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Flirting with Models
46 minutes | Aug 16, 2021
David Berns - How do you build a portfolio for a human being? (S4E16)
In this episode I speak with David Berns, co-founder and CIO of Simplify ETFs and author of the book Modern Asset Allocation for Wealth Management. Our conversation centers around the idea of what it means to build a portfolio for a human being. This concept arises both technically and philosophically in David’s work, where he emphasizes the importance of higher return moments in portfolio optimization, but goes about achieving this end through more holistic risk preference analysis. David expands upon the ideas of risk aversion, loss aversion, reflection, and how both our personal balance sheets and our standard of living expectations impact the portfolio choices we should be making. While there is no straight forward prescription, David emphasizes that simply being aware of these different factors can help advisors select more appropriate portfolios. And, hopefully, as the toolkit of investment options expand, adopt exposures that can better shape investor return distributions. I hope you enjoy my conversation with David Berns.
55 minutes | Aug 9, 2021
Russell Korgaonkar - Optimizing the Research Process (S4E15)
Today I am speaking with Russell Korgaonkar, CIO of Man AHL. In his role, Russell oversees a large research organization and so we spend a large part of our conversation talking about research management. Russell provides his thoughts on topics such as determining which projects to take on, quantifying investments in technology, data, and people, how to avoid group think, and how to incentivize both researchers and reviewers. There is tremendous organizational alpha to be gleaned here. In the back half of the conversation we discuss some of the research that Russell has published on dynamic risk controls. He explains how risk management signals are akin to alpha signals and how the practice of managing risk through 2020 differed from the theory of doing it. We conclude with Russell’s opinion as the most important due diligence question he could ask, either of another manager or of his own researchers. Please enjoy my conversation with Russell Korgaonkar.
61 minutes | Aug 2, 2021
Bryn Solomon - Exploiting Fat Finger Errors in Cryptopunks (S4E14)
Bryn Solomon is the co-founder and CEO of MGNR, a quantitative cryptocurrency asset manager with arms in market making, discretionary trading, DeFi yield farming, and venture capital. Our conversation touches on all these arms, exploring their key differences from traditional markets, sources of edge and opportunity, and the risks unique to the cryptocurrency markets. A recurring theme within the conversation is how the pace of innovation in cryptocurrency presents both opportunities and risks. For bearing the burden of exchange outages, contract hacks, flash loan attacks, and outright scams, savvy traders can find opportunities in mis-priced derivative contracts, asymmetric information flow, and the occasional fat-finger error in crypto punks. I hope you enjoy my conversation with Bryn Solomon.
60 minutes | Jul 26, 2021
Andrew Lapthorne - Thematic Baskets and Strong Balance Sheets (S4E13)
Andrew Lapthorne is the Head of Quantitative Equity Research at SocGen, a role he’s held for nearly 14 years. Given the breadth of topics covered by bank research, it should be no surprise that this conversation takes some wide swings as well. We discuss everything from thematic baskets to style premia and machine learning to ESG. One of my favorite parts of the conversation is when Andrew discusses his research into strong balance sheet names in U.S. small-cap equities. For all the depth in discussion of how index composition rules affect small caps, why Merton’s distance-to-default correlates to credit cycles, and how this trade can potentially be a positive carry hedge, I love that the inception for the idea came from just updating spread sheets. While this podcast goes wider than it goes deep, Andrew’s experience allows him to sprinkle a bit of wisdom in every topic we hit. I hope you enjoy this episode with Andrew Lapthorne.
53 minutes | Jul 19, 2021
Greg Obenshain - Quantitative Credit (S4E12)
In this episode I chat with Greg Obenshain, Partner and Director of Credit at Verdad Capital. Prior to joining Verdad, Greg worked as the high-yield portfolio manager at Apollo Global Management and Stone Tower Capital. Despite his background as a fundamental analyst, Greg is a quant convert. His ideas are still grounded in a strong fundamental understanding of what it means to invest in credit, but in a sector where even just acquiring data may be an edge, he lets the data speak for itself. Greg argues that within credit, excess return comes from identifying improving and declining credit conditions. And, much like quantitative equity investing, there are certain characteristics that can provide insight into how those conditions might change. We discuss the counter-intuitive findings the data has brought to light, what Greg thinks most credit investors get wrong, and how to grapple with the dimensionality problem of fixed income. I hope you enjoy my conversation with Greg Obenshain.
61 minutes | Jul 12, 2021
Roxton McNeal - Liability-Driven Investing (S4E11)
In this episode I speak with Roxton McNeal, Head of Multi Asset Investment Strategy & Allocation at the UPS Investment Trust. Before landing at UPS, Roxton’s career took him through the world of CTAs, developing hedge models for bonny light oil, and working in asset/liability management at General Motors. Each of these roles likely deserves its own podcast, but I do my best to pull a nugget of wisdom from each experience. Where we spend the bulk of the conversation is in Roxton’s current role at at the UPS Investment Trust. We touch on many of he hot-button issues among institutional allocators, including the role of glide paths, private investing, tactical asset allocation, and tail risk hedging. I think what makes this conversation particularly interesting is how the constraints and realities of liability-driven investing shapes Roxton’s views in these areas. Please enjoy my conversation with Roxton McNeal.
71 minutes | Jul 5, 2021
Vivek Viswanathan - Quant Equity in China (S4E10)
Vivek Viswanathan is the Head of Research at Rayliant Global, a quantitative asset manager focused on generating alpha from investing in China and other inefficient emerging markets. Our conversation circles around three primary topics. The first is the features that make China a particularly attractive market for quantitative investing and some of the challenges that accompany it. The second is Vish’s transition from a factor-based perspective to an unconstrained, characteristic-driven one. Finally, the critical role that machine learning plays in managing a characteristic-driven portfolio. And at the end of the conversation we are left with a full picture of what it takes to be a successful, quantitative investor in China. I hope you enjoy my conversation with Vivek Viswanathan.
77 minutes | Jun 28, 2021
Tobias Carlisle - Realism Over Idealism in Value (S4E9)
My guest this episode is Tobias Carlisle, author, podcast host, and founder of Acquirers Funds. Toby joined me in Season 1 where we discussed his background and overall investment philosophy. In this episode, we dive right into the well-documented woes of value investing. Rather than rehash the usual narratives, however, I wanted to get Toby’s views as to how this environment is unique. We spend time discussing relative versus absolute cheapness, the potentially arbitrary constraints of value and growth definitions, and whether value can ever be effective for investing in the right tail. In the latter part of the episode, we discuss the two funds Toby manages, including a large-cap long/short and a small/micro long-only. We cover performance in 2020, the practical difficulties of shorting, and how investing considerations are unique in the microcap space. I hope you enjoy my conversation with Tobias Carlisle.
56 minutes | Jun 21, 2021
Sam Trabucco - Perpetual Swaps, Liquidation Cascades, and the USD-BTC-YEN Triangle Trade (S4E8)
In this episode I speak with Sam Trabucco from Alameda Research. Alameda manages over $100mm in digital assets and trades between $600mm and $1.5bn per day. We begin our conversation with a discussion around the features that distinguish crypto markets from traditional markets. What becomes a recurring theme in the conversation is how decentralization and fragmentation present both an opportunity and a challenge. Sam provides some color into the easiest and hardest alpha he’s earned, including exploiting a spot arbitrage with a US dollar, Bitcoin, and Japanese Yen triangle trade. But not all trades are that complicated: sometimes, it’s just buying Dogecoin when Elon Musk tweets about it. We spend the back half of the conversation discussing operational issues such as managing collateral, block-time versus clock-time, transaction costs, exchange risk, and regulatory risk. For a highly systematic team, Alameda spends a good deal of time trying to qualitatively judge where the juice is worth the squeeze. I found this chat to be incredibly insightful into the world of crypto trading, and I hope you do too. Please enjoy my conversation with Sam Trabucco.
77 minutes | Jun 15, 2021
Dennis Davitt - Markets > Models (S4E7)
In this episode I speak with Dennis Davitt, CEO of Millbank Dartmoor Portsmouth. Dennis began his career in the option pits of New York and Chicago and eventually worked his way to managing the equity derivatives desk for Credit Suisse. These experiences taught Dennis two important lessons. First, respect markets over models. Secondly, always ask: “what’s the motivation behind this transaction?” And for each of these lessons, Dennis offers a number of stories to entertain us. In 2013, Dennis left the sell side to join the buy side, and shares with us some important lessons learned about both productizing knowledge and client communication. In the back half of the conversation we discuss Dennis’s new firm, the opportunity he currently sees in short volatility, ideas for creating a hedged equity strategy when hedging is expensive, and why investors might want to take a page from Moneyball. I hope you enjoy my conversation with Dennis Davitt.
76 minutes | Jun 7, 2021
Angus Cameron - Trade Structuring: Systematizing a Hidden Edge (S4E6)
Angus Cameron is the Founder and CIO of Liminal Capital, a machine-learning focused investment manager. But Angus does not come to markets with a computer science PhD. Rather, his career arc took him through the prop desks and buyside of Asia, trading global fixed income, FX, equity markets, and arbitrage strategies on a discretionary basis. A machine-learning driven approach is a new endeavor, but one informed by the wisdom of experience. Angus would consider himself a quantitative trader, not a quantitative investor, and his approach reflects that. Like many systematic investors, Angus breaks the broad investment problem down into data ingestion, idea generation, position management, and risk management. Where he differs from many past guests is in the latter two pieces. Informed by his trading experience, Angus places a strong emphasis on trade structuring and on-going position management. Liminal automates this philosophy by using swarms of systematic trading agents to place and manage different trades based upon the same underlying signals. From market structure to machine learning: we cover the full range. I hope you enjoy my conversation with Angus Cameron.
65 minutes | May 31, 2021
Guillermo Roditi Dominguez - Path or Destination, Not Both (S4E5)
In this episode I speak with Guillermo Roditi Dominguez, managing director at New River Investments. This was one of the more unique and wide-ranging conversations I have had on the podcast to date. We begin by discussing Guillermo’s approach to portfolio construction, which is heavily focused on the idea of under-writing risk. How he goes about achieving this, though, takes us from adjusted valuation measures to the positioning of large, systematic players and even to the importance of higher frequency tax data. After discussing the macro framework, we dive into how decisions are made within equities and fixed income. Again, Guillermo stays consistent to his philosophy of underwriting risk and I found his example of allocating to mid-caps versus large-caps in 2020 to be particularly insightful. While we spend a lot of the episode talking about under-writing risk, we end the episode with Guillermo’s view as to why the right tail is actually more difficult to manage. So make sure you stick around for that. I hope you enjoy my conversation with Guillermo Roditi Dominguez.
38 minutes | May 24, 2021
Tina Lindstrom - Commodity Volatility (S4E4)
Tina Lindstrom is a Partner at First NY, where she manages an oil volatility portfolio. She began her career at Susquehanna and eventually worked her way up to managing both the high cap equity index group and the commodity volatility group. This gives her the unique perspective to be able to compare and contrast how these two markets operate. Tina explains what makes commodity markets unique, how the structure of markets has changed over time, how relative value trades might emerge, and what happens when you’re trading volatility and front-month futures go negative. Please enjoy my conversation with Tina Lindstrom.
65 minutes | May 17, 2021
David Fauchier - Paranoid Crypto Cowboys (S4E3)
In this episode I chat with David Fauchier of Nickel Digital Asset Management. At Nickel, David manages the Factors Fund, a multi-strategy, multi-manager fund for cryptocurrencies. We leave the philosophical discussions about crypto aside to dive into the features of this universe that make it rife with opportunity. What struck me most about this conversation was not just how much crypto markets have evolved in the past several years, but how fragmented they still remain. Different exchange rules, regulatory regimes, margining rules, derivative contract definitions, and even order book models represent both risk and opportunity. And in exploring these idea, David helps me better understand why traditional high-frequency funds like Citadel, Jump, or Jane Street don’t simply come in and eat everyone’s lunch. In the latter part of the conversation, we pivot to David’s role as a manager-of-managers, and explore issues such as exchange and custody risk, due diligence, and the types of questions an allocator should be asking. Finally, David leaves us with a teaser about the new opportunities emerging in the DeFi space. But we’ll have to save that for another conversation. Please enjoy my conversation with David Fauchier.
71 minutes | May 10, 2021
Darrin Johnson - Independently Shorting Volatility (S4E2)
Darrin Johnson is the first independent trader I’ve interviewed for this show and with that distinction he brings an entirely new perspective. After learning about how Darrin began his career as an independent trader, we get into the bulk of the conversation that circles around his process of shorting volatility in the S&P 500 complex, including options on futures, index options, VIX futures, and VIX ETPs. Darrin provides insights into how he plays certain tenors over others, why knowing when not to be short is the most important key to risk management, why the upside can be riskier than the downside, and thinking through managing a trade over its lifetime. Towards the end of the interview, Darrin paints a realistic picture of what it means to be an independent trader, in both the opportunities and constraints unique to his position. We finish with the advice Darrin would give to anyone serious about starting a career in independent trading. I hope you enjoy my conversation with Darrin Johnson.
45 minutes | May 3, 2021
Cem Karsan - The Market Voting Machine (S4E1)
My guest this episode is Cem Karsan, Founder and Senior Managing Partner of Aegea Capital Management. Cem began his career in the pits, and so we begin our conversation with a discussion by comparing and contrasting today’s market versus days gone by. And, perhaps more importantly, the wisdom gained from that era. It was in the pits that Cem began to understand and develop his intuition for markets and what would become the colorful cast of characters he uses to describe what’s driving flow: Gary the Gorilla, Vanna, and Charm the Sloth. How these characters cooperate or fight amongst themselves provides Cem with a forecast as to how markets should behave. It seems like these are new and growing forces, but Cem argues they’re as old as time. And, more importantly, increased awareness does not mean they can just be arbed away: they are, potentially, fundamental forces of markets. We end our conversation with a discussion of how these flows can have profound impacts for equity factor performance and what this all means for stock pickers. I hope you enjoy my conversation with Cem Karsan.
65 minutes | Sep 20, 2020
In this episode I am going to read Newfound’s latest research paper, LIQUIDITY CASCADES: The Coordinated Risk of Uncoordinated Market Participants. This reading will refer to a number of figures within the paper, so I urge you to go to our website, thinknewfound.com, and download the PDF so you get better follow along. This paper is unlike any research we've shared in the past. Within we dive into the circumstantial evidence surrounding the "weird" behavior many investors believe markets are exhibiting. We tackle narratives such as the impact of central bank intervention, the growing scale of passive / indexed investing, and asymmetric liquidity provisioning. Spoiler: Individually, the evidence for these narratives may be nothing more than circumstantial. In conjunction, however, they share pro-cyclical patterns that put pressure upon the same latent risk: liquidity. In the last part of the paper we discuss some ideas for how investors might try to build portfolios that can both seek to exploit these dynamics as well as remain resilient to them. I hope you enjoy.
74 minutes | Sep 7, 2020
Kris Sidial - Long Volatility for the New Regime (S3E14)
My guest this episode is Kris Sidial, co-CIO of The Ambrus Group, a volatility arbitrage focused firm founded in 2018. Kris recently joined Ambrus after spending several years on BMO’s exotic and listed options desks. While time on these desks gave Kris the experience of managing a large derivatives book, what convinced him to take the leap to a new firm was growing confidence in a thesis that market micro-structure had undergone a regime shift. And in Kris’s view, this regime shift supports his approach to building a volatility arbitrage book. Kris’s approach is broken down into two sleeves: long and short volatility. Within long volatility, Kris plays a unique flavor of dispersion trading. Within short volatility Kris plays contango in the VIX futures curve and kurtosis trades that seek to exploit mean-reversion and overpriced volatility. With several moving pieces, we spend the back half of the episode discussing each sleeve, the underlying approach, how Kris thinks about managing risk, and how it fits into the whole. What becomes clear is that while we discuss each sleeve independently, they do not exist in isolation. The portfolio is designed to co-exist, with careful thought about how positions in one sleeve offset risk in another. From a unique fundamental outlook to the holistic approach to portfolio construction, this episode has a lot to offer. I hope you enjoy my conversation with Kris Sidial.
60 minutes | Jul 29, 2020
Cliff Asness - "...But Not So Open Your Mind Falls Out" (S3E13)
“Keep an open mind. But not so open your mind falls out.” My guest in this episode needs little introduction: Cliff Asness, co-founder and managing partner at AQR. Cliff has done dozens of interviews, podcasts, talks, and fireside chats over the years. He is also a prolific writer. So, my goal in this conversation was to try to find the questions he hadn’t been asked before or had not answered himself already. How did his formative experiences in the dotcom bubble shape his perception of markets? Why should we stick to factors like grim death? Which of his dozens of papers have been woefully overlooked? Where has he changed his mind over the years and what is he most confident in going forward? Cliff is fountain of knowledge of quant history, research, and practical experience and tells some fantastic stories along the way. Please enjoy my conversation with Cliff Asness.
61 minutes | Jul 27, 2020
Euan Sinclair - Positional Option Trading (S3E12)
Today I chat with Euan Sinclair, Partner at Talton Capital Management and author of the books Options Trading, Volatility Trading, and the up-coming Positional Option Trading. We begin our discussion with Euan’s experience as a market maker as I try to get a better understanding of what a market making operation really looks like from the inside and how it has changed over the last 15 years. Of particular interest to me, given how much market makers have been villianized in recent years, were Euan’s comments on misconceptions about market makers. We then turn to the buy side, where Euan has spent recent years and is largely the subject of his new book. We discuss common mistakes, sources of edge, thinking about directional versus volatility bets, and the seemingly overwhelming degrees of freedom that options trading offers. I know I walked away from our conversation with both an increased appreciation of the nuance in these topics, but also several new ideas for both edge and risk management. Please enjoy my conversation with Euan Sinclair.
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