The Derivative - Commodity Volatility, Global Macro, and Trend Following with Alan Dunne from Archive Capital

Episode Date: March 17, 2022

Happy St. Patrick’s Day! The luck of the Irish is on our side as we celebrate today's episode with Dubliner Alan Dunne, CEO and Founder of Archive Capital, a boutique multi-asset and investment research firm focused on global macro and managed futures strategies. Alan has worked in the financial markets and investment management industry for over 25 years at hedge funds and large investment banks as a CIO, hedge fund allocator, macro strategist, and technical analyst. During our exciting chat with Alan, we focus on the crazy volatility in commodity markets, how macro traders have evolved over the years, and why crisis periods can be good for a trend managers' track record. Plus, Alan plays "Where Would You Invest 10K, 100K, and 100 MM?" So, grab a green beer, keep calm, and shamrock on because we're jumping right into the pot of gold this week! Chapters: 00:00-01:16= Intro 01:17-17:29= Crazy Volatility spikes & Approaching Trend Following 17:30-26:01= Systematic Macro & Embracing Quant Strategies 26:02-40:37= Abbey Capital: Dispersion in the Trend Space & David Harding 40:38-54:47= CTA Due Diligence 54:48-01:05:53= Archive Capital: The Liquid Space / Podcasting 01:05:54-01:13:15= What would you invest in? Follow along with Alan on Twitter @alanjdunne and for more on Alan and Archive Capital, visit Archive Capital | Dublin | Asset Allocation  Check out our new Trend Following Guide here! Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Welcome to the Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Happy St. Patrick's Day. We're helping you celebrate by going to Ireland, talking with Dubliner Alan Dunn. Alan is the CEO and founder of Archive Capital, who focus on research into managers in the Patrick's Day. We're helping you celebrate by going to Ireland, talking with Dubliner Alan Dunn. Alan is the CEO and founder of Archive Capital, who focus on research into managers in the commodity ball trend and macro space, right up our alley. This was a great chat with Alan on the current craziness in commodity markets, how macro traders have evolved over the years, and why warts are a

good thing in a trend manager's track record. So grab your green beer and let's send it. This episode is brought to you by RCM's Managed Futures Group, whose experienced team has been helping investors bet commodity and trend managers for 20 years. Speaking of those trend managers, with all the moves in commodity markets lately, go check out our trend-following white paper at www.rcmall.com, then the education tab and white papers link. Back to the show. All right. Happy St. Patrick's Day, everyone. Actually, we're recording a week ahead, but it's going to be released on St. Patrick's Day.

So happy St. Patty's Day to our Irish guest, Alan Dunn. How are you, Alan? Great, Jeff. Great to be here on St. Patrick's Day. So happy St. Paddy's Day to our Irish guest, Alan Dunn. How are you, Alan? Great, Jeff. Great to be here on St. Patrick's Day, even though we're a little bit ahead of time. And yeah, who better to have on on St. Patrick's Day? Exactly. Well, it's great to meet you. I've been a fan from afar and heard you on Top Traders Unplugged and whatnot.

So good to meet you. What's the holiday like over there in ireland it's it's uh it's actually a big one this year because uh with with covid um there was an extra public holiday um allocated this year so that's actually coinciding the day after saint patrick's day so it's a mega uh holiday weekend uh so it's going to be a pretty big weekend. And you've got the Six Nations rugby culminating that weekend too. It mightn't mean a whole lot to you guys, but it's a big deal if you're a rugby fan in Ireland. And you've got a whole host of things, obviously,

St. Patrick's Day celebration. So it definitely will be a big weekend in Dublin. Who are the Six nations that participate? That are Ireland, England, Scotland, Wales, France and Italy. So you keep the Kiwis out of there. So someone else. Yeah, we play the Kiwis and the Aussies in the spring box, typically in the autumn.

And they tend to come on tour here. And, you know, it's good, good chance to see who's kind of in the ascendancy outside of the world cup they don't tend to play the northern hemispheres and some hemisphere teams that much um but the six nations that used to be uh the five nations you know um it's it's been going back many years and it's kind of the big domestic or i suppose big northern hemisphere rugby championship. Fun. I'll look for the results. How's Ireland's chances? Pretty good. I mean, we've got that will be the final round, the St. Patrick's Day weekend. There is rugby this weekend. Ireland are playing England, so

obviously the result of that will be out when this is out, and then Ireland play Scotland in the final match. So it's, you know, they tend to be pretty good, good social events too. But, you know, the rugby is pretty exciting too. So looking forward to that. Love it. And where in Ireland do you live? So I'm living in Dublin, pretty close to the city centre.

I actually, you know, if I looked out my window here, I'd be able to see the Aviva Stadium where they play the rugby. So I'm very central and, uh, yeah, very, very well set up for, for all of that. Uh, I've never been, so I got to come visit on my list. Absolutely. Yeah. No, if you're, if you're, if I'm not so much a golf fan, I'm like, you know, I'd probably be a bit at 36 handicap or something like that. But if you are a golf fan, you definitely find lots of great courses over here. I love it. So let's jump right in and talk about the crazy volatility and commodity markets past few weeks. What's jumped out to you most watching this price

action? Yeah, I mean, it's interesting. We were chatting just before we came on. It really feels like kind of once in a generation type of price moves you know when i started off in the industry uh in the 90s you know i was a i was a trader and an analyst and uh back in bank of america in the big 90s and uh when you start off in trading you read lots of books as to try and figure out how to try and make money trading and you know one of the first things i read was market wizards and you know when you read those books, people are talking about the crazy moves in commodities in the 1970s and trading those markets and the market being up, you know,

limit up five days in a row. And you think, oh, yeah, that's great. But, you know, we'll probably never see those kind of markets again. But here we are and we're seeing them. And we're seeing those kind of crazy, crazy events. Obviously, we've got a humanitarian tragedy and catastrophe going on in Ukraine. But, you know, I think if you were to go back three or four years and say, well, you know, you've got to have some strategies in your portfolio that might help you out in times of war or crisis, people wouldn't have believed it. So it is a good reminder that all of these things come

in cycles. And just because we haven't seen something in the markets for a number of years, it doesn't mean it can't come back. And I think that's definitely what we're seeing at the moment. Obviously, we've got, I suppose, the move in oil, it's not like we haven't seen something like that before. We've seen crazy moves. We had negative oil prices just a couple of years ago. We had oil ratcheting up to $147 in 2008, only to reverse very quickly. So you couldn't say it's nothing that we've never seen before, but certainly things like wheat and nickel have been pretty crazy by any standards. Yeah. Are any of the managers you track tied up in that nickel situation? Yeah, I was speaking to a manager yesterday, actually, who, you know, pretty, pretty peeved about the situation. And, you know, in terms of they had sold some nickel and executed orders whenever it was Tuesday morning, I think.

And, you know, so those have been canceled there. So it's going to be very contentious. It's probably not great for the industry, but we'll have to see how it plays out. Yeah, my theory, I did a tweet thread on this of like, it's basically just, they chose go do a capital call on all the members of the exchange

or get everyone upset over a few hours of trading and chose the latter, right? Exactly, yeah. But now it's going to get even worse if we open limit down, limit down, limit down. People are really going to throw a fit of like, hey, you canceled my sell at 98,000. Now it's at 28,000. Yeah. No, I mean, it's the integrity of the market is always what's so important in these situations. So when that gets undermined, it really is a serious issue. And what is generally the lme's got a great reputation over there in uk yeah well i mean

obviously it's it has been the uh you know i've just been reading the history of of it and uh you know people making parallels with the uh tin crisis before which which I hadn't been as familiar with. But, you know, I think it's one that's going to be a difficult one to manage, and that's for sure. So I think there's a big reputational risk if it's, you know, depending on how it plays out. What was the tin crisis? I wasn't aware of that one. Yeah, I just read about it. It was just alluded to as the most significant crisis for the LME since the tin crisis. Yeah. Got it. And how do you view, right, we saw an oil went from 95 up to 130, then dropped all the way back to 105. How do you view trend

following in particular as affinity for these large givebacks of open profits? Yeah, it's one that it does irk investors for sure. I think, you know, trend following managers deal with this somewhat differently depending on how they approach things, you know, what you have in some instances, but obviously volatility scaling up, you know, managers will in some instances scale back their positions because they're going to size their positions relative to volatility. So that can have a nice feature that can be appealing to investors in the sense that you're, you know, you're taking profit as the market is rallying, you know, as volatility goes up.

And we saw that as well in obviously the big sell off in 2020 as well. If, you know, to the extent you're not doing that, and I suppose not just looking at one market, when you get big moves across a number of markets, and then you're inevitably going to have a correction, and you will have a big giveback, and it can be a bit frustrating. But one of the big features that you see with trend following is the big gains tend to be when you get that big risk on

and then the market extends. And that's the whole point of trend following, that it is uncomfortable. And people who trade the markets will always say, it's those positions that feel uncomfortable are often the ones that will deliver for you over time. But that's a feature of trend following, that you have to have that risk on. You might say, oh, it might have been better to scale back to position, take profits. But if you mechanically did that, that would take out a chunk of the return that you get in trend following over the years. So I guess it's another of the features of trend followings, that return profile that makes it behaviorally challenging for people to hold, but it is what it is. And it's just one of the features. What you get in return from that is

that very interesting return profile, particularly alongside that equity portfolio. Right. And I view it, the investors view it as a bug and the managers view it as a feature. So it's like- Yeah, that's probably fair. Yeah. Right. Bridge that gap between the two. And if you did throw a bunch of profit taking on there, it would start to lose its trend following profile, right? That's right. You're going to lose some of the convexity because you're going to be taking profits. And in some of those instances where you get the big move, so you would have already

have taken some profit ahead of, you know know maybe the move up from in crude from 100 to you know above 130 dollars so um you know so yes some managers uh do obviously managers do volatility scale and effectively take profits as as as the market rally in in a rising vol environment but um yeah it, the flip side is you're not going to have the risk on when you get those outdoor events, as they're called. Right, and that can make up

for years worth of flat sideways, slightly down, right? Absolutely. And that's what you're really looking for in the return profile. And it's like, if you look at the periods of where trend following

has done well historically, be it, you know, 2008 or even 2014, early 2015, you know, you'll see months, you know, for your typical trend follower where they're up maybe 8%, 10%, two or three months. And you think, okay,

now would be the time to take profits. And yes, there might be a dip, but then you'll see another two or three months of double digit returns. And if you take a profit, you're going to take out those really outsized returns out of the whole return series and your overall return is going to be much diminished. And how do you, you mentioned convexity in there. So do you, do you view the profile more as a long options, convex payout type profile or a momentum, right? There's a little, it's a bit semantics and all that evolved, right? But if you're on a bank platform choosing risk premium, you might choose momentum. That's a little bit different than convexity right yeah it's interesting and i know this has come up on the top traders uh on blog podcast a bit you know you know what it's kind of like what's in a name you know is it is it just trend following or is it you know how much of the return um attribution you get is

it just by following the momentum and the trend or you know a big chunk of it is the risk management as well so a equally people say oh managed futures is a long vol strategy, and it has comparisons with that. And then, of course, you'll have periods where volatility picks up and managed futures actually loses money or trend following loses money. So none of these labels are fully descriptive of the strategy by themselves, but there are elements to them. For sure, you know, part of the return from trend following comes from the fact that, you know,

there are behavioral aspects that the market tends to be stuck in a range for a long time. And then you get something and, you know, a significant event and what that does, it causes everything to reprice. So, you know So clearly what we're in at the moment is a clear repricing event because your bunch of supply has been taken out of certain commodity markets and people are trying to grapple with the new geopolitical regime. So what happens with a repricing event, it ripples across many markets. So there is that trend following element that you can capture. But it's not just that. It's the risk management as well. It's the fact that you stick with those winners and you risk those profits as you go with it, that that can generate that convex profile.

And then what that gives you is a return profile that very often does well in a rising volatility environment. And actually, some of the best trades, we've been talking about commodities, but the short-term interest rate markets have been really interesting for trend followers as well this year. Why not only have we seen breakouts and trends, but you've seen a massive volatility expansion. And that's a really, really interesting property of managed futures that when you get that vol expansion, you're into a trade and into a position with a big, size and that's what can generate a really nice return so there's multiple

dimensions to how you describe what's going on in the trend following portfolio and where the returns come from and i think that's where you know some people say oh it's just you know following the trend or it's risk management or it's long vol. It has elements of lots of different aspects. So it's more nuanced than any of one of those individually. And just to dig on to that vol expansion concept, if I'm trading, whatever, a million dollar trend following program

in two-year notes, I want to risk 50 bps of my portfolio on the trade when vol is real low. Maybe I'm doing six, seven contracts or something of two years. Right? That's it. Yeah. So with really low vol, you can get into a position with a tight stop.

And because your stop is so, and it's a tight stop because volatility is low. And then if you get a breakout and a volatility expansion, then you're already into the position in large size. But the market is now moving three or four times what it had been moving for the previous three or five years. And so you're going to have a really, really nice risk reward profile. Right. And I think that's what makes it convex, not just a momentum trade, right? That's exactly it, yeah. And then on that topic,

what are your thoughts on the managers who do some vol targeting that's kind of been a, it's a little bit of a knock on some, right? Of like, okay, if I take away that convexity by doing vol targeting, the vol expands and now I have to reduce position size. Yeah. I mean, you've got different shades of this, that people will do that to a degree and that will dampen it, but obviously you will tend to adjust to

volatility exposed. So you can still capture that, those periods of volatility expansion. I think, you know, I think you have had historically, philosophically different approaches and trend following has evolved in different ways. You've got the turtle trading type approach of risking a certain amount on discrete bets and doubling up and managing the stop losses on a position by position basis versus the more holistic, managing the risk in the overall portfolio and looking at the risk and

volatility of that overall portfolio. So that's not to say one is right, one is wrong. They're just, they're both, you know, trying to take advantage of a phenomenon that people believe is there in the markets that you get these big moves and trends in markets. But I suppose it's solving for maybe a different utility in the sense that, you know, okay, not everybody is going to have the appetite to stick with the return profile that you get with the more traditional approach of really running at that high vol. That's not to say that the more nuanced approach of managing the volatility is wrong. It's just saying, okay, we don't want that extreme volatility. We want to, you know, behaviorally have a different type of return profile. So we're going to approach the problem slightly differently. Preston Pysh Love it. We'll get into that in a minute of maybe you put a portfolio of them together to solve some

of that. What are your thoughts on investors looking to add trend or commodity exposure now after such a run-up? I think back to 2008, tons of money flowed into the space starting 2009 when everything rallied back, vol crushed. And four years later, you had a lot of people unhappy with managed futures and trend and flowing right back out of the space. So what are your thoughts on, did they miss it? Is it the start of something? I know it's an impossible question, but give it a shot. It is an impossible question. And I suppose you can try and make parallels. And maybe, yeah, is 2008 the right parallel?

Even if you go back to that period, we had seen a good period for trend following in that whole decade. The 2000-2010 decade was a good decade because you had an equity bear market in 2000-2002. Then you had the commodity super cycle. What's that? Sorry, yeah. The second bear market again. Yeah. And then you had a second bear market in 2008. And before that, you had a commodity super cycle in 2005-2006-2007.

So we had really strong moves in commodities in that period so um it you know yeah it's it is an impossible question I think you know um at some point obviously there will be a give back in this move but at the same time you know if you look back at where we've been for the last 10, 20 years, certainly the last decade was unusual to 2010 to 2020. From a macro perspective, we had very low volatility in GDP. If you look at US GDP in that period on a quarterly basis, it was between maybe minus 1% and plus 2%. I can't remember the exact numbers, but very low GDP quarterly. There was no recession in the whole period.

There was no boom. So you had this kind of concept of secular stagnation. So from a macro perspective, it was very slow and steady, not a lot going on in the world. We didn't have an equity bear market in that period. You know, maybe not so much geopolitical risk. It's always hard to quantify how much of that we've had.

But certainly as we move into this decade, it's been very different. Obviously, we've had COVID. So that precipitated a deep recession and a big recovery. Now we've got, you know, we had started to see volatility in relation to the Fed tightening cycle. And now we've got a war between Russia and Ukraine. So it's already, you know, shaping up to be a very different decade. It'd be,

I think it'd be foolhardy to suggest that we've seen the volatility and things are going to revert back to what it was like for the last decade. I would think a more reasonable expectation would be more volatility ahead. We still have to navigate the Fed reducing their balance sheet from eight, nine trillion, whatever it is. So that's going to be a challenge at some point. You know, they have to think about the timing of that. So I think there's still plenty of risk out there.

I think it's a good environment for managed futures and macro oriented strategy. So I think it is still a environment for managed futures and macro-oriented strategies. So I think it is still a good time to be looking at them. And as you mentioned macro, what are your thoughts there? Has the world moved away from the classic discretionary macro guy taking a huge bet on XYZ market? And that's more systematic now? Have those worlds have kind of blended? It's interesting.

I was talking to somebody about that just earlier today. And if you go back maybe five years ago, there was this big interest in systematic macro, quant macro. And we were talking about why was that? It was partially maybe a little bit of disquiet with traditional trend following. And people were saying, okay, maybe quant strategies purely focus on the price are not enough and maybe there's something interesting in the whole systematic macro space. But talking to people, there does seem to have been

more interest in the discretionary macro space this year. And I guess that makes sense in an environment where you get something very different. People might say, well, this is an environment that favours something very different. And people might say, well, this is an environment that favors being nimble, being opportunistic, not relying too heavily on relationships. I think that, you know, I come from a multi-manager background, so you can always see the merit of blending different strategies. And the reality is all of these different approaches will have their particular market environment

where they will do better or worse. So I can see the merit in discretionary macro making a comeback now. Interestingly, as is often the case, we saw a lot of the macro houses either stopping to manage external money or just shutting up shop in in the last yeah you know three four five years and that's often a sign things are going to improve so so the cycles

have proven to be to to be you know uh repeating again and so i think i think it is in definitely an interesting environment for for discretionary and that's that's been proven in what we're seeing in terms of manager performance data at the moment and that's not to say that that some quant strategies can't count too well in this environment uh to me it's like they're finally right after 12 years right the discretionary guys were like the feds balance sheet all this stuff is causing problems and the right equities just rallied straight up i think they got a lot of you you guys aren't good. You didn't catch any of this bull market in equities. And that's kind of where investors flowed out of discretionary. Yeah. And I think, you know, when I started off, I spent a lot of time in trading floors in the

early part of my career and people traded obviously with a macro mindset and macro traders always have that bearish, bearish mindset of what's going to go wrong in the world, whether it's like, you know, there's no reason for bond yields to stay this low that you know there's always going to be that bias to be to be short bonds and low yields there's always going to be that bias to try and pick the top inequities and look for for the catalyst for for the reversal so in the same way it has it hasn't been a great uh it was it was a tough period for trend following it was also a more difficult environment for for that type of traditional macro in the last decade and that's obviously it was a tough period for trend following. It was also a more difficult environment for that type of traditional macro in the last decade.

And that's obviously changed now. And along those lines, just having been in the industry so long, what do you see both in the macro, the managed future space, the overall hedge fund space, like what's changed the most in the last 20 years? I think, you know i i think

there's some merit to what people have said in terms of obviously we've we've learned that some hedge fund strategies maybe you know i i aren't have been think you know things that that people learned on trading desks you know whether it was carry strategies or momentum or certain things like that, that were maybe you might have seen as an alpha strategy at one point 20 years ago that are less so now. You're seeing obviously more systematic trading, I would say. I mean, if you go back when I started off, quant strategies were still relatively in their infancy. I remember I started off on an FX trading desk and there was a guy there running quant models, trend following models, but there was a bit of mystique around it. People didn't really know what they were. It was kind of an unusual approach, trading, buying at the highs of the day generally.

Yeah. What are you doing? It seemed like a funny thing to do when you're sitting on a spot desk. So there's been more embracing of quantitative strategies. Now, obviously, we've shifted more even into more sophisticated quant strategies, more machine learning,

things like that. So certainly there's been an evolution there. I think, you know, but as we've been talking about here, you can say it's as much, I think, stay the same. The more things change, the more things stay the same. Now we're seeing bigger moves in markets

like we haven't seen for a couple of decades. And, you know, people maybe aren't prepared for that. People mightn't be, you know, anticipating these kind of extreme moves in commodities and are scrambling to think about, okay, well, if this is the case, if this is the new market order, how do we position for that? Now, Dave, one which we'll get into later, talking about your firm, but one big thing that changed is the ability to access it through liquid wrappers.

That's true. Yeah, that's true as well. So give us a quick bit on your background at Abbey and putting portfolios of managers together and we'll dig into how all that works. Yeah. So I spent just shy of 10 years with Abbey Capital, which is a specialist allocator in the managed futures space. Great firm. Really enjoyed working with the team there. You know, definitely one of the largest allocators into the space.

And, you know, the philosophy there is obviously multi-manager, you know, partially for what I've been talking about. Like you have the broad category of macro and managed future strategy so so all of the strategies that are trading in the futures and fx markets and and there's lots of ways of harvesting returns and you know in those markets whether it's trend following and that can be short-term medium-term long-term there's short-term systematic relative value trading, long-term. There's short-term systematic, relative value trading, discretionary macro, quant macro, specialist FX, specialist commodity trading. So it's all about trying to build portfolios that deliver that overall uncorrelated return profile relative

to traditional assets, but also being cognizant of the fact that what you tend to see in this space is pretty large dispersion in performance and, you know, low, low, low, low, low persistence. And so what I mean by that is, you know, obviously in any given year, you'll have a widespread between the winners and the losers, but the people who are top of the league table at any given year, you know, that tends to, that tends to vary year to year. Okay, you might see firms doing well for a couple of years in a row, and then they'll slip down the league table, and then they'll make a resurgence. Why? Because there's something about their system

that might have been favoured by the market environment for a year or two, and then that changes. The challenge for investors is differentiating, you know, what element of performance is just by chance and just being favoured by the environment, and what element of performance is actually, chance and just being favoured by the environment and what element of performance is actually true manager skill. So I think there is a good case

for diversifying within the space. And a lot of times, speaking to investors, people would say, we don't really like fund-to-funds, we don't like multi-manager, except in the managed futures and macro space because you have that very high dispersion in performance and it can be tricky to select one or two managers. Do you think some of that problem with dispersion is just a categorization problem, right? Like under the managed futures umbrella, so many different kinds of strategies,

of course, you're going to have this big dispersion. Some of it is, but even within like strategies, you'll still get the dispersion. So even within trend following managers, if you look at, say, the Stockton CTA, sorry, Stockton Trend Index, so 10 large trend following managers, you will still get, once you adjust it all to a common volatility, trying to remember what the numbers are. But, you know, certainly it could be the order of 40 percentage points in a given year, which is pretty substantial. And I think it comes back to the point that within trend following, you have a lot of unique decisions to make as you construct a trend following program. You know, firstly, what markets are you going to trade how you are going how you're going to allocate the risk and what time frame you know is it short term medium term long term trends you're going to capture how you how you deal with volatility as

we've been saying about do you kind of target volatility or not how you risk manage how you risk managing a drawdown so you've got a lot of different levers that you can pull. And what that means is, you know, and even then breakout versus kind of more moving average type models. And all of these, well, you know, well, what you'll tend to find is that the managers will by and large be reasonably correlated. But being reasonably correlated doesn't always translate into being very close in terms of actual performance. So, you know, if you take 2020, for example, you know, more breakout style trading tended to do better in the first quarter. If you go back, you know, maybe, you know, back into the last decade, managers with more of a fixed income focus probably did better. If you went to the previous decade, managers with more of a commodity focus did better.

And obviously, we're seeing the more commodity focused managers having a resurgence recently as well. But, you know, it's easy to say now, oh, yeah, I want to be with the commodity managers. But go back five years ago, if you were a manager with a heavy emphasis on trading grains or agricultural commodities, it was pretty difficult, you know, and pretty hard to make the case that, you know, things were going to change at some point in the future. So it's all about saying, you know, things work in a cycle, the world can change, what's working today may not be what works tomorrow. So if you want to build a robust portfolio, it does make sense to diversify as much as possible. While all of the strategies have the same ultimate objective of delivering kind of an uncorrelated return stream relative to traditional assets.

Yeah, it's amazing. Like, was it just yesterday? Yeah, oil down, whatever, 20 bucks. Most all trend, we were losing money there right so it's like if you take any one little snapshot they're highly correlated often at the same positions and then can end the year you know 10 15 apart so that's right exactly yeah and then did you ever do any research on like five-year periods or 10-year period did the dispersion come in the longer the time frame? I think it may do. And I mean, certainly you do have that element of mean reversion. But I think that the challenge with that is if you think about

the cycle of allocation that people might, you go and position a strategy to an investor and say, okay, look at the return profile of managed futures and trend following and say, okay, that's interesting. And then what to do, they go and pick a manager. Often investor and say, okay, look at the return profile of managed futures and trend following and say, okay, that's interesting. And then what to do? They go and pick a manager. Often they'll say, well, who's been the best manager for the last three to five years and go with that manager. And then they're reviewing that manager. Three years later, oh, suddenly that manager isn't the best. So it's down at the bottom of the table. And then it becomes a difficult one to defend to an investment committee or a board or whatever it is so and yes that manager may then ultimately have a have a

recovery but at that stage uh the investor has exited so i think there's a behavioral element to this that you have to manage for um so so that's that that is part of the reason for for thinking about diversification in the space. Yeah, the poster child for that to me is the WisdomTree launched their managed futures ETF and chose the Trader Vic index, which didn't go short oil. They launched it in 2012 or something because short oil trade had been terrible. And then, of course, what's the next trend to happen? In 2014, oil crashes trend makes a

bunch of money in short oil and that they're left sitting there without any gains yes yeah got got to be careful which manager you choose for sure absolutely so what were some of the big names you dealt with them like in terms of managers you know ab, Abbey is a big allocator. So pretty much all of the main, you know, anybody who's running a CGA would typically reach out to have a meeting. So it's all of the big names to the smaller names. I mean, some of it is in the public domain. If you look at the Abbey mutual funds, you'll see managers like, you know,

Graham and Aspect and Winton to FX specialists like PE and, you know, managers like, you know, like Revolution in Colorado. So it's the whole spectrum. And, you know, if you're going to employ a multi-manager, you know, you've got to expect the multi-manager to be able to unearth some managers that you're not going to do if you're not focused on the space. So certainly, I think as a multi-manager, part of the role is unearthing interesting managers. Part of it is the risk management and portfolio construction. And so, you know, it's not just a matter of looking at, you know,

who've been the best performing managers for the last number of years or who are the blue chip names. There's not as much value in that. And hard to believe, right, that Winton aspect, and I forget the third one, right, but all came out of that dorm room in Oxford. Yeah, AHL, yeah. So, yeah, I mean, that's one of the things you do see in the managed future space is that a manager or a trader might have worked at a different shop and I've

been influenced by the kind of trading philosophy there and then spins out and starts to run a portfolio. So I mean, you have seen that kind of philosophy, you know, infiltrating a number of different firms over the years. In the same way, like the turtle trading philosophy has underpinned a number of different firms in the US. So those ideas do get passed along the way. And then David Harding came out, right? Was that two years ago, three years ago, and basically said they're not a CTA. We're not, right? Stop doing this. Seemed like it turned on a dime right when he said that.

That was an interesting one. And I think it was probably unfortunate timing. It was around 2018, 2019. And it was at a point in time where we were writing a research piece that was looking at the market environment for trend following and looked at why trend following had been difficult. So there was a lot of people saying, you know, trend following, it doesn't work anymore. It's less attractive or too much money in the space. It's got too crowded. And Winton's, you know, David Harding was also seemed to be part of that perspective

that maybe the returns weren't going to be as good going forward. I think it was maybe misconstrued a little bit in the sense that, you know, trend was still going to be a pretty decent part of their portfolio. It was a multi-strat portfolio, but obviously not as much as it had been previously. So it wasn't the case that they were saying, you know, trend is dead. It's just that maybe there might be other strategies with higher sharp ratios or more attractive features. But ultimately, it proved to be that wasn't the case, because we've seen a bit of resurgence of trend following since then. And then didn't they flop back to say, no,

now we are going back to trend? That's right. So they transitioned back to a slightly higher allocation to trend following. It's interesting when you're in the midst of that, it is a difficult thing to defend. And at that stage, I was doing a lot of defending in client meetings saying it's the markets. It's not something structural with the strategy. It's just that we haven't seen big moves. We haven't had these periods of volatility expansion like we're talking about. We had a measure that looked at the number of markets that were experiencing a one standard deviation move over the previous 12 months. And if you looked at that measure for the 55 major futures markets, I think at the end of 2018, there was one out of 55 markets. Whereas in a normal, good environment with kind of volatile markets, you'd expect it to be maybe 25, 30 markets might be experiencing that kind of one standard deviation move.

So that period was, and it wasn't that there was no volatility. You remember 2018, we had a volatility expansion of Armageddon, and it was in February of that year. But it was choppy markets, they weren't markets with sustained directional moves. So often people will construct a narrative based on something that seems, you know, seems appealing. And the narrative at the time was, well, there's a number of narratives. One was there's too much money in trend following a second narrative was maybe markets had changed markets had got faster and trend followers were too slow to react another narrative was you had the growth of high frequency traders and they were they were too nimble and they were eating the lunch of these

traders um but you don't hear anything about all of those arguments now with CTAs having a bumper year. So what does that say? People construct narratives to justify or to try and explain things that they struggle to understand. And the reality is it's never one or two simple things that are behind the performance of the markets. It's much more complex than that. That was a piece I wrote once,

that the problem with alpha lacks beta, right? So if it was easy to explain, it'd be beta. And you could just say, this is why this happened, right? Yeah, exactly. And you left one out of, right, the big complaint was central banks and intervention, and that's all dampening volatility. So it sounds like your take is none of that was really true or some of it was true, but it's such a mixture, it's hard to pinpoint it. Yeah, I think possibly, I think

certainly what I said about macro volatility could have been a part of it in the sense that we didn't see big variations in the macro backdrop. GDP was slow and steady, inflation was low. When you get booms and busts in the macro cycle, then that translates into more or less demand for commodities. So that's the macro side. The second thing is obviously you have idiosyncratic events like we're seeing now. And arguably, we had less of those in that period. It's like it just had a smaller opportunity set. Why that is? Certainly, the opportunity set was smaller, I would say for sure. I think the central bank one was interesting because it certainly did, at times, it seemed to be correct in terms of

dampening volatility. But at the same time time we did see some big moves say in 2014 and currencies with the euro selling off and that was at least somewhat linked to european central bank monetary policy so it can be you know there can be it can be you know seductive to to say well that's the reason for why that's happening you know but in reality it can be more complex, I would say. But I think, you know, at a simple level, the way to think about it is, are we seeing their big directional moves on a sustained multi-week, multi-month time horizon? Yes, we are at the moment. No, we didn't see it to the same extent back then for whatever reason.

Going back, how many meetings would you take a year? How many managers would you analyze and do the due diligence on? Yeah, I mean, literally hundreds. You know, a lot would depend. And if you go to a couple of conferences, like Context, iConnections, MFA, those types of events, you could definitely do, you know,

50, 60 manager meetings over a couple of days. So if you have a number of those in the calendar, then you're going to ramp up your manager connections into the hundreds. So I think it's definitely part of the skill, part of what you should do. I'll give our top traders unplugged allocator series a plug here.. I was, I'll give, I'll give our top traders unplugged allocator series a plug here. I've been doing this recently. I was talking to Chris Schelling recently from Venturi.

Well, then he was making that point as an allocator. You know, the question I was posing to him, how do you get better at due diligence? And he was just saying, it's just repetition. You know, if you, if you just met one CTA ever, you know, as, as an investor, you say, wow, that's really interesting. But you know, if you've met a hundred or, or, or, or a number of hundreds and you say, okay, it know, as an investor, you say, wow, that's really interesting. But, you know, if you've met a hundred or a number of hundreds and you say, okay, it's interesting, but I know another hundred managers who do this. So is this guy better or worse? So I think there is a lot to

be said for meeting a lot of managers. And, you know, and it is interesting because people in the industry, you meet a lot of very impressive people and it's a very tough competitive industry. So you can be really high quality, but still just be middle of the pack in terms of the industry performance or assets or whatever it is. So I think meeting a lot of managers,

it's not just a repetition. It's thoughtful reflection on what you know it is you know it's thoughtful reflection on on on what you're what you're learning from the managers as well and uh and i think i think experience and perspective is helpful too you know because you'll always think back of oh yeah somebody will ask you about that manager you say oh yeah i remember that thing they did with their system that year and i didn't really like it and so you know it's always in the back of your mind whereas that's not something that you just look at you know 10 years of monthly returns it won't jump out it's but that's what you learn from those kind of week in week out engagements with the manager and that's where the value is uh any good stories like a guy showed up

without pants on or anything to a meeting I'm thinking of that Will Smith movie, Pursuit of Happiness. No, I mean, I'm trying to think, I mean, you do, you meet lots of interesting characters. When you go to these events and people are, you know, you get all manner of backgrounds, whether it's quants or macro people, and not everybody is the most, you know, socially adept at presenting and all of that. But, you know, no meetings to report where people have showed up without their clothes on or anything like that. And how about what what are some of the screw ups guys do where it's like, oh, you should have done that better. Right. Like what are some of the table stakes for managers out there emerging guys? What are some of the things you need to make sure you do when you're meeting with a group like that i thought i think you know you

gotta you gotta show that you're competent and savvy and thoughtful you know sometimes people say oh look we've done the back test and it's got a great sharp and you know we're running at 15 vol and we don't expect to draw down to be less than 10 or whatever whatever. And as an allocator, you're saying this just doesn't seem feasible. We've never seen strategies like that before. So it's probably not the case that this is going to be the first. So I think you have to be, be, be realistic. You know, if I heard, if I heard that somebody saying that to me and say, okay, these guys are probably,

probably have over-optimized their system and they're not really that savvy. And that would be a clear flag. I think there are other practical things that people just overlook. Sometimes certain allocators just don't turn over their portfolio very frequently. So there's not a lot of opportunity to add new managers. It doesn't mean that you're a poor manager just because you're not getting an allocation. It's just,

there might be only one or two slots in that year and there's maybe 100, 200 potential managers. So sometimes people seem to get a little bit disillusioned and you don't hear from a manager for a couple of years when all you can do really as a manager is to engage you know keep keep the allocator updated from a performance perspective and if the opportunity arises and if the opportunity is right then things might fall into place so i think it's doing the basics is an important uh important part of it um but certainly you know being being realistic in the in the return and the volatility profile and how that's presented is important to consistency is important as well. You know, if it's if something that has changed a lot over the years, then that's going to be a more difficult story.

Whereas if it's fairly consistent, OK, great. You want to see evolution. You want to see research, but you don't want a system that went from being trained to short-term to something else, multiple iterations of the same thing over time. So lack of consistency would be a bit of a flag too. Two things to unpack there. So one, how do you approach it? How do you view this needs to come out of the portfolio? So all this good due diligence, all this stuff to get them into the portfolio. When you say this isn't working, you're coming out, especially in a trend when you could have five years of flat, that's no fault of the manager, like we've talked about. No, absolutely. And I think what you have to ask yourself is this outside of expectations and outside of statistical expectations. So you can have a period of underperformance and obviously

it may be just by chance, or maybe that the markets haven't been as conducive. So I think there are things you can do to address that. You know, obviously, if you look into the pattern of performance and look at the market. So, you know, the classic example, if you're a trend follower, you know, more commodity focused trading the eggs maybe. And those markets haven't been good from a trend following perspective. Well, then, you know, unless you're taking a strategic view on that the ags will continue to be difficult, you have no reason to remove that manager from the portfolio. I think there are things that are obvious, you know, reasons for reassessing, you know, if people leave, that that's one thing.

And I think if the pattern of performance is different to expectations, you know, so for example, if you have allocated to a manager, you know, so for example, if you have allocated to a manager, you know, on the expectation that we'll do well in a period of rising volatility, okay, if low, if you have low volatility and have underperformed, fine, then you get that period of volatility expansion and they're still underperform. Well, then that's, that's something about the pattern of performance that's outside of your expectations that you would have to review. Equally, you can have something, you know, positive that's outside of your expectations in terms of the pattern of performance that could be a reason for reviewing the manager.

So, you know, obviously, if you allocate via a managed account, you'll get a lot more information post allocation, and you'll learn a lot more about the manager. So you may learn something in that situation that you didn't realize in terms of maybe their gross exposure, or how quick they are to increase their scale back risk. So you could, in theory, learn something at that stage that you hadn't realized at the point of allocation that might prompt you to either resize the allocation or maybe even remove the manager. But in general, it sounds like you'd be extremely slow to fire a manager unless something way outside the box. There's different ways of approaching this and there's no right. Obviously, there is the model, which seems to be the case of the big kind of multi-strat firms

of giving traders a certain amount of P&L, you know, and then you're out. And you're out. And that does seem, you know, it's not a kind of a statistical approach. It's more of a, okay, let's find the things that are working well in the markets at the moment and go with those. You can take then the statistical approach of saying you do a lot of due diligence ahead of time and say, okay, we think there's an alpha here. We think there's a return series that's interesting, but obviously it's going to be variable over time. So it doesn't make sense to remove it just because of a six month or one year drawdown. You have to size it correctly in the portfolio. So I think if you take that statistical approach, you have to have the

ability to stick with managers through ups and downs. And obviously you have performance fees in the industry, so you don't want to be exiting managers and giving up negative accrued incentive fees. So basically what that means is that you have to be able to find managers that are even better than the ones you've got in your portfolio if you're going to remove a manager and give up that kind of negative accrued incentive fee. So I think, you know... That seems like a little bit of a perverse incentive, right? Like we have this big loss built up. It is a bit of a perverse incentive, it is, yeah.

But I mean, that shouldn't be a criteria by itself, but it does tip the odds slightly in that manager's favor because let's say for the manager who you're entering at high watermark, you're going to be paying more in that manager's favor, because I say for the manager who you're entering at high watermark, you're going to be paying more for that manager. So kind of on a like for like basis, you have to have a good reason for believing that the second manager is going to outperform. And there's a natural temptation to think they will, because they're probably a manager that had been doing better recently relative to the guy that's been underperforming but but as we know these things move in cycles so it's it's um i think the overall lesson is to try and be

um you know to try and think statistically as much as possible as opposed to um you know i think there's a temptation i'm in the process of writing a paper on this. I'm going to put it out in the next couple of weeks on behavioral biases in manager selection. There's a tendency to say, you know, to start to see good performance and to justify it and generate a narrative around a good performance rather than see performance and say, well, let's assume that's just due to chance and try and disprove

that hypothesis that it's due to chance. If you take that mindset, you're going to be a lot more skeptical of the narrative and a lot more questioning of, well, does this manager really have a skill relative to other managers? And what sort of heuristics do you have for that as well of like, all right, I'm allocating to this manager. They've had a 20% max drawdown. I'm going to let it go one and a half that two X that have any such heuristics. I mean, it, it, people will have different ones, but generally, you know, you should expect the drawdown of, you know, two times the vol over, over, over say,

say a 10 year period as, as, as a kind of a benchmark in rough terms. I mean, it'd probably be a little bit more than that. But yeah, so it's not just that. I mean, I think it's important to have that stop loss, but it's also about the pattern of performance and what you're learning about the pattern of performance as you're allocated to the manager. And then on the flip side of all this, the emerging manager. How do you think about the emerging manager, someone with a very short track record? Yeah, what are your thoughts there?

Yeah, I think the emerging managers are difficult. It is difficult because sometimes a manager has been in a larger shop or they might have been a trader at a bank or whatever it is, and now they're transitioning into a slightly different environment and maybe they traded a portion of a book elsewhere. So you have to get certainty that what you're looking at in terms of the return series is going to be on a like-for-like basis. And there might be reasons for believing that that won't be the case.

So I think emerging managers are more difficult. Obviously, smaller managers, more nimble, less capacity constrained, so they can access certain opportunities that larger managers may not be able to access. So certainly interesting from that perspective. But you are taking a different type of risk there. Sometimes, you know, there might be the sense that people are always looking for, OK, who's the next manager? Who's the next manager?

When there might be a guy there with a 15-year track record, OK, the sharp mightn't be anything, you know, off the charts. But, you know, a manager who has proved that they can do that over 15 20 years whatever it is with consistency of approach that can still be very valuable in a portfolio context and to me like that manager you can see all their warts right they've lived through it the other manager has hidden warts that you're gonna find out about yeah and even you know even two to three years is relatively short period of time to evaluate a measure because, you know, the two to three years, say between 2016 and 2019 are very

different to the three years we've had in the last three years. So different market environments could just favor a strategy. And so that's why I think there's definitely a strong merit to being able to see 10 years plus of data. It's not always the case. Certainly five years is a good benchmark to have, but my philosophy would be more data is better for sure. Preston Pyshko Yeah. And then more assets, better for sure too, because every emerging guy hates to hear the, oh, we'd love to allocate you, but we can't be more than 10% and we only do $10 million allocations.

Is that just a brush off or is that real? I think it can be the case for some people. I mean, if you're using managed accounts, it's not necessarily the case. I mean, it can be just institutional constraints for certain allocators. It shouldn't necessarily be the case. You know, if it's more, you know, do they have the appropriate infrastructure or do they have the risk controls, all of that stuff? I don't see why people should be too worried

about being more than a certain percent of a firm assets. I mean, okay, maybe there might be, you know, with early stage managers, if you're investing early in a fund and you're accruing more of the fund fees, then that can be an issue. But if it's a managed account, it shouldn't really be an issue. All right, moving on. Next, Archive. Archive, yes.

Yes, tell us what you're doing at archive yeah um what's that how'd you come up with the name i like it well you know when you start a new firm you know you you uh you uh kind of uh kind of mull it over for for weeks and procrastinate and you know ask everybody what do you think it's a good name and all of that and um you know uh i was reading um and the uh steven schwartzman uh blackstone's book and he was talking about how that they named their their firm and i think his partner was uh uh married to the lady who came up with sesame street you know and she was saying don't worry about the name because you know we we started this program Sesame Street.

There was never even a street called Sesame Street. You know, if you're successful, people will remember the name. If you're not, it won't matter. So long story there. Archive, it just came to me. It was, I was looking at something and I thought, oh yeah, maybe that's a good one because, you know, I always liked the idea of looking back into the past

for clues to the future, you know, and certainly that's in the kind of looking back into the past for clues to the future. And certainly that's in the whole CTA approach of looking at the past to see performance. But more than that, just looking at past episodes of history and effectively looking into the archives for clues to the future. So that was it. So as I say, I was with Abby for 10 years, decided I wanted to spin out, do something

myself. Obviously, my skills and expertise is in this area within managed features, macro, all of my experience going back to the 90s. I started off in FX and as an FX trader and analyst and then as a macro strategist. So what I'm doing is working with investors, specifically wealth managers, small asset managers, people who have an interest in accessing the space but don't necessarily have the expertise in evaluating managers or in portfolio construction in the space.

So looking to work with those types of entities, either in terms of assisting on manager selection and manager insights and on portfolio construction as well so part of my motivation for doing it was you know looking at the world I felt you know us in the manager space we're always saying oh yeah look it's good but I really felt that you know there was an interesting opportunity where we are now everybody's saying the 60 40 is dead but i really felt that you know there was an interesting opportunity where we are now everybody's saying the 60 40 is dead but what is the alternative to it um and i you know the markets have actually been you know you couldn't have said that the markets would have been this good for for these types of strategies uh a year or two ago but but i do think that that we're into an environment

which will be favorable and i do think that there will be demand for these types of strategies. So I think it's a good time to be starting a firm in the space. Was it driven by Meb Faber's tweet? He was like, I'm dying for some newsletter service. I'd pay big money for it to give me like, here's who you need to be looking at in this space. I hadn't seen that, actually. I'll try and dig that up and forward it to you. And it's mainly you're dealing for now in liquids? Yeah, I mean it's everything in this area, you know, whether it's macro, discretionary, quant, managed futures, trend, short-term, volatility trading, commodities, currency. So all of in in the liquid space um is is where where where my background is and yeah it's been a space that you know as we've been saying

has gone through ups and downs over the last decade but we're into a better period now and and i do think it the outlook is is good for for for the coming years and you know i think if you know i'm obviously based in Dublin here, looking across Europe in particular, there's a lot of money invested in kind of asset allocation models, multi-asset models. And really a lot of these strategies are very underrepresented in a lot of portfolios. You know, I remember I went to a CFA investment workshop in Harvard a couple of years ago. And, you know, really, really interesting event.

You know, you meet a lot of interesting people in the industry and you hear lots of high quality speakers from Harvard. But it struck me, you know, engaging with a peer group of, you know, 40, 50 investors from around the world, a lot of people still weren't that familiar with the space. You know, so I do think that there's a, do think that there's an untapped opportunity there over time to educate more and more people on the macro and managed future space. Right. It's like I've been doing blog posts on managed futures for 15 years, people. Come on. Catch up.

And then, sorry, I keep coming back to liquid. So you're talking USITs, mutual funds, and ETFs on the US side? Yeah, I mean, not just, I use the term liquid alternatives with some people. And it's funny, from my mind, it's just that the strategies themselves are liquid. I think from a US perspective, liquid also automatically means mutual funds. So it's not just that. I mean, private placement, managed accounts, you know, whatever it is.

The vehicle is less important as more just the strategies I'm talking about. And how do you view that space over in Europe? It seems the usage wrapper is a little more constrictive than the mutual fund wrapper. Some of these strategies probably can't get fully what they want done in that wrapper. Yeah, it seems to be, I mean, there are a number of trend following managers you can

access in a usage format. Some of them have commodities, some don't. You know, the quant macro space is fairly constrained. So I would say the usage set of strategies isn't very extensive. There are some and you can access you know um alternative investment funds so kind of like private placement type funds but in a european regulated structure so that can be interesting for some people but um i think there's an evolution the whole usage wrapper it it ebbs and flows a little bit it you know for some people it's it's all use it's all

usage and then you read, well, some people are saying, well, okay, maybe I would rather have an offshore fund or an alternative fund to have the fully unconstrained version of the strategy rather than having the slightly more constrained strategy within the use itself.

So it does tend to kind of ebb and flow a bit. And who knows, maybe the regulations will change over time again. a bit. And who knows, maybe the regulations will change over time again. Love it. And then lastly, how do you like co-hosting or guest hosting? What do you call it? On Top Traders Unplugged?

Yeah, it's been great. I mean, I'd never done any podcasting before. So really great to get the opportunity. So Neil Castro-Brarson invited me on at the start of this year. I've done a couple with him. And then he's invited me to do this allocator series. So I'm speaking to CIOs and other allocators. So that's been really interesting.

You know, one of the, I don't know, upsides or downsides, a lot of the people I've interviewed have their own books. So I've had to go and swat up on what they've been writing about before I've interviewed them. So that's been, that's forced me to do that. But yeah, no, it is interesting. I mean, it's interesting speaking to a lot of the investors about the kind of the non-investing challenges as well. You know, speaking to people like, you know, Sebastian Page runs multi-asset at T. Rowe Price and a lot of his focus is on leadership and building teams. Or I was speaking to Elizabeth Burton at Hawaii. And again, you think the CIO role is all about making the big calls about where the markets are going and asset allocation. But then there's this other element of

managing people. And then there's the whole, the behavioral side of things keeps coming back. How do you cultivate a behavioral edge, which is all about, how do you put the behavioral side of things keeps coming back how do you cultivate a behavioral edge which is all about you know how do you put the right processes in play in place to try and avoid the mistakes of um you know selling out that manager just because it's a brief drawdown as opposed to something structural so so it is interesting it's the same challenges for everybody but interesting to hear it from big allocators to get their perspective on what's interesting. I think what you definitely hear is more interest in all.

We're probably biased with some of the people we pick, but certainly there's certainly that strong sense that certainly the 40 side of the 60-40 may see more infiltration with all silver time. You got my brain going. Do you see that some of these big allocators make the same mistakes as a small family office? It seems like the larger the bankroll doesn't necessarily mean the more sophistication. No, I think it's true. I mean, I, that's, that's, that's been my experience in, in, in, uh, uh, you know, on, on the institutional asset management side too, that you think it's, it's, uh, you know, people won't make those mistakes, but

one of the things that, you know, I think about is everybody reads about behavioral biases and says, oh, yeah, I can see how other people have that and identify these things. But it's really hard in the moment of making the decision. So we're having a discussion about the manager not to have some kind of bias influencing your opinion about them. So it is really hard, regardless of whether you're a retail trader or individual investor or a large institution. I think the best thing you can do is to be probably more process driven, which some institutions will be. The risk with that is it becomes more box ticking. So I think it's a really tricky balance to try and uh to to to to be cognizant of those

biases uh but but not just be too processed and rigid in your structures right what's the jason buck would say the art versus science right like there's a heavy dose of art to it that you can't just process process absolutely yeah no for sure and then it's odd to me that they have these you'd think it'd isolate that person, keep them out of the HR and all the people business and just let their brain work on the allocations, right? That's interesting that they're dealing with all that side of the business.

Well, it's true. It's a classic scenario. The guy who's good at trading won't necessarily be a good trading manager or same from an investment perspective or a research perspective. So yeah, I don't know. It's trying to think, you know, my own experience,

I've witnessed both sides of it. Some good people, managers who weren't necessarily, you know, strong, you know, really strong investment backgrounds, and that did work well. So I think it's, you know, speaking to some of the managers or some of the guests, it's certainly something that has been a challenge for them that they've actually actively had to work on, you know, because they probably come from more of having a kind of a trading or

investing skill background, you know. All right. We're going to finish up with our what would you invest in segment. I'll give you a few levels. So you got 10K, that's all you got. Where are you putting it? Yeah, I think if you've got 10K, obviously, you know, you're looking for something speculative.

So, you know, I've done a little bit of VC investing, and it's something that I'm kind of getting more interested in. So I would say certainly pick something from a VC perspective, obviously, digital assets is a space at the moment, but I'm not really a crypto fan. I haven't been to date, but I do think there may be interesting opportunities in the whole infrastructure side of things. So that could be something from a speculative perspective. 100K, you're going up to 100K. Where's that going?

I think once you get up to the 100 to kind of a million levels, then you're getting into more typical kind of investing and asset allocation. So obviously I'll talk my, you know, I do think we're into an environment of, you know, more difficult for financial assets, probably higher inflation over time, possibly, you know, financial repression. So more negative on financial assets, more positive on real assets and trading strategies that are favoured by that. So that

includes everything from, obviously my own, I wouldn't dissuade anybody putting 100K into trend following or macro, but equally farmland, I think is interesting and real assets like that are going to stand up over the next decade or so. And then you sort of wrapped a million into there. So we'll jump all the way up to 100 million. 100 million is easy. If you have 100 million, call Archive Capital and we'll construct something for you. But don't you want to still have some portion in equities, right? I think one of the things that's also interesting that you're getting more, that's kind of coming on the radar to a greater extent is the use of futures for equity, for beta as well, and combining alternatives with futures beta. So that's something that we're starting to see more in the market. I think that's interesting.

That could be something for somebody with the 100K or the 1 million as well. So yeah, I'll say the 100 million, I think you're talking into institutional portfolio. You're looking at a multi-stratum portfolio in this space. And then I'll flip that a little bit. So with that 100 million, what's the proper, and it's obviously all depends on the person and the client, but what's your range for how much should be allocated to macro futures type strategies? Yeah, I think like, as I've been saying at the outset, it's about harvesting different approaches to trading the market. So I think you can definitely have

a really nice portfolio diversified across price trend following, you know, economic trend following or quant macro coupled with, you know, the other strategies in the space. So, you know So volatility trading, systematic relative value as well, and then looking at opportunities

on the discretionary side, whether it's more commodity focused or more traditional macro. So I do think it probably hasn't been in vogue for a while, but it sounds like investors are warming to this to a much greater extent. Obviously, a lot of flows have gone into the large multi-strats

and that's a slightly different approach. But I do think, you know, for diversified macro portfolios are interesting. And when I say macro, I'm including managed futures within that. But 5%, right? Like there's a point where it doesn't even do anything for you. Oh, you mean within your

overall portfolio yeah yeah yeah yeah yeah I mean um I know I would I would be thinking more like 20% right yeah yeah so if you're thinking about your 60 40 portfolio and and you're really looking at the 40 side and you know what what's the best way to manage that? Let's go to 40. Why not? Let's go to 40. Yeah, possibly. Some people will want something maybe from more from an income perspective. And there are other uncurrent strategies out there. But yeah, maybe let's go to 40. Yeah, why not? Let's go above 100 and use futures for leverage.

And then it gets very interesting. Definitely. And I think that's the mistake we see a lot of institutional allocators make and you know family offices of like i'm gonna try alts and do five percent yeah doesn't doesn't do anything it's not going to move the needle one way or the other absolutely yeah all right any last thoughts before we leave it where can we uh find out about archive what's the web yeah it's archivecapital.ie. And you'll see, find me on LinkedIn as well. I do post a little bit on LinkedIn, starting to warm up a little bit on Twitter. I've been off the base on Twitter.

Right, come on. Come on in, the water's fine. And yeah, obviously I'm hosting, co-hosting a bit on top traders. I'm plugged the allocator series is there. I'm talking to CIOhosting a bit on top traders on plug. The allocator series is there. It's talking to CIOs and allocators. So that's interesting. So check that out.

That's great. You want to come be guest host here sometime? Yeah, certainly open to it. Yeah. Done. If you can get David Harding, we'll do it. We'll do it. And I forgot to say, I'm happy St.

Patty's thing. Go, go have a green beer for me. Don't have a pint there. Thanks a million. Do they do green beer in Ireland or that's passe? No, there's none of that. I think it's for Chicago, the river is green. No, no green beer. It's

black and white Guinness. Right. If you can turn your beer green, it's probably not a true Irish beer, right? It's a little too light. Probably not one you want to drink. All right, Alan. This has been fun. Thanks so much. I don't know what time it is over there. Time for dinner? Coming up to dinner time, yeah. All right. We'll talk to you soon.

Great. Thanks a lot, Jeff. Thank you. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments. We'd love to hear from you. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants

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