The Derivative - Getting Long Skew in Short (term) trading models, with Quest Partner's President, Michael Harris

Episode Date: November 3, 2022

Jeff loves it when he sits across from someone who, like him, has been in the niche-managed futures part of the investment world for their entire career. There’s not all that many of them, and today's guest, Michael Harris(@mikeharris410) fits the bill. Michael's unique backstory began within the Sales and Product Development group at Morgan Stanley Managed Futures in 1997, continued as European trader and eventual President of managed futures behemoth Campbell & Co., overlapped with time on the board of the Managed Funds Association, and continues today where he currently resides as Quest Partner's President. Michael and Jeff talk about quantitatively positioning for long skew via short-term trading strategies and what set Quest apart to make him choose them to build on his impressive career. They also discuss a variety of topics like; the transition from the trading floor to the executive floor, what it was like in the good old days of managed futures, advice for funds that want to join the billion-dollar club, the macro risks in the world today, and so much more. Plus, we put Michael in the hot seat where he gives us his take on Crypto and digital assets — SEND IT! Chapters: 02:50-07:57 = Work/Life balance 07:58-28:31 = Exploring the CTA macro space, Dean Witter's MF dept, John Henry's Model & Algorithmic progression 28:32-34:33 = Campbell & Co, Growing your Billion dollar fund 34:34-47:38 = Portfolio protection, trend following, adding positive skew & short-term strategies 47:39-01:02:12 = Reacting faster & embracing trend with short-term models 01:02:13-01:10:21 = the MFA: Providing education & understanding 01:10:22-01:21:29 = Hottest take: Crypto & digital assets From the episode: Sign up for the Quest indicator book Quest's whitepapers & research Previous Derivative episode with Quest Partner's Nigol Koulajian RCM’s Trend Following Guide Follow Michael on Twitter @mikeharris410 and for more information on Quest Partners visit questpartnersllc.com  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 of 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.

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. 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 are solely their own opinions and do not necessarily Thank you. 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. Happy November, everyone.

Hard to believe we have under 60 days of this crazy year left. It's also Peanut Butter Lovers Month and National Sandwich Day. So go make yourself a PB&J and have a listen to what we have coming up in the weeks ahead, which is the one and only Wayne Himmelsine of Logica Advisors, who's an options whiz and happened to be our first ever guest on this pod, and Jonathan Tolkoff of Commodity Asset Management to talk about, you guessed it, commodities. Then we're off until the new year, get myself a little time on Thanksgiving and Christmas. On to this episode where I got to sit down with someone I've known in the business for many years

who recently joined one of my favorite firms in the space. We've got Michael Harris, the newly appointed president of Quest Partners, who oversee more than two and a half billion via short-term quantitative strategy, focused on maintaining that positive skew profile Managed Futures is known for. We talk about what it was like rising up the ranks from European shift trader to president of one of the largest Managed Futures, that is Old Shop, Campbell & Company, and how this current volatile commodity environment compares with past such runs, how investors should think about building an ensemble of absolute return strategies, and what exactly the MFA does for its members.

Send it! This episode is brought to you by RCM's Managed Futures Group and their Guide to Trend Following White Paper. Quest is featured in that doc along with how trend works, why it works, when it works, and more. Go to rcmalks.com slash education slash white papers to download the paper today. And now back to the show. Okay. How are you, Mike? I'm great. How are you doing, Jeff? Good. Do I say Mike or Michael? I've met you a dozen times and sure, still haven't figured that out. So sorry about that. You know, I go by either. So whatever you want to call me. And looks like you're in beautiful

downtown Manhattan there. 56th and Park Avenue. It's New York is maybe not back to where it was pre pandemic, but it's certainly improving by the day. Yeah, some of those pictures, it looks like it's pretty crazy. People everywhere. Yeah, no, it's obviously that everyone is kind of sinking into their new either work from home, work from office, hybrid. I think everyone is still kind of figuring that out. But it's good to see people back in the city and our employees here in the office. And the energy levels are definitely high. Awesome.

You guys required people come back in the office or they did so are definitely high. Awesome. You guys required people come back in the office or they did so willingly or what's that look like? Yeah. So I think like most of New York and a lot of the industry, we've kind of embraced a hybrid approach where our employees are here, you know, two to three days a week and then working from home the other days. I think in a big place like New York, though, you do have some people that come in every day because maybe they have a small apartment or Wi-Fi is not great at home. And then in other cases, for some of our employees that live a little further outside the city and have those long commutes, I think they really appreciate having a little bit more flexibility.

And I'll tell you that I think as an organization, the time that people aren't spent commuting, in many cases, they just sit down right in front of the screen. And we're probably getting some extra productivity out of those folks, you know, in exchange for us allowing them to have a little bit more flexibility in their work-life balance. 100%. And you're one of those work-life balance people coming in from Maryland, right? Correct. Yeah. I still live in Baltimore. My children are in middle school and high school. And when they heard I had taken this role up in New York, I think there was a little

bit of panic set in and they informed me that they would be staying in Maryland if I tried to take them to New York. And so got a couple more years until they go off to college. And so it gives me the flexibility. Good old Amtrak has actually been running on time, touch wood, and the Wi-Fi is strong. So, you know, there's work from home, work from office, and WHA, work from Amttrak so doing quite a bit of trying yeah i love it and now do you get the same thing we get being from chicago like oh my god baltimore you get shot out every other day and how do you live there um right people from outside in and i sometimes find myself asking baltimore people but i'm like okay uh i don't want to get too far off track here but

what's it like is it as dangerous as we read or probably similar to Chicago? There's bad spots and there's good spots. I think just like New York and Chicago, you know, there's, I think it's funny. I have a lot of friends that I grew up with who ended up in the military, a couple of them serving honorably in the special forces. And I remember when I used to go to places, parts of the Middle East, as an example, when I hadn't been there and I was a little bit nervous just because obviously we watch the media and they don't talk about the good things that happen in cities. They tend to talk about the bad things. And so I asked one of my friends who was an ex-Green Beret, you know, how I should conduct myself. And he taught me a very important term, which is situational awareness, which means being obviously aware of your surroundings, kind of always checking your six and looking behind you and thinking about where you go and when and who you're surrounded by.

And so I think that if you do that in any environment, you're going to be safer as a result. But though I really enjoyed the show, The Wire, it painted a picture of Baltimore that is probably only partially true in some of the tougher neighborhoods, but it's a great city. And as I said, I love living there and my wife's from there. I'm from Maryland originally, but closer to Washington, DC. And it's been a pleasure. And I'm so glad that in this new hybrid world, I can still live there and commute up and work in New York. Yeah, except the Giants seem to be better than the Ravens so far. So that might lead to a little inter-office competition. We shall see. It's been an interesting year so far across the league and no shortage of drama. Tom Brady, obviously, is keeping his name in the headlines with a lot of fun.

Everyone watches probably the biggest divorce that anyone has tracked in recent history. Football's been kind of sloppy. She's got more money than him though, I was reading, right? So he might make out on that one. I told you it's going to be a really interesting, you know, the lawyers are going to have a field day. Let's put it that way. They're probably going to come away with the most, right? As they do. Yeah. So let's dive into it. You kind of have one of the more unique backstories in the industry of having been totally in the CTA macro space the entire time versus others that came from

equity world or fixed income world or whatever. So kind of take us through how you got started into there and we'll start to waterfall down into all the good parts. Yeah, you know, it's interesting. I've interviewed so many people for jobs over the years. I've looked at thousands upon thousands of resumes. And not many people, I think, can say that they've been in a niche part of the investment world like Managed Futures for their entire career. And I don't want to say it was accidental because I knew my grandfather bought me my first stock in second or third grade, and

I've been addicted to the investment world and its process from the time that I was very young and was very thoughtful throughout my academic career about planning for a career in finance. In fact, now I actually give lectures at a number of universities where I try to help undergrad and grad students kind of figure out earlier what part of finance they want to work in and start doing some prep work, internships, reading books, and doing informational interviews with industry participants to help them kind of narrow that down. And for me, I knew that I wanted to be in New York. I wanted to work on the institutional side of the business. And I had a connection, a young woman that I went to college with who connected me with a friend's father,

who was a managing director at Dean Witter and happened to, his name was Mark Hawley, ran the Dean Witter Managed Futures Department. So that ended up being, I did an informational interview with him and just to try to figure out how to break into the industry. And then we had a connection, he ended up hiring me. And so I literally started, you know, back in 1997 in Dean Witter's Managed Futures Department, which was building fund to funds for their high net worth retail clients. We were invested in some of the legendary CTAs like John Henry, Chesapeake, Campbell and Company, and just to name a few. And it was a great way to start. I was on the product development team helping put together product, which meant doing a lot of due diligence on managers. And it was interesting. Spending

time with researchers and traders and portfolio managers, I really kind of caught the trading bug. As much as I liked the industry and doing the analysis, it was the ebb and flow of the markets and the energy from a trading floor that really attracted me early on. So I put my hat in the ring, if you will, for a trading job at Dean Witter. We were acquired by Morgan Stanley. And so the firm went from big to bigger. And fortunately for us, Morgan Stanley didn't have a managed futures department. So most of our group maintained, but there were a lot of people competing for some of those trading seats. And a friend had gone over to Revco and was starting up a managed futures team there. It was a great way for me to cut my teeth in the markets, joined the execution desk there,

covered about 30 to 40 CTAs and macro managers, and absolutely loved it. I will tell you that I used to joke that you could train a monkey, though, to do what I did, right? Because if you remember back then, we were on two phones all day. We were using computers to tell us where the markets were and to enter fill information, but it wasn't a whole lot of electronic trading happening at that point. And I guess I was half right, because most of that obviously has been and over the last 20 to 25 years. And really, you know that, you know, talking about kind of intellectual curiosity, I was always just fascinated why one macro manager was calling me to buy yen. And then five minutes later, a CTA or a quant manager was calling to sell yen or, you know, where were these ideas coming from?

Was it a data point? Was it a team of PMs that had a thesis? Were they getting into the trade? Were they getting out, right? They, that kind of information wasn't shared with you on the execution side, which really kind of drove me towards the buy side. And I had a relationship at Campbell in Maryland. I had done due diligence on them when I was at Morgan Stanley Dean Witter and started talking to the folks over there about open roles on the trading side. They needed a European trader. And so in 2000, I moved to Baltimore and started my 20-year career with Campbell. I ended up spending 12 years on the execution side, European trader,

mostly financial futures and FX. So European hours, that's like 4 p.m. till midnight or something? No, no. 1 a.m. to 10 or 11. Yeah. So it was get in before the London Open at 2 and get prepped, take over the book from the Asian trading team, and then hand it off to the US guys. I'll tell you though, I didn't love the hours and getting up that time of night and being upside down in the rest of my life, but I was young and resilient at that point in my career. And it was exciting because you would see everything happening to tail end of Asia. A lot of key data releases were coming out, obviously, in Europe.

And then there was this interesting shift to see whether or not Europe would leave the U.S. or whether or not the U.S. data would come out at 8.30 on the East Coast and whether or not that would completely change the dynamic of the market. So really, even though I was trading one shift, I felt like I was kind of seeing all geographies, went on to run our FX desk, was deputy head, was global head for about six years. And then, you know, really by an unfortunate circumstance, our then CEO, Bruce Cleland, who was just an absolute industry legend, was diagnosed with a horrible form of cancer and had to seek treatment. And, you know, I think Keith Campbell, the founder at that time just thought, you know, I could go external and try to bring somebody in or, hey,

the firm's been around a long time. I've got some folks that have been with me a lot of years, ended up tapping me to be president. And it was a co-leadership model. So our co-head of research, Will Andrews, became the CEO. And I think there was an, you know, he was more kind of research technology. I was more capital markets and kind of had a sales element to me. And so the two of us were our ying to the other person's yang. And there was also a little bit of succession planning kind of built into that, right? You know, we had, we lost Bruce. It was challenging. And I don't think that the firm wanted to go through that again, but it was interesting making the move from the trading floor to the

executive floor. I'll tell you that. Yeah. I'm going to start, I want to circle back to that. I want to, you piqued my interest with John Henry. So that was 98. So was he kind of on the down slope at that point or John Henry? You know, I was there 97, 98. I mean, granted, if you remember how much volatility he had in that portfolio, um, if anything, I think there were a number of folks in

the 90s that did quite well by waiting for some of those drawdowns and investing into them because he came back from many of those periods with exceptional performance. But as I said, it wasn't something for the faint of heart, if you will, because there was there was definitely some ball. Yeah. And I was wonder, right, if you took that model from like his model in 1988 or right and put it today, is it just one of like 70 or is it one that's easily accessible in Excel or something? Like, was it just early or was it very good? And then there's the whole sales component of it too, right? That he was very smart in the beginning of getting into Morgan Stanley, getting into Dean Witter and having those salespeople push the product. Yeah, it was certainly early days. And I think that, you know, gosh, today people are so, you know, technology is part of our

everyday life. Automation is in, you know, in everything, right? You get into your car, you plug in Waze, you use crowdsourcing data, you turn on Pandora or Spotify, and it's helping you pick music based on an algorithm. So people are becoming, we're hopefully a few years away from maybe driverless cars, where you're going to get in an automobile and an algorithm is going to drive you somewhere. And that trust that people have to put into it. I feel like back then, gosh, we really had to do a lot of work to educate investors as to why they should invest

in systematic. There was a lot of fear and misunderstanding about what we were doing as an industry. And today, obviously, they're still discretionary, fundamental and quantitative and systematic. And now this new world of kind of quantum mental, if you will, where people are maybe have a discretionary overlay, but are using models and a lot of data to drive decisions. And, you know, it's you don't have to really explain it anymore. It's it's it's been amazing throughout my career to kind of see both ends of the spectrum of an industry that was really difficult to sell. And now one that I believe is a cornerstone of most alternative investment portfolios. And was it literally technically called the Dean Winter Managed Futures Department? Right? Was that the moniker at the time? Or you're using that in revisionist history? That was the name. I'm pretty sure I still have an old business card from, and we were in the World Trade Center of all places.

Right. Because then over the years, that's gotten morphed into CTA, then trend following, then back to managed futures, then back to CTA, and then global macro. So that was part of the confusion and remains part of the confusion of people don't understand the differences between those. I agree. And I think that, you know, I'm sure that we'll talk about this throughout the discussion. But, you know, I think many of the managers in our space started with a single strategy, whether that was quantitative macro or trend following slash momentum or in case of Quest, where I'm at now, short term. And then I think as these companies have evolved over time, they've started to do research in new areas, they started to add new signals from some of those other buckets. And that's probably what's led to some of the confusion. But, you know, from a naming convention, the joke was always that,

you know, when hedge funds are doing well, CTAs all were quantitative hedge funds. And when hedge funds had a bad period or somebody had a big drawdown, then it was like, we're CTAs again, right? And right now we're a commodity trend, right? Exactly, right. In an inflationary environment, you want to re-highlight the commodity aspect of the portfolio. So it's ebbs and flows with time. I hear you. So let's go back to Campbell. So from the trade desk to president, that's a somewhat odd way to climb the ladder. But do you feel like that helped you in being able to do the sales and being able to talk the product of like you knew intimately how the models worked

and everything? You didn't have to come in from a 30,000 foot view and dive down. You were vice versa going up. Yeah. I mean, I think ultimately, you know, a researcher, a PM is probably would be the best person to speak to investors and prospective investors because they know the strategy intimately, right? They created it and they watch it every single day. But let's face it, a lot of those folks don't want to be out there talking to people, right? They would prefer to be heads down in the data, doing research, creating new strategies. And so I think that in a lot of cases, when you're a systematic manager, you have to give a voice to the strategy, meaning there's this unfortunate term that's been thrown around, the black box. And for years, I've said that I can't understand why people would call quantitative or systematic

rule-based investing black box. Because to me, granted, most firms don't want to give you all their secret sauce and tell you every, you know, show you every line of code. But it's easy to say this is the strategy that we built. This is the data that we're looking at. This is our time horizon. These are the markets we're trading. You know, there's a lot of transparency, right? And you can look at the back test and say, this is how the strategy is performed in different regimes. Right. So I don't think that that's black box. I would make the argument that a discretionary trader, you know, can you look into somebody's mind? I mean, that's the ultimate black box. Like, you know, are they sick? Did they just go through a divorce? Is something going on at home with one of their kids?

Like, these are all things that have an impact maybe on their decision-making. They're kind of, you know, you think about behavioral economics, kind of that fear and greed aspect. I think it's a lot harder to quantify that. And so it's just been, for me, I felt like, you know, with being a market participant, watching the models trade, being part of the investment committee and seeing it all come together, it made it a lot easier for me to kind of go out and be the face of the firm and talk to investors and prospects about why they should be invested in the space and what were the differentiators that made us unique. And were you ever like, oh, I wish I was just back on the desk slinging aluminum trades or something? payroll number comes out and just the excitement of, you know, rush of volatility markets moving around the world and just being a part of that kind of being able to kind of read the tea leaves

and see it all happen. But at the same time, I think I was ready for a new challenge, right? I mean, you think about it, there was this, I had lots of, you know, work directly with research, certainly everything we were doing at that point was starting to automate the trading process. So working very closely with technology, the back office and the operations team was somebody that we were on the same floor and working with. You got to have separation of church and state between the front office and the middle and the back office, but didn't mean that we weren't working together constantly. So those areas of the firm, I felt very connected to. But what was interesting for me was once I went to the top of the house, now it was like I had to work with sales and investor

relations and marketing. And marketing to me is different than sales. You have your people that are out there communicating and you have the folks that are developing your website and helping write white papers, creating content to educate folks. Those are different skill sets, right? Legal and compliance. We had built up a team to kind of help us so that we finance, kind of working not just on the corporate and management side, but also looking at fund accounting and partnering with the big four and some of the outside administrators and folks that we work with. So all of that was very new to me. And so it was actually really exciting to kind of see the big picture of all of the various kind of groups and people on the team that kind of came together to create success as a manager. What does that look like? Two questions. One, when you first started trading and then towards the end, what was that shift? In the beginning, was it the model signal

and you had paper and you were saying, we've got to buy 50 of these and they go to these accounts. Was that the beginning? And then it morphed into fully automated? Yeah, it's funny. I used to, during some of my lectures to some of the university students when I was talking about what I'll call the electronification of the markets. And remember, equities had gone electronic way before futures and FX. And so one of the things that I'll say, I think really helped us during my time at Campbell was when we embraced quantitative equities and started trading single name stocks, they were already electronic. And so we were able to use some of the technology, some of the vendors we were using, right. And kind of use that as the roadmap to be a first mover in, in algorithmic trading.

And even before algorithmic trading, you kind of think we went from kind of voice trading to point and click trading to then at full automation with algorithmic trading. And so to be able to kind of follow that progression, but during those talks, I would explain to them kind of the whole, like you and I come from the same kind of background.

So we understand what it used to be like when a model would kick off and say, go buy a hundred lots of crude oil, right? The dance that you would have to do just with the floor, right? Where you'd be on two phones and you'd have two different brokers on and you'd call and he'd be screaming out to the pit and kind of coming back, you know, you know, Hey, it's 2021, you know, where's the size 50 on the bid, a hundred on the offer, you know, go buy me 10. Right. And then he would buy 10 and, you know, he didn't know that on your blotter, you had to buy, you know, 500. Right. And you would just be like that algorithm, almost time slicing into the market, you know, varying your quantities. You, you know, you do like, you know, 10, 10, 10, and then you

do the last, like you'd say 13 and the guy on the floor hopefully would think that you were done. Right. And then you would stop and you would watch the market come back right on your screens. And then you pick up the phone, you call another broker and you do the same thing. And so that 500 lots accrued may take three hours. Right. And you were all in it the whole time. It was like, you were the algorithm. You could do nothing else. And I think about that, right? For in an eight hour day, three hours on one trade. Right. It wasn't like, hey, can you take a look at this marketing deck while you're getting that 500 lot done? I mean, right. I mean, like by the end of when, by the time I left the trading desk, it was like, yeah, I mean, everything was fully automated. Orders were coming in from the systems going

straight out to different algorithms. And, you know, I know you and I have talked in the past, there's this wonderful analogy of it's a little bit like flying a plane, right? Once upon a time, right? I'm sure the pilot took the plane off and had his hand on the yoke the entire time and then landed it, obviously looking at some gauges, but probably looking a little bit more out at the horizon. That was the way trading was when I started. And fast forward to kind of where it is now, it's a little bit just like flying a plane, right? 90% of a flight from New York to London is on autopilot.

But we still haven't removed the pilot from the plane, right? 90% of a flight from New York to London is on autopilot. But we still haven't removed the pilot from the cockpit, right? You want that person in there to kind of look after the algorithm. So God forbid, if there's any sort of an issue with technology, you still have a person in there that can take it off autopilot and land the plane hopefully safely. And I feel like traders today are so much more impactful because they're able to automate a lot of the, what I'll call low touch order flow. And now as a lot of CTAs have started to step into these alternative markets, which many of them require more care and feeding in some cases, maybe they're messaging somebody via Bloomberg in order to get pricing. Some cases are still picking up the phone and calling a desk somewhere. And so they're able to free themselves up to, number one, deal with high touch order flow, but then work on things like TCA and evaluate all the providers are using, the algos, to try to figure out if they're using a wheel concept, how much should we overweight in

different markets, different regimes. And that's really, when I look at our trading desk here at Quest, that's where a lot of the value is being added is just doing, getting into the details and figuring out how they can kind of optimize our execution to reduce market impact and keep trading costs low because as a short-term CTA, that's a huge component for our strategies is trading costs. Right. Just small incremental changes at this point versus big, huge strategy changes. You oversaw billions there at Campbell and again here at Quest so we can touch on this at the end if you want to get into it now just what some advice for some funds maybe at 50 million 100 million right somewhere in that lower level that just in what you've said so far of like oh I gotta worry

about TCAs and compliance and bringing legal in-house and all that stuff like we don't have time for the full roadmap but if you you have a two minute of what they should be looking out for and what's the best path forward to grow into a billion dollar fund, obviously the performance and everything, the strategy has got to be right for investors. But assuming all that's in place, what are your thoughts? I think first off, you have to be patient. Growth doesn't happen overnight. It doesn't happen in a linear fashion, right? Sometimes it's two steps forward, one step back, right? I mean, I've rarely seen someone's AUM, you know, just be a perfectly straight upward line. I'll use Campbell. When I got there,

we were just around a billion, which at the time in 2000 was a significantly sized CTA. At our peak in 07, we were at 14 billion. And then unfortunately, after the financial crisis, when CTAs became kind of the ATM for alternative investments and specifically hedge funds, as well as the Madoff crisis, which a lot of fund to funds got caught up in. And so, you know, we were getting calls like, you know, Hey, you had a great 2008. You're one of the only things in our portfolio that made money. Um, we need a little bit of liquidity back. And it's like, how much do you need? And they're like, all of it. It's like, yeah. Um, and so as a result of that, I think we went from 14 down to about two and a half by the time that I took

over the helm in 2011 into 2012. And, you know, we built that back up to five and a half, six billion over the course of the next couple of years. And then before I left it at the end of 2019, the number had come off to about three billion. So, you know, if you draw that on a chart, you can just see that it's not a straight line up and that even sometimes when you, when you lose some assets, you know, if you work hard and you have strong performance, you can, and institutional kind of quality to the operation and your tech and your team, you can certainly build back AUM. Here at Quest, we've had a similar kind of run of some peaks and valleys. We're at peak assets right now.

And, and, but it's, it's been, it's been a ride for Quest, Campbell, and probably most managers in the space. As far as advice, you know, I think that you always have to focus on your performance. That's, that's, you know, why people invest with you. So it's performance first. And then second is differentiation. Right. Like you want to have good performance. But if your performance looks like all your peers, you know, and we can we can get into this. But, you know, there is a bias, I think, in the industry from an institutional investor standpoint and certainly consultants towards some of the larger managers, you know, they can't cover everybody. So we're going to cover the bigger guys that a lot of our clients, you know, their clients have in the portfolio. But if you have differentiated performance, that's going to attract attention to you.

Having alpha kind of not just over the equity markets, but also having alpha over your CTA and hedge fund peers to show that differentiation. And then finally, as I mentioned, it all comes down to, I think, your process, your procedure, and just having it running an institutional caliber shop. You know, I, I think that it's one of the things, you know, during my time between Campbell and Quest, I ran a family office. And, and in that role, it was really interesting because we saw so many different types of managers, both traditional and alternative. And gosh, it was the spread between them from how buttoned up they were on the, on the process and procedure side, you could drive a semi-truck through. I mean, it was unbelievable. And I think that when you're a smaller manager, yeah, I mean, you can't go out and hire hundreds of people, but the people that you hired from an infrastructure

standpoint, hiring good quality people and insisting on them always improving and raising the bar. I mean, I think that that's one of the areas where probably smaller managers, they might have really great performance, but when the team comes in to do the due diligence, if it doesn't feel like some of the bigger managers, that could be a reason why investors decide not to invest. Yeah. It's such a chicken or the egg thing, right? Because it's like, yeah, of course I'm not one of the big managers because I don't have billions of dollars under management and millions to spend on staff. So it's like, how do you, that's the trick for these guys of like, okay, you got to hire one. They got to wear a lot of hats and then you

hopefully raise assets and hire the next leg. It's actually, and I've said this before, but when I started in this business, you could have two people and a Bloomberg terminal and they could pull together some friends and family money and start a fund at five, 10 million and then grow to be a bigger manager. I feel like the trend overall in the hedge fund industry has been, there are more of these kind of spin outs and big seeds. Somebody's at one of the big platform

companies and wants to go start their own fund. And the next thing you know, they've got 500 million or a billion, and they have the resources in order to be able to have that. In many cases, they may even stay under the umbrella and utilize some of those central services until they can develop their own. And that makes it, to your point, that much more difficult for new managers to kind of start up without that kind of institutional support. So we've touched on your new role at quest so started and when was it a couple months ago yeah started uh in june of uh of 2020 2022 excuse me yeah so the big question is what was appealing of quest what got you to uh get back in the game? You sort of nailed the timing right before or right during this epic run for trend and commodity trading advisors and managed future. See, I can't, I'm the pro at this and I can't even get the nomenclature right.

Well, I think sometimes it's better to be lucky than good. You know, I'll be honest, I missed it, right? I mean, I had a wonderful experience for two years, you know, working for Verdance and running a multifamily office. It was really interesting. You know, there were some parallels in that it was like trading, you know, 24-5, borderline 24-7, helping people manage their lifestyles and their portfolios. But at the end of the day, because there were so many things that we were doing for families, investments was a core component, but helping them with governance and family meetings and, you know, the fifth home and private aviation and all of the things that kind of come with, you know, extreme wealth. I kind of lost that being kind of in touch with the macro environment and

the markets, you know, every single day, you know, you know, Asia, Europe, North America. And so I definitely knew that my career in managed futures and quant investing wasn't over. And so I was delighted when I got the phone call from the team at Quest. I've known Quest and Nagal for a number of years. You know, Campbell is more of a multi-strat. We did short-term trading, but not in the same way that Quest does it. And so I kind of knew a lot about the space, but it was fascinating for me to come in and meet the team. I think they have a very similar kind of culture of collaboration, you know, and just working together, feeding off one another is certainly a sense of curiosity and wanting to learn. And I love that. And then, you know, at the end of the day,

just a really unique strategy that is focused on positive convexity and skew. And I think that though positive skew, there are a number of managers in our space that exhibit that to certain different degrees. I feel like that was the mandate from the beginning was to build a portfolio that had that explicit focus, which is unique because I think a lot of managers in the CTA world have gotten caught up and pulled a little bit towards the hedge fund side where everything became about sharp. The way that you increase your sharp in those multi-strat portfolios is to add as many diverse, lowly correlated orthogonal sources of alpha into the mix as you can. And many of those may have more negative convexity than positive, right?

So it will end up lowering your skew. I think that many managers, let's face it, between the financial crisis in 08 and the more recent kind of turbulence that we've seen in markets, you know, you have a 12 to 14 year period where I think many CTAs, there was a reason that they drifted in that direction to try to keep investors happy because providing kind of portfolio protection just wasn't even on the map. And now obviously we've come full circle and CTAs are having an incredible year. And I just saw a report from Goldman the other day that I think that we're one of the few segments of the hedge fund industry that's not only positive year to date, but has pretty strong returns. And so it, kind of interesting to see that the landscape develop over time.

Yeah. And for me, I've always been a huge fan of Quest, what you guys are doing. Whenever I get pushed of like, you can pick one, which is it? I say Quest. So appreciate that you landed there. But that's an interesting point you make of like a lot of CTAs just have a positive skew profile. They're not necessarily seeking it out. And you could just knowing some of the mechanics here, right? If I'd added equities, like a long equity bias from 08 till 2019 or whatever, my sharp goes up. I'm not showing any negative skew, right? My profile is better.

But fundamentally, I've added this negative convexity position into the portfolio. So it sounds like embedded in what you're saying, like if there's a decision like that, skew is considered above all else. It's like, hey, what does this do from a position level and a portfolio level in terms of adding positive skew to the portfolio? Yeah. It's interesting you mentioned that. So I've been in a number of research meetings where that very topic comes up. And listen, in the short-term space, right? I mean, there's a lot of different flavors and short-term, to some people means sub-second high frequency and for others, like in our case, it means five to eight days, right? So there are a lot of degrees of freedom in both your look backs and your hold in the short term space. But I do think

that, you know, the two major strategies that you tend to see are short term momentum and mean reversion, right? And there's a classic example where it wouldn't be difficult for us to add mean reverting type strategies into our mix, but that specifically would reduce our skew, right? Because when markets are breaking out, when things are happening and there's economic uncertainty or a policymaker says something, a market doesn't have priced stand or a data point pops up or one country invades another, right? All of these things that create these market moving events, you know, the way we deliver that positive convexity is trading that ball breakout and jumping on that market kind of as it leaves the range, so to speak, that it's been in.

And when you have a blend of momentum and mean reversion, right, then you have half your signals that are saying, oh, this is just going to revert back to the mean, you know, fade the move. And it takes some of the punch, if you will, out of the investment protection that you can provide in those moments. You know, the other thing that really attracted me to Quest is the short-term space in general, right? Because having been both an investor and working at a fund with more of a medium to longer term time horizon, there were two things that kind of always were at the top of my mind.

The first is when a crisis would happen, how quickly is it going to take us to kind of turn this aircraft carrier and get positioned in a way where we start adding diversity to clients, particularly given the length of trends that we saw on risky assets, right? And being short term, you know, a lot of our clients call us their first mover in the portfolio, meaning, and I think the pandemic was one of the things that really impressed me when I was doing my due diligence on Quest before I joined. There weren't many managers that caught that sell-off that we saw in March of 2020, you know, when we all had to go into our proverbial rabbit holes. And Quest caught it because of the short-term time horizon that we trade and our ability to effectively get short risky assets and long flight to quality assets in that moment. a perfect example and you've accumulated, you know, managers across the space, you know, are up between 10, 20, 30, 40, 50 plus percent. I think everyone in the CTA world is kind of holding their breath saying, okay, but how are we going to end the year, right? Is there going to be that moment?

And I think July of this year was really interesting because of our short-term nature. Vol kind of took a little bit of a break. We didn't see a whole lot of opportunities. And the models, I don't want to say they don't ever go to sleep, but they just kind of quieted down a little bit, right? Our vol profile went to a lower level. We didn't have a lot of exposure.

And as a result, when we saw some of those big reversals in equity and fixed income that caused a bit of a give back in CTA performance. I think on average managers were down between five and 10%. And, you know, we didn't give back nearly as much. And that was explicitly because in the short-term space, you're not forced to kind of always have a position on. And that's another element that I think is frustrating to many CTA investors is when there is the give back. And so I'm not saying that short-term managers are always going to be able to protect you

against that, but they just, they give you a different return profile. And I think that's why, whether it's fund to funds or just investors that invest in the space across multiple managers, we'll look to blend short-term managers with longer-term managers to have those different return profiles. Yeah. And to me, this year has actually probably been, made it hard for you guys to stand out because commodities sold off, but bonds right on cue, boom, came in. And so most trend followers just kept this steady upward slope, even though that little bit of July. If the bonds hadn't been there and the commodities had fallen off hard, we might have had 15%, 20%, 25% reversals or downside on some of the trend models.

So I think moving forward now, if the bonds unwind and the commodities aren't there, that's when you guys hopefully will shine through. And that's where short-term can outweigh the long-term there. Well, I think that's a phenomenal point. And I do think that if you're just looking at year-to-date returns, we probably, in the course of kind of the greater CTA universe look like a lot of our peers, many of whom are more medium to longer term. But, you know, one of the things that I like to point out is, you know, you can't just look obviously at one data point and year to date returns. I encourage people to look at the monthly returns. And one of the things that you'll see is that most

CTAs kind of, you know, had steady returns, you know, for the first half of the things that you'll see is that most CTAs kind of had steady returns for the first half of the year between January and June, making a good amount every month. For us, once again, as a short-term manager, we had more lumpy returns in March and April. And a lot of that for us centered around the outbreak of the conflict between Russia and the Ukraine and seeing some big moves in markets. And that's really, I think, where we're that we were able to, once again, jump on very rapidly and make outsized returns. So if you're, once again, blending different managers together, looking at those monthly returns, both positive and negative, and trying to obviously optimize for the best outcome. And that's almost statistically to be expected, right? If I have a positive skew strategy, it's going to be lumpier than right. If I'm trying to get really smooth and not a lot of volatility, I'm almost trading off

the right. I'm taking consistent gains, trading off for outsized losses versus you guys saying, Hey, I'll take consistent losses in exchange for outsized gains. Correct. So, you know, the best way to think about it, negatively convex strategies, just like let's say long equity portfolio, you have a lot of small gains. And then when the tail risk hits, you have this massive give back, obviously, of those gains. Positive convexity is the complete opposite. You tend to have a lot of small losses that are hopefully managed, and then you have these big gains that come when those tail risks hit. And so by blending the two

together, gosh, I mean, I know that you've looked at this before. Certainly I've looked at it. When you take just a long only equity investment, even if it's just beta and you combine it in a portfolio, let's just say we use 50-50 with a strategy like Quest or other positive skew strategies in the CTA world. Gosh, I mean, it's a beautiful nav line, right? Because hopefully when they're drawing down, we're having that performance pop and vice versa. And so it really smooths out that nav line. Talk a little bit about the short-termism. That's usually used in a negative way, but in politics world, short-termism.

But for here, short-term models, right? There's a risk that you don't capture the big moves, the decade long trend, that's too long, but even a year long trend in oil or something, right? If I'm short-term and I'm getting out on a little bit of pullback. So I don't know if I have a question in there, but just part of me as an investor in a short term, be like, okay, I'm worried you might not catch the big move. And you might be like, well, that's okay. That's why you add us and longer term managers or whatnot. Correct. And I think, as I said, that's the answer. I mean, I wish I had a whiteboard and I could draw this for you,

right? But when you think about a long-term manager and just think of like that beautiful kind of upward trending market, let's say crude oil back in 2008, when we first went north of $100 a barrel, a longer term manager, right, it's going to take them more time to build into the position because the market has to trend for longer before the signal, you know, gets you to that 100% long position, right? So you miss the first part of it. Then at some point when the market tops out and turns over, it takes a while for the model to realize we're no longer in an uptrend. So you end up giving back the last piece of the trend. So what are you capturing? You capture hopefully 60, 70% in the middle. And if it's a long-term trend, then that can be really material. Now blending in a shorter

term, more nimble strategy means, hey, we're going to react a lot quicker. It's not going to take us three months to really build to 100% long. We might get 100% long on the third day of the move, right? So that enables you at the portfolio level to capture the early part of the trend that your long-term manager missed. And then at the top, when there is that reversal, same thing, right? We're going to be getting out, getting short sooner, embracing the new trend. So hopefully we're mitigating some of your give back or your losses on the long-term signal. So whether you're a multi-strat manager that's blending those two signals together, or you're an investor or a fund of funds that's

taking the two of them and putting them in a portfolio together, I think that there's some great synergies there. And what's the downside? Is that something like guilt last week, right? Of like, I've rallied 400 basis points. I just fell 300 basis points, right? And one day to the next day, like that's almost too quick of a move, right? For a short term model to capture. Yeah, I mean, there is always going to be whipsaw, right? When you're a short term manager, there are going to be plenty of times where you think a market is breaking out of the range and you jump on it. And then unfortunately, through, in some cases, central bank intervention

can be a reason why the market should be trending, but they're saying, hey, we're crying uncle and we're going to stop this move from happening. Or just other market forces. I mean, at the end of the day, right, it's kind of the law of averages where we're winning more than we're losing. Right. And just like with any systematic strategy, the key is that, you know, you have stops in the system and when you're wrong. Right. I mean, this is gets to the core of why systematic you don't have some a portfolio manager dealing with the emotions of fear and greed who doesn't want to pull the trigger and get out of the trick. Right. The model just gets you out. Yeah. No way the Bank of England is going to do that. No way, right? You get an opinion, which is the end. Right. So that's what gives you that positive skew profile

of, yeah, you might have a lot of small losses that are managed really well. And then obviously you let those winners run and that creates that positive convexity. Let's go macro for a minute. That was an example. We're raising rates in the US. Bank of England came in and started to buy bonds, lowering rates. So central bank divergence. How are you viewing this current environment in terms of the drawdown period from 2009 to 2013, a lot of people blamed central bank intervention, draining the volatility out of these, making it one big trade, risk on risk off trade. Are we into this better environment now where there's going to be many more types of bets, many more dispersion in a broader array of markets? Well, I mean, there's no doubt that since the financial crisis, arguably even

before that, central banks have changed the dynamic of markets and certainly compressed volatility. You know, the Fed playbook for years, as you know, was any at the mere sign of a crisis, right? Start cutting rates, start printing money, increase liquidity in the system. And, you know, a lot of other central banks, you know, took our page right out of the Fed's playbook and started doing the same thing. So to your point, not only did we have depressed volatility across a multitude of asset classes, but in addition to that, you know, we had this real sense of that anytime there was a problem, there was a free backstop, if you will, underlying the markets. I think that we've clearly moved into a new regime. I don't think anyone really is debating that right now. I think really the debate is around how long will this current regime last, right?

From a macro standpoint, you know, you've got these, I think of these, you know, the three bullet points, if you will, everyone, you know, the law of threes, right? You started with the pandemic, which, you know, I walked to get a cup of coffee this morning in New York and I didn't see a single person wearing a mask. People are close to each other on public transit. We're almost forgetting about it or thinking about it in the past sense, though the research report I read this morning said that you continue to see whole cities and parts of China that are shutting down because of their zero COVID policy, which then continues to lead to supply chain issues, which feeds into inflation. You had the conflict in the Ukraine and Russia, which Putin doubling down obviously last week saying that he's never giving back land that was annexed and kind of

flirting a little bit with the word nuclear, which obviously gets people very nervous. And so, and then, you know, as a result of that, you had this cheap money environment, you had these geopolitical risks that popped up very unexpectedly. And that has led to inflation, which now to your point, has all of the central banks out there reacting somewhat differently, right? Bank of Japan still easing to your point, whereas the Fed was the first really to come out of the gate in a material way and continuing to hike aggressively to try to put a cap on inflation, which, you know, as an economist, I tell people all the time, it's, you know, once you let that genie out of the

bottle, it comes out quick, but it's a lot harder and takes more time to kind of put it back in. And so, you know, my personal belief is that we are going to be in this new regime for the next couple of years as central banks kind of grapple with not only inflation, but remember the two key macro risks that created that environment, they're still happening, right? I mean, you remember when we used, we heard the word, you know, two weeks to flatten the curve, right, for COVID. And here we are years later, still dealing with it. The Ukraine-Russia crisis, I remember talking to multiple analysts that told me, and these are people that from Washington that are, you know, so-called experts in that field saying, you know, this will last all of three days, right? Like, you know, just like in prior incursions into Crimea and the Ukraine, you know, Russia will cross the border. Yes, if anything, Russia has doubled down. So with some

of the missile strikes that we saw just yesterday. So it's, if anything, it feels like it's escalating. And then, you know, do you remember when the Jay Powell said the word transitory in regards to inflation? Yeah, it seems like 10 years ago. Right. It's certainly not transitory. And just based on some of the data we've seen this week, it's continuing to be an ongoing concern. And I think though energy prices with some of the demand destruction fears came off a bit, now we're seeing energy prices trend higher. And oh, by the way, that's here in the US. Think about the situation in Europe, obviously, with the conflict and some of the, you know, the supply destruction, you know, we're going to have a lot of conversations about how people heat their homes in places like Germany and the UK going into winter. So, you know, these macro risks, you know, I told an investor just this morning, if you have a solution, right, if you can see an ending to any of those three macro problems, then, you know, you're right. Maybe this regime will, there will be a pivot and we will see a return to better times. But it certainly feels like the storm clouds may be on the horizon for the foreseeable future. to Quest, to someone similar in the space, right? I'm a little worried like, oh, is it too late?

You run up too fast. The commodities already moved. They've sold off. The bonds already rose. So that's kind of like, how do you navigate that? How do you answer that question? No one knows. No one has a crystal ball.

But to me, it has to center around like, hey, look at the volatility in these markets. It's expanding. It could contract, but it's not going to be that 9 to 14 level suppressed volatility. And if it is, you go back to that level. But that doesn't mean you're necessarily going to lose. It just means less opportunity, right? Yeah, you know, it's a great point. I do think that there are some folks out there that, you know, unfortunately, during the good times, and this doesn't just apply to CTAs, but probably their entire alts portfolio shrunk because they said we can we can get great returns on the traditional side for lower fees. And and obviously that just became a self-fulfilling prophecy as markets just continue to go up and central banks kind of help them along. And so I think that there's two conversations that I'm having right now with

institutional investors. One is folks that have an alts portfolio, have an allocation of tail risk protection strategies, have CTAs like Quest in the portfolio and are thinking about, you know, do I need more, right? Should I up the allocation? I talked to an endowment just the other day who, broadly speaking, and I think they're very forward thinking, I'll say at a very high level, they were kind of 70% traditional, 30% alts. And they're having conversations at the board level about pivoting to a 50-50 portfolio. And I think, you know, if we talked about that a year ago or two years ago, people would say that that's way too aggressive, right? Although if you, like we were talking about earlier, if you draw that nav line, it definitely looks the best out of all the options. Agreed. But, you know, hey, I always remember, I think I

still have the article saved back from 2008, you 2008, what were the best university endowments? The Harvard and Yale model. And they weren't at 50-50. They were probably 35-40% in alts. And they knocked the cover off the ball in relative performance terms to some of those endowments and foundations that were obviously a little bit heavier on the on the traditional risky asset side. So, you know, I think that those that, you know, may have, as I said, rid themselves or really walk down the allocation of alts. You know, they are many of them are asking themselves, if you think of this as a baseball game, are we in the second or third inning or are we in the eighth? Right. And, um, once again, I go back to those macro risks. And if you can see, Tom, it's a hundred inning game. So it doesn't matter if we're in the second or the eighth, maybe it's more a cricket match. Right. And it's, uh, it's five days, not, uh, not three hours, but, uh, do you think it's a mistake to think of it in those terms of like, what is the market doing, right?

Like that, it kind of, you will never know really the answer. So it's just, you got to like the strategy and like the profile and choose to invest. I think people have unfortunately lost a lot of money over the years trying to time markets. Generally speaking, but specifically when it comes to CTAs, there are a lot of money over the years trying to time markets, generally speaking, but specifically when it comes to CTAs. There are a lot of investors that have gotten out at the worst time and maybe gotten in not at a great time either. And so I think at the end of the day, it's about building a very diverse portfolio, allocating to traditional alts. And then with alts, having that CTA macro bucket,

having other types of diversifiers. I worked at Verdance on the family office side. That was actually one of the most fun aspects of it for me was getting to actually learn about and invest in other types of alternatives, private markets, real estate, real assets, venture capital, direct company investments, different types of hedge fund strategies outside of CTA macro. So, you know, building up, there's a lot there, right? Were you like, there's good stuff in there? Or you're like, oh, this is all junk. It's all negative. Right. It's all has a huge left tail. Stay away. No, I mean, once again, I mean, when you think about family office clients, right. I mean,

what's interesting is that it's patient capital, right? If you have hundreds of millions of dollars and you're only spending a couple of million a year and maybe can't just say, hey, we're going to put a bunch of money in an illiquid investment, and we know that it's going to be profitable in 30 years. We just don't need that money. It's nice to have that kind of flexibility. And I do believe in other forms of alternatives, though I feel that in this moment, obviously, we're providing a lot of portfolio protection. And I think that's why we're getting, you know, a lot of attention. Before we let you go, I want to talk a little bit about the MFA. You were president for a while. Tell us what that was like, what their mission is. And if it's a good thing, everyone should be involved. Give us the goods.

Yeah. So I was chairman of the board and I was on the board for six years. It was an incredible experience. So first off, I think a lot of people in our space think of the MFA as a conference company. Yeah. Because they put on some incredible events between Chicago and New York and Miami. But in all honesty, that's to help educate and bring investors and managers together and really kind of talk about what are some of the key issues. And it is the Managed Funds Association, not the Managed Futures Association. Well, you know, it's funny you say that. So it started as the Managed Futures

Association and it's now grown into the Managed Funds Association. And I never even knew that. That was probably one of the elements that I loved the most was you had so many CTAs and quant managers because of it being the Managed Futures Association, who were kind of legacy members. And then as it broadened out and really became the voice of the hedge fund industry, we got all of these new members from Equity Long Short and Event Driven and Merger Arb and Market Neutral and Discretionary Macro. And that was exciting as a member, right? Because now I'm in the same circle as folks that have all of the same challenges of day-to-day operations, regulations, dealing with investors, what should I outsource, technology, but now they're not a

direct competitor, right? So when I call somebody from an equity long short fund, he's not worried about me taking his, call it operational IP. And so there's a lot of collaboration and knowledge sharing between funds and having that diversity of membership really helped. Also helped me personally when I went into the family office space because I understood a lot of different strategies. As you mentioned at the onset, obviously, I've been very focused just on managed futures and CTAs for, for the most of the bulk of my career. But as far as what does the MFA do besides the incredible, you know, conferences and events, you know, at its core we were educators, right? So we would go to Washington, we would go to Brussels, we would meet with policymakers and regulators to really help them understand that regulation and financial services is necessary. We agree with

that. But unfortunately, every time there is a crisis or a problem, the regulatory pendulum tends to swing not to center, but sometimes well past center. And the education work that we were doing in large part was to help some of these policymakers and regulators understand, number one, right, it was always interesting when we would meet with a member of the House or the Senate, and sometimes they would come in probably after having watched Billions or some other, you know, or read some terrible article about the industry and really had an ax to grind with us. And, you know, in the early moments of the conversation, reminding them that the three of their state's largest pension funds had material

investments across the hedge fund landscape, right? And that was because, you know, those pension funds believed that having those key diversifiers in the mix was crucial to managing their asset liability kind of long-term dilemma. And so that in itself was kind of educational, but then just kind of helping them understand that sometimes these aggressive regulatory changes that are made kind of in passionate moments lead to what I will call unintended consequences, where it can have impact on liquidity in markets. It can drive up the cost of trading and investing. And unfortunately, a lot of this trickles down to weaker performance for hedge funds and alternative investment strategies, which then makes it harder for those pension funds and those pensioners to end up realizing their long-term goals. So it was really about, as I said, just meeting with folks and helping them better understand the value that all hedge funds kind of bring in investment portfolios.

It was an incredible experience. That you reminded me of, It always bothers me whenever you see Twitter, like some hedge fund has big losses or blew up or something. And everyone's like, yeah, darn hedge funds, those nasty guys. But I'm like, hey, it's some firefighter's pension that just lost the money, right? It's not the rich foe just lost money. It's literally some pensioner who just got hurt in that scenario. So don't cheer their demise so heartily. But so at the end of the day, it's a lobbying group. Is that fair to say? It's a trade association that part of it is educating its members. The other part is

educating folks in places like Washington and Brussels and helping. Obviously, there's a lot of different opinions and perspectives in Washington and just making sure that the industry's voice is heard. Right. And I, I hearken back to 07, right. Of man's futures trend was long, everything. And there was all of this regulatory stuff about, Hey, they shouldn't be allowed to buy commodities. Basically they shouldn't speculate in long commodities, which drives the prices up, which causes inflation. So things like that of like, hey, hold on, this is how it works. And I've joked, we never get a thank you letter for when prices go down, right? I was just going to say, I remember that debate like it was yesterday. And I do remember that people saying, hey, in this regime, we happen

to be short and we're driving prices down for folks. So I think the other thing, too, that anyone that's taken the Series 3 remembers, right, is just that all important in the commodity markets is that all important relationship between hedgers and speculators. And that, you know, when the farmer is planting his wheat and wants to hedge it out, you know, three or six months, he needs somebody on the other side of that trade in order to offset his risk, right? And if you didn't have speculators, in many cases, you might have all of the hedgers trying to do the same thing, which would drive up their costs and effectively, to your point, maybe lead to more volatility and things like food prices, which isn't a good thing. Yeah, for sure. The farmer's gonna be like, I'm not planting unless I get $10 a bushel.

Right. Right. So I have to build in my own risk instead of locking in the risk. But so you're done with that for now, but you still keep in touch. And, you know, we quest actually just joined the MFA as a member. And so I'm excited to, to be excited to just be back in the mix. As I said, one of the biggest benefits I ever got from it, other than learning more about different types of strategies and understanding how the sausage is made inside the Beltway, was this kind of being able, like,

when you're in the role of president or COO and you're constantly going to meetings with all of these other presidents and COOs and you become friendly with them to be able to pick up the phone call and just pick up the phone and call them and say, hey, you know, what are you doing on this issue? How much time are you investing in this potential regulatory change that's coming? Or, hey, I'm thinking about a new, you know accounting provider or an audit firm. Who are you using? Do you like them? Would you recommend them? Just stuff like that. That's invaluable. And you can call consultants and lawyers and other folks for that same advice, but obviously they're running the meter on you. So I always tell people, if you evaluate your MFA membership based on how much, you know, you would be spending if you were calling outside

council, it's not hard to justify, I think, at the board level. Yeah, let's lower the inflation in outside council rates. So let's end, ask all our guests for their hottest take. You got a hot take nobody else is thinking about? So I've got a hot take and it's actually on something I think is being talked about quite a bit. But maybe my view is a little bit provocative or contrary. And that's crypto and digital assets. You know, to me, what's really interesting this year, because of the way that it started, and the vast majority, with a notable exception of people in our industry, have been, it's like, you know,

an equity or any other kind of asset where the vast majority of folks are long only, right? And they buy it, they hold it, and they hope it goes up. And there was a lot of people talking about maybe the diversification benefits of digital assets. And boy, if you overlay a levered NASDAQ chart on top of BTC this year, you'll see that they kind of moved in lockstep, right? So in many cases, as traditional markets came off, crypto came off as well, probably for a multitude of reasons. So I think that was eye opening for those who were trading maybe the futures contracts on some of those digital assets. It created some opportunity, obviously, not just seeing the market go straight up.

But, you know, my view there is that I think that a lot of people are very quick to say that digital assets are going to go away, right? That now that all of these companies are struggling because the price of Bitcoin and other digital assets aren't just going straight up to the moon, are closing up or laying people off, that this whole industry that really kind of just blossomed out of nowhere. And in all honesty, a lot of people that I knew from, say, the currency world, or some of the tech providers in financial services have moved into digital assets. And so some of the brightest minds in the industry have kind of

gone that way. I don't think that it's going away anytime soon. Yes, I think that there is still some regulatory risk. I think that central banks not having control over something deemed to be a currency is, you know, that risk continues to be there for that marketplace. But the concept itself, and new markets to the portfolio, many of the markets that we can't add, it's because of liquidity, right? And it's because settlement in a lot of assets, it cannot be done, you know, in a day, right? And so having a more robust kind of blockchain type format for certain types of assets might, you know, I mean, gosh, dare to dream for anyone that's bought real estate. They know obviously how long that process takes, how manual it is, how many people have their hand in the cookie jar, right? I mean, gosh, if you could put real

estate, whether commercial or retail onto a blockchain and be able to kind of trade real estate in a more of a daily type fashion would really unlock a lot of opportunities. And there's many beyond that. My closing thought kind of on digital assets that I think is a little provocative is there's been some talk recently about central banks rolling out their own digital currencies, right? I think, you know, it's interesting that people were saying, well, Bitcoin can't be a currency because it's way more volatile. Well, I literally saw an article in Bloomberg, you know, yesterday saying, you look at this year, there are a lot of currencies that have been more volatile than BTC, right? So there's kind of that

element. And oh, by the way, if you hold your assets in a currency that's down 20, 30% in a year, you might want to start diversifying into, who knows, other assets. And maybe that's a place where long-term digital assets really take hold. But this concept of central banks rolling out their own digital currencies, I kind of, you know, that to me is going to be something to really watch in the future. So I, you know, I'm an economist, so I can never say on one hand, right, I've always have two perspectives. But on one hand, you know, I do, I do think as an economist that, you know, having the data attached to every dollar

that's spent in our economy, that you would have that data in real time and know what parts of the economy are strong and weak and the flow of money would be absolutely very, very powerful from a monetary policy standpoint. You know, think about things like stimulus, right? Like we would probably in a crisis not have to stimulate as much because if you gave stimulus out and it was digital and you said in three months, it's like use it or lose it, right? Like the coupon expires. Instead of the worries that I have as an economist, that people are going to take that money. They're so scared that we're in a pandemic and put it in the bank or under the mattress. They'd be forced to go out and either invest it, spend it,

use it in some way. It would have a greater impact and thus you wouldn't have to print as much money. Now, on the other hand, right, I say, you know, there's some serious privacy concerns with, you know, the government knowing every single dollar that you spend. And I think that that probably would worry a lot of people. You can imagine a world where somebody who has diabetes or some sort of health issue, and they go to buy something, a food that's not deemed to be healthy for them, and money doesn't work. Or I mean, there's hundreds of examples, right? But that's probably a little bit, you know, scary for folks. Yeah. I equate it to if they've said, right, if someone ran for president was like, we're going

to put a tracker in everyone's car. And if you're one mile an hour over the speed limit, right, you're getting a speeding ticket, right? That's the kind of control that they could have. Not that exact thing, but with the currency of like, yeah, you bought alcohol, you were underage, you can't buy alcohol, like all that sort of stuff um yeah is scary so i don't know how they get around that but then that's the conspiracy theory right of like no that's exactly what they want well and then take away all tax fraud whether it's it's true or not the fear associated with if they were to make that move might be yet another catalyst for somebody wanting to have

a digital asset that wasn't controlled by one of the world's central banks, right? Yeah, that would be the ultimate, hey, we created our own and that really spiked Bitcoin. So do you guys have it in the portfolio, the Bitcoin futures? No, we traded for some of our partners just as on a proprietary basis. And I think more than anything, because if our clients, you know, want us to trade it in the future, then we have the experience, the data and, and, and everything is set up and ready to go. But I think that from an investor standpoint, there's still kind of a mixed bag, some that say, yeah, it's just like any other asset. If the futures are profitable in your models, you should trade it. And then others that are worried about the regulatory

risk associated with it. As I said, we are trading the futures on a proprietary basis. So we've had a lot of really good experience and have put together a lot of data on it. So we're fully prepared. But I just think that it's a really interesting space that I would continue to watch. Yeah. I'm on record as saying it'll never go above 50,000 again, Bitcoin. So I guess we're on opposite sides of the spectrum. I'm going to hold on. I don't know. I're on opposite sides of the spectrum. I'm going to hold on. I don't know. Never is a long time.

I don't have a price forecast, but I am going to hold you to that prediction. If it ever does, we'll have to do another podcast. Yes. And then I want to mention quickly on the way out, the Quest indicator book, which is awesome. You guys send it out every month. I think when we had,

and I'll mention we had Nagel on the pod a year plus ago. So we'll put links to that. He'll get way into how all the hedge funds are really just negative skew and disguise and why Sharpe's a bad metric, all that jazz, which is great. But we'll put the link to Nigel's pod in there and put a link to sign up for the indicator book. So yeah, I don't know. What's it take to put that together? You guys just have all that running in the background and you just throw it together? Or is it a-

Yeah, no, a lot of it's automated, but more than anything, it comes out of our, I think one of the things that's unique about not only Nagal, but the entire team is that unlike some quant managers, I think are a little bit more just focused on the numbers and the data. We do look at the big picture. We look at what's happening in the macro world. And we're looking always at the markets and how our models are interacting with the market, with what's happening kind of in the world. And that's really becomes

the basis for not only risk management, but also more importantly, how we design new strategies. And so if we're looking at indicators that we think are really interesting, and sometimes they're not what you're reading in the Wall Street Journal on Bloomberg, we want to make sure that we're sharing that with our clients and our prospective clients. And so I think it probably, I don't know the history. I'm sure it started as a much smaller deck. And it just continues to grow, right? Because once you put a chart in there,

people are like, they want to keep seeing where it's going. So you can't really take it out. So we just keep adding to it. I guess it's the beauty of- Yeah, I think it's 60 plus pages or something. And growing probably by the month. So, you know, and then we call out each month kind of what we've added or, you know, hey, if you only have 30 seconds, look at slide 32. Like that's the one that is really kind of piquing our interest. And I think it's as we think about kind of that, you know, quant meets macro. It's one of the value added services that, you services that we're providing to our client base. I love it.

Thanks so much for coming on, Mike. Great talking to you. And we'll look you up next time we're in either New York or Baltimore. Thank you so much, Jeff. I really appreciate it. It's been a pleasure. All right. We'll talk to you soon.

Take care. Thanks. 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.

Thank you.