it like for a sales trader having to entertain? I mean, in your book you probably have 100 clients like or more. So how does that like are you just it's constant.
Tracy: [00:40:38] Yeah. I think the more live interaction you have, the better the relationship, right? You can't build a relationship through an IB chat. You build a relationship through human interaction. And so, to Jamie's point, I do think the industry has changed a lot. I think a lot of that interaction has moved from dinners at night to workouts in the morning or workouts, you know, after the close. And so, the industry has gotten a lot healthier, especially after Covid. And I think the younger generation actually drinks less than the older generation. And so, we're constantly saying to people, you should be out with your clients. But sort of that early days of the 90s, you know, the go go days of the 90s and even the early 2000s that that sort of went away. There were enough things that happened that were bad in the industry that people realised they sort of had to reel it back in.
Jamie: [00:41:30] We want to know all about those days, by the way.
Tracy: [00:41:33] And to Jamie's point, you know, to actually be focussed in on you, you have to be alert. And if you think about our days, I know, you know, one of the reasons why I decided to retire was I got up every day at 4:30, and I went to bed every night at 8:30, and I was out to dinner probably 2 or 3 nights a week, and I travelled a lot. Post Covid, those dinners, I made them breakfast or lunch, and I just changed the standard of how I would interact with people. And even if I was travelling, I sort of figured out, especially if you're jet lagged, early dinner in London and then to bed because I just couldn't do it anymore. And so, I think more and more both sides of the table feel that way. I think most people that are my peer group, we're all like, oh, can you do dinner at five? Great. And you're, you know, you're home by seven, 7:30.
Derek: [00:42:26] I mean, I used to drink myself into a puddle every night. Yeah. For years, probably for almost ten years, probably. And then when it got a little old, I started doing fundraisers. And then instead of going out, I would say, look, if you want to see me come to this fundraiser. Yeah, but that was a different year. I was a different person, you know.
Mike: [00:42:48] Do you think… you're into jiu-jitsu now? Right. So, do you think, like if you got into that a little earlier, that might have been something like, hey, you want to come to the gym and let me kick your ass?
Derek: [00:43:00] Maybe, you know, not really. It was fun. I don't regret any of that kind of stuff. I mean, I may when I have cirrhosis of the liver in a few years and, you know, find out something terrible has happened to me, but it was actually, inadvertently, a really useful thing to do because I ended up making, you know, creating a phenomenal network through.
Mike: Drinking.
Derek: [00:43:21] Yeah, The cause of and solution to all of life's problems. Right? So, no, I don't regret it. I think it was great. I mean, I think probably from all accounts, you know, the quote unquote new generation is better behaved. But, you know, maybe they’re not having fun. They’re not even getting driver’s licenses.
Mike: [00:43:39] So I'm going to ask one more question. Jamie, I'm going to start with you because I want to finish this one on Derek because of the book. But, you know, there's a lot of stories, right? And we kind of talked about it like some misconceptions.
Jamie: Are you going to ask if I insider traded? No, I’m kidding.
Mike: Are a lot of these stories that we hear like, are they just exaggerated? Or is the insanity of the 70 degree or 69 degree office that we hear about with Steve, like just on top, like crazy or are these stories real?
Jamie: [00:44:10] I forgot to wear by CR Intrinsic – I forgot, I was going to wear it tonight. But yeah, I mean if you know about it as soon as you walk onto the trading floor at Point72, the first thing you notice is just how cold it is. They say it's the same with why Olympic swimming pools are like 4 or 5 degrees colder than any other swimming pools, because you just operate much more efficiently at an artificially cold temperature. And that is absolutely true. Those trading floors are cold. You are given a vest on your first day and all that is absolutely true. We also had, you know, the guy was called Ari Kiev at the time. He was effectively a psychologist who went round the floor. You know, much like the show Billions. I know a lot of people watch that, but I remember he would come and, like, tap me on the shoulder and he'd ask me about how the day was going. And I thought that was pretty progressive, actually. And a very good idea because there's a lot of stuff going on in people's lives and that can spill over into your performance very easily. And like having someone to talk to about that I thought was, was really helpful. Mine was mainly my poor relationships. I was trying to cultivate romantic relationships, which didn't really pan out. But yeah, I mean the stories about being there. You tell me and I'll tell you if they are true.
Mike: [00:45:24] Well, how close is Billions to real?
Jamie: [00:45:25] There was a couple of characters who were like, Dollar Bill. I mean, there's some I mean, they all the characters in the show were effectively like exaggerations of real people that I worked with. But they did exist. There were people who were like, road pretty close to the edge. I mean, I don't know that for a fact. And, you know, the character Wags, I'm not mentioning any names, but he represented some people. And yeah, I think it was pretty close to the way it was. I mean, the blow ups that I would witness on the trading floor were very real and massive. Like there was no holding back when certain people were losing their were losing their temper, it was apocalypse.
Mike: [00:46:08] Now Tracy, I was on the sell side for about 12 years, but I covered a lot of boring quants. They didn't ever want to even talk to me. So, what's it like covering a hedge fund that's a little more aggressive? Are the stories of them being kind of obnoxious and, is it is it like you get a lot of those stories? I can't imagine everyone's like that, right. Because you mentioned before, some of them are just, it's just a legal structure, right? So, how true. I mean, how much do you see that from a salesperson?
Tracy: [00:46:36] I think at the end of the day, when you have money at the centre of what you're doing, it creates a lot of emotion. And at the end of the day, our job on the sell side is to make the other person that we're talking to look good to their boss. Or you might be talking to the boss and you're trying to help them make money. If something happens for them, you call them at the wrong time of the day and they're losing money, or you call them and you tell them about something. You tell them about Apple, and they don't own Apple in their portfolio, and they yell at you. It's because they have money at the centre of what they're doing. Their job is to make their investors money. So, because of that, there is stress and emotion. My view has always been people are just emoting and don't take it personally. And I'm one that really never took it personally. You just say, okay and you hang up the phone. You know, it's like, I find that if you talk to somebody with a smile, you get them to calm down. Or if you say to them, is there anything that, if they call you up screaming and yelling, you say, how can I help you? And then you wait for them to calm down. To me, the worst thing you can do is when somebody is angry is you do not let them complete their anger because you are literally lighting the match all over again. And it takes 60 seconds for the match to diffuse. And so, I think you learn these things over time by dealing with different types of people. And I dealt with quants, and I dealt with long onlys, and I dealt with long, short and multi strats. And at the end of the day, all these firms are trying to either raise assets or and produce returns for their clients. And if you just remember that when, if they are yelling at you and you sort of reel back and say, why are they upset? You don't react to it. You just figure out how you can solve the problem.
Mike: [00:48:33] Derek, is Billie Irish a real person?
Derek: [00:48:35] Yeah. He's like he's like 50% one person.
Mike: [00:48:40] So if you haven’t, I'm going to hold you there for a second. I guarantee when you pick up the book or when you start reading you will not be able to put it down. The stories are fantastic, but I want to know how much are exaggerated and how much are real.
Derek: [00:48:54] Well. I mean, look, I worked with a bunch of monkeys who whacked out on PCP, like, there's no doubt about that, right? I mean, I mean, the iPhone didn't come out until 2006. There's no record of the sort of behaviour you're dealing with a bunch of, you know, they were all males, a bunch of alpha males under huge amounts of pressure with all who were independently wealthy. Yeah, I mean, the book is I've got a 15 year old daughter. So, the book is, you know, it's moderated, you know, with a, with an emphasis on humour rather than being too real. But no, that's all real.
Mike: [00:49:33] I have to say, you mentioned being working with mostly guys. There's a couple of really good stories of very strong female characters in the book.
Derek: Sure.
Mike: And they really stand out. And that's kind of when Derek suggested Tracy for this, I was like, we got to have somebody that's covered the sell side as well.
Derek: [00:49:50] Yeah. I mean, look, Tracy and I have a mutual friend, Karen Katz, who has covered me for 20 years across different things. I would never raise my voice to her. Never. Not in a million years, would I? But, you know, I respected her and, you know, we had we had a great relationship.
Mike: [00:50:06] All right. So, we're coming up on the hour here. So last thing for me is, what are you guys up to now? What are you doing? Any anything you want to plug? Anything you want to, you know, people to know about, like, kind of what you're doing.
Jamie: [00:50:18] What am I doing now?
Mike: [00:50:19] Yeah. What are you up to now? Let's tell the people about the auctioneering.
Jamie: [00:50:26] Yeah. Well, there you go. I mean, when I left hedge fund management, I wanted to be a TV presenter. So, you can imagine what a seamless career move that was. And I started hosting various different shows. I worked with various different other media outlets. And ended up working with LSEG as well. So basically, if it doesn't come across, I like being on stage. I like performing and somebody asked me to do one of these charity auctions about ten years ago. And I went from doing about two a year to now I do like 60 or 70 a year, including tonight I have four this week. So that's just that's just what I turned my attention to. Now it's a lot less stressful. I'm on stage for about 20 minutes, and I try and persuade about 400 relatively drunk people to overspend on a holiday to Tuscany in aid of a charity. So, it's very different from telling Steve that Prudential and AIG are excellent buys.
Mike: [00:51:16] So, Tracy, you're the most newly retired person. How is that working out? What are you up to? Is there anything?
Tracy: [00:51:22] So it's great, I love it. I'm actually very involved in my alma mater. I'm the vice president of the business school board, and I'm on the endowment board and on the investment committee. And for me, that's really fun. I wouldn't have been able to do that if I was still at my firm, because I would have been conflicted. And so, I'm enjoying getting to know everything there is to know about the portfolio. And we have a new CIO, so that's great. But I just launched TCN Advisors. My initials were basically a verb. At my company they'd say you'd been TCNed and that could mean you were inspired. It could mean that I squashed a good idea. It could mean a lot of things. But so, I kept the branding of TCN Advisors, but it's consulting, coaching and speaking. I love to inspire especially. I've done a lot of work around women and helped a lot of women launch hedge funds. And as a consultant, I'm hoping to do some of that and hopefully some public board work as well.
Mike: [00:52:20] Excellent, Derek. Obviously, we know you wrote the book. I believe you're working on another one. But can you tell us more about the charity?
Derek: [00:52:27] Yeah. So, what I do now, I write every day, I write on Substack. I'm writing a sequel to the book. I walk my dogs, I train jiu-jitsu. I look after my kids. I have a mentorship program. A couple of my military veteran mentees are here. And the I've been raising money for military veterans for almost 20 years now. Normally we do a fundraiser at the Intrepid every year. We've done 12 of those, I think and the latest charity it sponsors military veterans for Jiu-Jitsu memberships. You know, it's very active. Good for these guys to be around you know, other crews and other military veterans. And, you know, that's where I am now, and we'll see in a year.
Mike: [00:53:17] I'm going to ask you to pull a little bit of a thread on that. Can you talk about what they've told you about how Jiu-Jitsu itself helps them? Because I've heard on some podcasts about how important and impactful it is to be in a gym with that with guys.
Derek: [00:53:34] Yeah, I think that's part of it. Most of these guys have had very active lives. And when they come out of the military, they lose the community, and they lose a lot of the activity. And jiu-jitsu brings them back to both of those two things. My best friends are all at the jiu-jitsu gym. I think it's fantastic. The there's some release about getting strangled by people, and strangling them is fun as well. So no, I think it's a great charity. Just to be clear, it's called We Defy Foundation. All the proceeds from my book go to that foundation, so it’s great.
Mike: [00:54:10] Excellent. Yeah, it's a good I love giving back to our veterans, especially. So that's a wrap. We're going to spend some time on drinks, but thanks to the panellists for kind of opening up about their history, what's happening, kind of demystifying what a day in the life is like. If you want to get some like really, you know, non-recorded stories, I'm sure they'll be happy to talk. But thank you everyone for coming tonight and looking forward to grabbing you all during drinks. Thank you.
