The Derivative - Overheard at a Stacked Portable Alpha Symposium

Episode Date: October 16, 2025

Join Jeff Malec and Jason Buck as they dive deep into the inaugural Return Stacked Symposium held at the CBOE in Chicago. They break down key presentations from institutional leaders like Jonathan Glidden and Roxton McNeal, exploring how portable alpha and return stacking are revolutionizing portfolio construction. Hear their candid insights on leverage, uncorrelated strategies, and why this approach might be the future of investing. From pension fund strategies to practical advice for RIAs, this episode offers a comprehensive review of the cutting-edge investment conference that's challenging traditional portfolio management.. SEND IT!00:00-00:47=Intro00:48-07:13= Setting the Stage: Return Stacking Symposium Overview 07:14-14:21=Shane McCarthy's State of Portable Alpha: Panel 114:22-27:28=Jonathan Glidden: Transforming Delta Pension with Return Stacking: Panel 227:29-42:05=Patrick Kazley's Convex Overlays: Volatility, Trend, and Portable Alpha for the Taxable Masses: Panels 3 &442:06-50:10= A Gaggle of Advisors - RIAs in practice & side conversations: Panel 550:11-01:05:49= Behind the Curtain: Pension Fund Strategies and Institutional Investment Challenges and Roxton McNeal's Deep Dive: Orthogonal Return Streams and Portfolio Complexity: Panel 601:05:50-01:15:22= Wrap up: Advisor Panel Insights: Return Stacking in PracticeFrom the Episode:Secret Club that Runs the WorldReturn Stacked Podcast episode: Saving Delta’s Pension with Portable Alpha - Jon GliddenOne River - Convexity Rebalancing Act whitepaperThe Derivative podcast episode with Homer Smith - Dunn Capital MGMT Whitepaper - High-VOL Trend FollowingAQR - Cliff Asness = Cliff’s PerspectivesDon't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-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, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠

There is something about being in the room with a lot of our friends, a lot of new faces, and just being able to have those little conversations, put a face with a name. Even if it's only five minutes here or there, it's incredibly more valuable to make those connections in real life. And I think that's going to become more and more valuable over time. Welcome to the derivative by our Sam Alternatives. send it. All right, here with Jason Buck.

Jason, I haven't seen you in ages. What's a big? A few days. Three days. Jason was here in Chicago. came in for the conference we're going to talk about it was a lovely sunny

it rained right when you got here and then it was perfect weather for three days you keep joking with your colleague there that you're going to make them come at a non-ideal weather time yeah our ops guy

CJ has only been to Chicago during good weather so I'm waiting for the next polar vortex and I'm forcing him to come up there and see you it's always good there what are you talking about so going to dive in we did this for the EQD in

Vegas. I've got a lawnblower outside my window, if you can hear that. Did this for the EQD in Vegas, which was well received, so I thought we'd try it out with the return-stacked symposium, they were calling it. I don't know why you call it a conference or a symposium.

I'm the guy who wears the YouTube shirt to the U-2 concert, so I'm wearing the return-stacked swag that I got. you want to start with some top level overall thoughts? Yeah, I'm actually looking at the agenda for the conference. And actually, it was the return stacking symposium conference agenda at the CBO.

So it was like they got symposium and conference in there. I think symposium is just a fancier word for conference. But they return stack supposium and conference, so they're good to go. But is that the CBO? Go ahead. I was just going to, as you mentioned CBO, I'll throw in like I had not actually been in the new CBO. yet um and they'd get mad as they want to be called cboe now um but that place is awesome i was i would have lost money on that i'm like no one wants to move into the old post office it's in chicago where

the highway goes under the post office i'm like no one wants to move in there but the retrofit everything that's a sweet space yeah sorry the cboe global markets was where it's technically held but like you said the old post office renovation is awesome actually yeah the downstairs was just filled with restaurants and everything and then the uh the views and the the windows and everything at the CBOE was was pretty spectacular and it was a nice meeting space and then not to throw you under the bus but I was thinking about they have those commercial like kind of vending machine soda fountain things that are always amazing and I was what do you think the over under if you had one of those how many Diet Cokes would you drink in a day it would be a lot

yeah probably three maybe three but yeah three I thought we're going double digits no I try I try and limit myself to just one. I just went and got a McDonald's one before I got on. But I digger myself, of course. Yeah, the freestyle where you can make your cherry vanilla, diet, Coke zero, whatever you want. Those are great. They also had a freestyle seltzer.

Well, I thought the pinnacle was the freestyle seltzer. I haven't seen that where I got to choose all the flavors and have my own selter. But I got a saw a topic there. generally one like you say great location two they did a great job for their first symposium conference like putting together and having great speakers and the entire setup around it where there was you know food drinks etc and then you know it's always hard to pull off a conference like that I think they they had packed house I think it was almost like standing room only and so you know on to bigger and better

hopefully on the next one but then I think it's really hard to pull off you know when you're having the agenda be return stacking um and to have different speakers talking about return stacking, it's hard not to beat people over the head about return stacking, but I think they did a good job of letting people kind of free flow, talk about whatever they wanted, even if part of it maybe disagreed a little bit with return stacking, but try to keep it in that general vicinity. And I know, you know, I've been talking to resolve and newfound for years about putting a conference like this together, so I was glad to see it finally come to fruition. Yeah, I wrote down in my notes overall

smart people talking to other smart people about smart things, right? It was a refreshing to just there wasn't and I think some people might have thought maybe it was too too detailed but to me it was refreshing I'm like they dove right into it we're getting into tracking error and some complex topics right off the bat but agree very well done Corey you know you've seen him in person way more than I have maybe this is my fifth or six time or something but always taller and bigger and stronger and more handsome than I want him to be

in person yeah the resolve guys are great it's hard for me i can't remember them when i first met them like six seven years ago if they were all good at presenting and talking at that time i mean maybe covid and being on the resolve rifts and stuff has kind of honed their abilities there but it's odd to have all those partners also be good kind of in front of the stage yeah i'm trying to think i think obviously they probably hone their skills being on the mic more but i want to say knowing them going back a decade. I want to say they always had the gift of the gap. They're always pretty good talkers. And that was before Mike, so maybe it was better off Mike than on Mike. But no, they were all fantastic as well. And I think that, you know, it's hard also in a

conference like that where you have the audience is kind of a bit diversified there where you have a lot of allocators, a lot of institutional traders, you know, fund of funds, high net worth individuals. You have a little bit of everybody. So it's hard to hit all those pieces to make sure everybody's happy. And I'm sure we'll get into this later. But for me also, you know, you know, it's great to have the speakers and everything, but that's kind of sutter-fuge for the other conversations that go on during those interstitial moments, right? When you're out in the hallway, you know, grabbing a coffee or you're having lunch

or, you know, we had a nice little happy hour at the end. What do you get to talk to everybody? And, you know, usually the conference speaking maybe gives you a little jumping-off point, but otherwise it's really about those one-on-one conversations that you get out in the hallways during events like this for me. I'll throw out another give prop to CBOE where they had the cocktails. and you're standing kind of directly on what I would call Congress Avenue. I think they renamed it something now, but looking east and the Buckingham fountain is right

at the end of that road, it splits into the park there. So the fountain was going up, the lake was there, it was beautiful day. Anyway, well done, well done. So let's dive in. We'll just kind of go panel by panel here. or session. I don't know exactly what they're calling it, but first one kind of gave us the state was titled the state of portable alpha with Shane McCarthy. There's CFA Global Head of client and partner group at Lab quantitative strategies who I don't know that much about actually

myself, but he was great. He had all the data, which I liked. So I have some notes unless you want to go first. Yeah, overall the couple of the notes I had from his talk was, you know, the best things about return stacking or portable alpha or whatever we're going to call it in this. I think we should maybe just agree to call it return stacking or return stack. But we're talking about the old school portable alpha and getting increased diversification and kind of getting rid of the dead cash problem that you have when you diversify. But he had, he talked about, you know, what's great about return stacking is you could be a regime agnostic. And then more importantly, you can increase your return per unit of risk.

So I think it's going to be a general theme that we have throughout this. So people are talking about that dirty word leverage a lot of times. But I think, you know, as different ways of saying is, you're going to increase your turn per unit of risk was one of the things that Shane wanted to highlight. But yeah, let's riff off of your notes. And there's a couple of the pieces I had to touch on there. But that was the general overview I thought from from his opening remarks. I'll take a step back. It was interesting to me for a long time they've kind of shied away from portable alpha.

But they were most guests and return stack guys themselves were talking. and calling it portable alpha. So I think worthwhile to just note, right, return stacking is portable alpha. Kind of the institutional investors call it portable alpha. Return stack guys came up with their own term for it. And then also interesting to note for a long time I've shied away from talking about leverage.

Like in essence, it is leverage. And so, yeah, a lot of these panels were getting right into there and talking about leverage. We should highlight there to just for shout out to Rodrigo Gordio. He is the one that came up with return stacked or return stacking. And I think that's incredibly invaluable because, like, Portable Alpha didn't really mean anything to anybody. But, like, return stacking really grabs a whole of people with a simple phrase. And it thinks about constructing pieces of your portfolio in a much more interesting way than I think Portable Alpha ever did,

where people is kind of a nebulous term and nobody really knew what it meant. Right, because Alpha, I'm looking for returns that have Alpha, moving them into different places. So it means the same thing. But to your point, right, ReturnSec. I'm just putting it right on top of it. We did a return stack pot earlier this year where we stacked all those guys on top of each other. We'll do a link to that.

But back to Shane, right? He had all these stats, which I loved. He was showing, you know, basically that the concept has become more and more accepted. In the industry, he had that bigger, he had some stats on different endowments and institutional money. bigger funds do this a lot more, but big takeaway for me that in his data there, that's no

longer niche, it's gaining serious traction amongst the pensions, endowments, foundations, etc. He used the old real estate analogy, right, of like people get nervous about leverage and return stacking or porta blah, but real estate, no one has a problem putting down 20% to own this whole thing. In theory, that's a similar thing. And then I wanted to get your thoughts he mentioned and this was throughout the day he mentioned a lot of these groups are having more tolerance for tracking error and he actually had a graph that had

it said alpha slash tracking error which was interesting to me if they're equating the two things as right if I guess if you above your index that's alpha but that is also tracking or positive tracking it so anyway what were you triggered

when you heard tracking error or what's your thoughts on it anyway I think outside of leverage probably the second most term or talked about was probably tracking error throughout the symposium. But I want to go back to what you said, though, too, about he had some great charts on the usage of Portable Alpha return stacking on with high net worth individuals, family offices, institutions, pensions, endowments.

And I want to say most of them had in that 40% range. And I just, I was a little dubious of that. I just, I think it's really catching on more and more. And it's coming back after some issues they had with Portable Alpha that was basically stacking equity-like returns on equity-like returns going into 2008. which gave it a bad name. But I think that the institutional adoption is there, but it's a lot smaller.

And maybe that percentage is hiding the magnitude, like where maybe people are 100% allocated stocks and bonds and maybe they're tacking it on and maybe another 5% to alternative. So it would mean they're using portable alpha or return stacking, but maybe they're only using it in small amounts. I just thought that 40% seemed like a really large number or percentage to me that people are using it,

given how much we try to talk to people about it in the lack of usage we kind of see across the board. And then obviously we're in a room where people are very interested in the topic. So it's a lot of echo chamber there. And then going to tracking area, like you said, it's interesting. Even if you stacked a bunch of betas on top of each other, and that's the way you use return stacking, what are you using for your benchmark, right? We work a lot on this, and it's difficult if you have global stocks and global bonds.

If you're targeting different durations, then you would like an ag or a VBink 6040. I think using any sort of benchmark is really difficult when you're doing a return stacking. And you can show it in the best way you can. But like you said, it's going to vary, you know, and people are using anywhere up or it's plus and minus 300 bips, you know, over quarterly or annual kind of time horizons. But once again, it's like, is that your benchmark and is that alpha? That's debatable, right? You're just stacking up betas. And your portfolio is going to vary a little bit over even your benchmark betas, especially when you're using a bit of rebalance.

financing premium that I'm sure we'll maybe get to in some of the other topics of discussion. Yeah, and I think he said there's amongst the polling or every he's getting this data, there's been more tolerance for tracking there. So which also tells me if people are like willing to take on a little more risk, they're willing to look for different alphas and put those in the portfolio. And then I think he was the first dimension, of course, because he went first. But he put a cost to it, right, of which we don't necessarily talk about all the time. There were some audience questions around it, and he's saying, yeah, the cost of stacking is basically Sofer plus 65 Vibs.

So he put a cost on that. And then throughout the day, we heard other people be like, yeah, that's the bogey. That's what you have to get over. Your alpha has to be outperforming that. Sofer plus 65 in order for this whole concept to make sense. Right. That's your financing cost when you're adding leverage, right? And so that's what, yeah, like you said, top of conversation throughout the day, is that your hurdle rate or your bogey if you are going to stack these things on top of.

But also easier said than done. You know, there's going to be times maybe when a strategy is underperforming sover, right, over short time horizon. So I think that was a bit easier said than done. Segment two was Jonathan Glidden, I believe it's how I say his name, CIO of Delta pension. so he was introduced as I wrote down here there's a CIO Hall of Fame question mark so Rodrigo was introducing him and gave all his accolades and mentioned that he's in the CIO Hall of Fame which congrats but I didn't know there was the CIO Hall of Fame but my takeaway he was even as he spent about five minutes talking I'm like this is the best speaker

of the day and no offense to the other guys but he was just polished he's done it I'm sure he's been in front of a thousand boards and somewhat had the biggest job there running this huge pension and had brought in the show notes some of the articles and whatnot to what he's done at the Delta pension but basically brought it out of

the dark ages seriously underfunded I think the one chart he showed had the liabilities of the whole pension were greater than the market cap of the company which I wrote down like bankrupt question mark but brought that all the way back using portable alpha um but i'll leave it there and get your thoughts on jonathan before we

dig into it sure i knew i knew jonathan was actually going to be good because about uh year or so ago the returns that guys did a podcast with him that i thought was really enjoyable and like you said he's a great speaker um and really compelling so i knew that was it was going to be one of the good ones uh it did remind me like you said he has he has to be such a great speaker and compelling speaker and a clearer thinker and speaker because he's dealing with the board of directors for that pension plan. And so it reminded me going back to even the earlier one that I think it's really difficult for human beings to not have that benchmark. So even if you're talking to board directors, they want to see a benchmark to see if you're over underperforming, right? But

like over what time horizon? And so that's why, you know, if you're Jonathan at Delta, you know, you have to be really good at communicating your board director, especially when you're underperforming. And like you said, they should be asking you the questions when you're quote unquote overperforming, right? Because that is tracking her to the upside. But I think that's what makes these decisions really difficult for people in general. Is one, you know, a lot of these pensions have boards. They have to talk to our endowments. But even two, even if you're doing it individually, you know, your neighbors are going to be, you know, cruising along with 6040 and you're going to over or underperform over, you know, months, quarters, even years. And it's just really hard for us

to not deal with some sort of heuristic benchmark. But when you're doing this, the question is, what's your benchmark other than maintaining your purchase power parity, outpacing inflation, reducing volatility and drawdowns? That way your money's there when you need it most. You know, those kinds of things they're not quote-unquote benchmarks for that, you know, people, for understandable reasons, default to. I love it.

He had a great little heuristic. Go for it. You're going to list it. Yeah. Yeah, on the back end, what your thoughts, whether this is a fourth pillar of there. But he basically said there's four ideas that have been groundbreaking

in the investment world in the last 30, 40 years. The first of which was out of Chicago here, University of Chicago, Markowitz, all that. Volatility equals risk. We've done tons of podcasts debating that, which is it can and does sometimes,

but not always. The second gave a little backstory on Jack Vogel low-cost indexing likely probably agree there third which definitely agree with was Yale David Swanson

getting into privates sort of that private equity illiquidity premium which is now switched because everyone followed the model and then fourth portable alpha

which I wrote down here oh they were going to call it Rodrigo's Folly Rod's Folly but he was putting portable alpha in this concept as the fourth kind of groundbreaking thing that's happened to the investment industry. Thoughts, comments.

Yeah, I didn't have a problem with his choosing those four. I mean, obviously, you know, I'm a huge fan at Harry Brown in permanent portfolio, so maybe it would have been a fifth in there or whatever. But kind of the fourth one is he's saying, and he gave credit to Bridgewater on that with like their risk parity. It was leveraging the variance for more uncorrelate

assets. So the idea of increasing uncorrelated asset streams, but then lining them up with their variance to try to maybe, you know, in that case, it would be leveraging the bond part of the portfolio to match the variance of stocks. But what he said with that, the new revolution is leverage for greater portfolio sharp ratios. And even the quote was, there is a thing called good leverage. So once again, this is tying back in our theme, we're going to be talking a lot about leverage or tracking errors. And so, you know, just high. And there's a good thing called leverage, and he convinced his board of that. And then he was talking about sharp ratios, which I think people forget, is they tend to look at sharp ratios on individual strategies when the whole point of sharp ratios is on the portfolio effects.

So that's what's more interesting is if you combine, you know, low sharp ratio, individual strategies, you may get a higher sharp ratio as long as you're getting uncorrelated assets and you're getting a little bit of that rebalancing from them. So I just thought there was another thing to point out is once again, I think people miss you sharp ratios all the time. sharp ratios, it was much more of on that, you know, efficient frontier or your total portfolio and how well that was doing, especially if you had uncorrelated or negatively correlated asset classes. And then for him, he was breaking it down into more real numbers. They use 40 different hedge funds. So really going, I wanted to say Ogwild, but it's probably not the right friend.

But really going smartly into, hey, if you're going to do this, do it as mostly diversified as you can. and then adding leverage of 40%. I took a little offense. He had one chart where his hedge funds were in physical assets, which did make sense. And then I wrote in big letters here, duh, that he basically brought to them of like, hey, guys, when people have money when the economy's doing well,

what do they do? They fly around the world in the country and earnings are good. When people start to lose jobs and the economy's not doing well, what do they cut back on flights? So basically he came in and taught them, Hey, we need to be diverse. We need to have things that are non-correlated to the economy because that's when we actually do well.

So we don't need to be doubled up on the economy, which is music to hear ears, I'm sure. There's other things than that, though, with the leverage, too. I think there's a lot of hidden leverage that people don't realize, right? If you're just investing in ASAP 500 index, those companies that are within that index are going to use debt and financing, so they're using leverage inside those systems. You know, these days, you know, private equity or private credit are really hot

or venture capital. Those are just different forms of leverage where you're leveraging up equity or debt. So I think there's a lot of other leverage built in there. Like there was a, there's a couple slides in there. I took Umbrage where people were saying this is their level of a, uh, a leverage on there when I think it's much higher. And basically they're able to, maybe this will be part of the other discussions, hide it and swaps, et cetera, um, you know, or, or, or adding more private equity into the book. Um, so you're able to kind of get some pseudo leverage, so to speak in there. And so, you know, the key ways that we're talked about throughout the day, I'm sure we'll touch on is like you can use managed futures and use that performance bond you get managed

futures to have more capital efficiency sometimes referred to as leverage or you can use swaps with banks and counter parties too and that's what some of the bigger institutions once you're you know at hundreds of billions of dollars you're allowed to you know negotiate with banks for getting you know swaps on products you want so you can get even quote unquote cheaper leverage but you're still going to play sofer plus you just maybe hopefully going to pay sofer plus bips instead of software plus points. Yeah, which he actually said it was 40 bits per month. So it's still right around the T-bell rant.

Yeah, yeah. Two quick stories. I loved his story. He had just started, was it there? I think it was his previous place. He was at Emory University. And they basically were like, hey, we've just been, everyone's donated their Coca-Cola stock. Our whole endowment is basically Coca-Cola stock.

And so he was new there, and he were like, okay, go sell three billion dollars worth of coca goa which is just a crazy story um i should have asked him afterwards how he did that and then the other funny part to me which i actually talked to him for a minute afterwards and i'm going to hopefully get him on the pod we talked about that but i'll we'll put a link to this blog post we wrote but at the same time mostly that he was doing all this um they had someone in charge of their fuel hedging cost that was just trading oil futures like crazy made billions of dollars and lost billions of dollars

so it's kind of a commentary on like even though this side of it and he I'm jumping a little bit all over the place but the also interesting that twice we heard from pensions that fund them and then they're out of it the company's like I'm done with that I put up all the money I needed to for that and now it's on your guys' hands to keep funding that so I don't know if there was a question or comment in there

Yeah. No, I know you wanted to point out that maybe that was before his time there, but also if you put the article in there, that was fascinating to me about the article is that he kept going to the board. And he's like, yeah, have positive carry on all their hedges on oil. And it's like nobody raised their hand and be like, wait, why do we have positive carry on our insurance? That should have the first clue. Like, yeah, they were making like $50 million a year on their insurance on the oil hedging. What could go wrong? And then he said, and I think that was during the key. Q&A, people, a lot of the questions in Q&A and threat were basically the human element. How did you get this put through your board, which kind of resonated with the RA audience and in Vigil, but how do I get this? How do I convince my client to do this? How do I convince my client? How do I convince my RA that this is what I want to do?

And there wasn't really a silver bullet answer there. It was just like, hey, you got to somewhat dumb it down, explain it in simple terms, use a mortgage example or something like that and like hey all leverage isn't bad here's why i think this leverage is good yeah i think but throughout the day you know we've talked about this a lot before it's like everybody's trying to use like different metaphors and different ways of talking about what these systems entail and trying to help people understand and make their brain clicks in different ways but as you know i kind of feel about it's like i'm not sure you can convince anybody of this in general right like they either have to have gotten burned in some way shape or fashion and they

realize, you know, they're trying to stay rich with a return stack portfolio and they're trying to actually get proper uncorrelated or negatively correlate diversification into their portfolio and actually, you know, increase their sharp and hopefully reduce their drawdowns. And like, until somebody's fully convinced of that, I think convincing them at a whole cloth is incredibly difficult. So I really feel for, for Jonathan and at Delta, or, you know, we're also talking to Roxen later when he was at UPS or other people that are at, you know, at an, you know, at an endowment or pension where they have convinced aboard these things I think is it's just incredibly difficult and we just try to send out our bat signal and just look for

like-minded people that are looking at look at been searching for something like ours because I'm not going to I'm not going to go up and you know when we're out in Chicago and stop people on the street and convince them that they should broadly diversify right hey do you like cockroaches come up here yeah um a few other notes I had heard one he he admitted he's like oh you RAs have a super harder job he's like I had to come i have one client the pension yes i had to go in front of this whole board and everything but i have one client one set of assets and returns you have who knows how many clients each have a different profile and everything so it's a much harder job um and then he had a great quote alpha makes

everything better so it's like as you're doing this as he was selling it to the board they were having success the hedge funds were providing alpha and he's like hey that made my conversation much easier um returns make everything easier don't they yeah Yeah. And then how is my joke at the, I asked a question slash joke after his talk. Do you remember it? I can't remember your dad joke on that one. I might have been the bathroom. Remind me about that one was. No, he was talking about how he saved this whole pension. I said, hey, can you come, can you quit and come to Chicago and fix our problems? Exactly. Depressingly, he's like, I don't think there's any fixing that. Any other thoughts on Mr. Glidden? No, like you said, I really enjoyed if you can put in the show notes, the podcast that Returns Act did with

him is excellent. And then it reminded me of a paper they wrote with him or a little essay that we're actually going to put it into our newsletter this month as well because I think it's great the way he talks about it. And but once again, even with those, that's like it's really, it's really about to get these, you hear people tell the stories in person. It's the Q&A after where you get the more unique questions than people speaking their book for an hour and then catching up with them in the hallway to add those follow-up questions or or get into some of the details that you always want answered. All right, moving on.

Panel three was Patrick Casley, Head of Solutions, One River Asset Management, talking convex overlays, enhancing compounding through diversification. So this is right up your wheelhouse, right? Talking volatility traders and trend to be the first and second responders. he had his which i've heard him say before sumer wrestler um analogy which you could talk to a little bit i loved his four types of down move chart which is great um a sharp like a march 2020 moves down really quickly bottoms out uh let's call it 2022 just a long slow grind lower a v shape recovery

kind of a gam and then he had what works well in each of those which was Some of its long volatility, some of its trend, and some of its gamma traders, which gets a little under the weeds. But I'll leave it there, and here's some of your thoughts. Yeah, I think, you know, we talked about these metaphors and analogies that help people understand. And so typically throughout our industry, especially on the long ball side or tailor side, that's harder for people to understand is, you know, as soon as any of us come up with a metaphor

analogy that works, all the rest of us tend to copy it. And because if it works, it works. And so he even started, I think, bringing up David Dredge's analogy. of an F-1 race car, it's not the car that can go fastest in the streets. It's the car that has the best braking in the turns that then can accelerate into the streets faster, which David has done a great job over the years, bringing out. And then the other one you referenced is first responders, second responders. I think, you know, one river does a great job of riffing off of that, but that comes from

Makita and my buddy Jason Josephiak when he was kind of building those risk mitigation strategy essays that Makita put out. But the idea is you need, you know, first responders and second responders. And the idea around there is that if you had some sort of liquidity cascade, as Corey Hostine's trademarked, like March 2020, when you have a very acute event, whether that's endogenous or exogenous, you really need those like long volatility and tail risk strategies that provide that negative correlation for those shocks when markets shock down. Because everything else in your portfolio can get sold off, you know, everybody's throwing out the baby with the bathwater, even things like gold, et cetera, get sold off because everybody's going to cash. So if you have that structural negative correlation that you get from like tail risk puts is like you're a liquidity provider into that market. So you've been inventorying all those tail risk puts during the good times. And then as soon as it hits risk off, you're the one selling that market when everybody needs to pay more to to hedge their book.

So that's your kind of first responders and those acute stress points. And then your second responders are when you have like stronger or lower grind down environments where that can be like 2008 or 2022. too, typically you have strategies like commodity trend following, et cetera, that tend to do better in those, and that's why they're called second responders. And then you could argue historically, you know, where do, you know, long bonds or just the treasury markets in general fit in there, especially if, you know, the knee-jerk responses, the cut rates, you know, you can get a nice ballast from there too. So you get into other, and then we can get into, and then those first responders, second

responders use, you know, delta, gamma, vagus strategies, et cetera, and just thinking about the layering of those. said, I think the interesting riff was just kind of showing the four shapes of those as well, just besides like, you know, sharp and acute versus, you know, long and drawn down, right? It's like, do we have V-shaped recoveries, K-shaped recoveries, you know, all those sorts of things? Do we just kind of L-shaped, you know, flat and long periods? But I'll let you jump in here and save me. Save me.

He also added a new moniker, fast twitch and slow twitch muscle. Oh, I like that one. Yeah, that was a good one. So that was good. Volatility, your fast switch, trends, your slow twitch. I think he was the first one and really kind of only throughout the day who actually went practical of like, right, the other guys are just adding alpha, adding hedge funds. Like, okay, which ones? Like, what's my goal?

If your goal's non-correlated and get a longer compound growth, he was kind of getting heavy into that. And then also one of the only ones is like it doesn't necessarily need a positive expected return. it doesn't need a positive sharp if it's basically vol if it pops at the right time so he had a lot of cool charts a lot of cool back testing I think he was one who ran like a hit a button and it was the charts were moving in real time right yeah yeah um which is always cool like we're such at the end of the day we're just primates right like ooh moving chart actually one of my things that leaned over to CJ and I was like we need to use that

app that does the moving charts for us because like yeah you can overlay those into your charts and it does that yeah and boy you he's really showing us the rebalancing effects, right? And, you know, Corey's talked a lot about rebalancing timing. Look, the hard part, obviously, with you and I talking about this, is like we agree with almost 99.9% of what was said on stage. And it also feels like we're talking to our own book. But yeah, the rebalancing effects, especially with negative correlated strategy is like in March 2020, you know, the market sells off. If you're able to monetize those terrorist puts. And then you, if you have a system for rebalancing, you know,

you're rebalancing to buy those stocks at that lower nap point. And that really affects you're compounding over time. And this is the things we talk about with ergodicity in a non-nergotic environment of how do you compound your wealth effectively and efficiently over time. There was some questions. I need to go back, and I haven't had time yet.

They have a paper called the Convexity Rebalancing Act that talks a lot about this. Maybe we can put that in the show notes. I haven't had spent a lot of time on it, but he was saying, you know, they were looking at calendar rebalancing versus threshold rebalancing. And so, for example, in Harry Brown's

permit portfolio, it was a quarter each stocks, bonds, gold, and cash. And instead of having like a monthly quarter of annual rebalancing, he suggested that used thresholds. So anytime they got 10% out of that threshold, so if that 25% went up to 35 or went down to 15, you would rebalance across the portfolio, which happened like once every 1.4 years, I think, over the last like 40 years. So that's threshold rebalancing.

And a lot of times people like that because then you're not rebalancing too much just based on an arbitrary calendar. but they were talking about how monthly rebalancing worked much better than threshold rebalancing and they said that the threshold rebalancing had twice the variance. So I really need to read through that paper just to make sure all the parameters that were in there

because Roxton and I were talking a little bit about after and we both were a little dubious of that. So you really need to dive into that paper so especially if we can put in the show notes, that would be a good one to look at. And then as you know, like, I should be somebody that loves monthly rebalancing as we're forced to do that as a function of monthly liquidity.

But like even I was kind of dubious that that was the right solution. but whatever it is I mean any sort of system for rebalancing helps and you know you get that rebalancing premium from having negatively correlated assets to hopefully help you compound better throughout time yeah I had written down here big rebalance debate which I don't remember there was a big debate but maybe that was between us and then a good chart on rebalance timing so yeah that was great and then he also had a unique which I want to get maybe I'll get his presentation he had a unique way of looking at correlations amongst all the different asset classes where he reversed them down to zero I think is what he was saying like if you took all these back to zero

which would basically take away all their outlier returns what did the result and they all look pretty similar which is kind of similar to some of Med Faber's work of like hey over the long term these things all have sharp around X and they all kind of tend to do the same thing it just has these different peaks

and valleys which is what you're looking for in Portable Alpha different peaks and valleys but yeah overall he had the best charts by far i'm just trying not take a victory lap because these are the things i've been arguing with you for a better part of a decade so uh it was good to see some of those stuff but then again that's confirmation bias so we'll throw out my argument on that side and patrick is a good guy talking with them after they were all good guys they're always been a fan unfortunately unfortunately i'm a big fan of one river um

they do stuff very similar what we do they've been around forever a much bigger institution but they've been in the ball in the trend space for like the history of the firm so really always like listening to anything they have to say Eric Peters has to say it's always great

but to your point yeah we need to up the female quotient on the next return stacking symposium definitely although right around this next panel they started to show up a couple

handful the next panel was portable alpha for the quote unquote taxable masses so basically getting it off the institutional more towards I'm a RAA how do I get this in my client's books

this was the unfortunately named for the financial business Michael Crook CIO of Mill Capital Advisor but also got me thinking of like how good does this guy got to be where his name's Crook and he can still raise money and manage money but and I wrote this in the beginning

as he started talking about refreshing less technical right He was kind of talking about how you deal with clients and talk. But towards the end, there were tons of charts and numbers and stuff. But at the beginning, it was refreshing. It was less technical. And then there was at one point a math formula on the screen. And I'm like, wanted to send out a PSA.

Nobody ever put math formulas in a slide deck. So I'll stop there. Your thoughts. Yeah, just threw me for a loop there because it reminds me of one of my other things that I'm always talking to hedge fund managers about is there's a great book on Steve Jobs' presentation philosophy. And one of them was like, all pictures, like, no words. Or it's just the fewest words possible

or in really big font. And I'm sure you and I have the same issue. It's like, we're in the back of the room. A lot of those slides are unreadable for the audience, because everybody wants to put like multiple charts and lots of words on it, same as they like to do in their pitch decks for hedge funds. But they gotta get better at being more visual

and doing the slide charts for the back of the room. So that was just a side note there. And then I'll give you some of sense. So he was talking, he was bringing it back to practical things, right? So in a taxable account, you maybe want to use munis versus treasuries. He was talking expense ratios. He was talking, which I actually wrote down because I'm not as familiar with this as the RA space, 9060 equity replacement strategies.

He's saying those are great, but clients, he started to get into clients will fire you in the drawdown. And this came up later to have like, you just want quarter over quarter consistency. So even if 90-60 looks better from a math standpoint, if the client can't live through it, if the path doesn't work for them, they're not going to stick with it. And then he was basically saying the hurdle isn't that bad, which was basically just cash plus 30 bibs,

which was right around whatever else has been saying. Well, yeah, that was my question for you, because unfortunately during this, I got pulled out into the hall a few times, but that was my general takeaway. I was hoping for maybe reading about Portova for the taxable masses. I thought there was going to be some interesting techniques. I didn't know if we were going to get into like AQR tax loss harvesting, those sorts of things

that have gotten really popular these days. So I was hoping there was something we were missing on the taxable side. But no, it's more about, like you said, it came down to similar to leverage, right? It was like cash plus, you know, 30, 40 bips. It was definitely sub 100 bips, which was your quote unquote tax alpha. So that was refreshing to hear. But also, like you said, it boils down to how you're stacking those within a taxable account to make sure you get the best taxable efficiency out of it, which is, you know,

I wouldn't say easy to do, fairly trivial to do with like the return stat products, right? And thinking about the individual clients from RIA perspective, that's why they have those building blocks in there so you can adjust based on somebody's tax exposure or tax profile.

Then he had a great line, triple underline, outsource the leverage, right? Which I hadn't heard before. That was a great one. You don't want to ask your clients to do this. You want to your outsourcing leverage.

This does it for you. You don't have to stress about it. And then he had another good thought rate towards the end. It might have been in response to a question about private assets. Basically saying a lot of RAs are getting pitched on private credit and private equity right now, but it might be 10 years too late. Yeah, that's the last alternative battle. And maybe these liquid return stacking alternatives are more flexible liquid choice

that you can have the same sort of non-correlated stuff, but in a more liquid format. Yeah, maybe for those who haven't read it, is he'd probably be at the next return stacking symposium, is Dan Rasmussen of her dad. He's written a lot about P.E. I mean, he started his career at Bain. But like he talks about in the heyday,

that 80s, 90s, and maybe early 2000s, they were buying companies for a multiple of 2 to 3X, and then they're putting maybe two to four turns of leverage on it. And all of those have gone up three to four times. So that's why, you know, it takes, you know, decades for those returns to really manifest. and that's why people are performance chasing in those, but maybe those are disappearing at this level of multiple

and this level of leverage. And as they're saying, people aren't getting their DPI these days, but I'm not going to be the one to say today is the death of P.E. Because it could probably run along a lot longer than I can, you know, imagine it would. And to me, that news last week or two weeks ago, EA Sports got taken private by P.E. Like, that's before they die, they'll start using that playbook, right? like there's too many yeah it's all extended pretend and yeah continuation funds except they have

so many tools in their toolkit to just keep the train going yeah but to me it's not even extended pretend sure maybe there's now they'll switch like hey there's more value in in public equity than there is in private because we kind of bastardize the private side so let's go into public equities that are and who knows they maybe they can run the same playbook but super interesting and then i got to shadow some of the charts that uh michael had were rightfully so and which I think was good overall people were talking about risk they were showing this but some of them were super sharp downturns that he was showing which were making some of our friends in the back of the room a little a little nervous as they were like why

why is this chart pointing straight down up on the screen look like the uh fart coin fart coin chart in the last week yeah next panel was Dylan Pierce from the return stack was hosting, talking to a, what do we call it? A gaggle of advisors. Panel of advisors. Four different advisors. Brandon Arns, portfolio manager at WJ. Interests, which I think is a good name instead of capital or wealth or all this stuff. Homer Smith, he's been on the pod. We'll put a link back to that. owns Convergent Wealth Partners Rich Tuscano

and advisor with Pacific Capital Associates and Sanu Vargas Don't quote me on that Vice President Global Macro Strategist at Carson Wealth So this was kind of designed Hey these guys are actually putting this in practice Using it out in the field Let's get their thoughts

Which I thought went quite well super practical any immediate thoughts from you before I go through my notes yeah you skipped over lunch break which is always the favorite part of my day because I do to have those side conversations it goes back to I really wish I could think of that

Steve Jobs books on presentations but it's a very simple title but that was one hack I'll throw out there the other hack I'll throw out there is when you have lunch with like 100 people you know if they ask you any dietary preferences before even if you don't have any and it's annoying to have some maybe throw one in there because then you're your lunch gets set aside and people may take a little more care in making it so of course i did that but i think it backfired on me i think i ended up getting the veggie sandwich then because of that

but uh what did you say your restriction was i think it was just i just i want someone to pay attention to me yeah i just want somebody to pay attention it's like the green m&m theory right that's all i'm doing and then and then those those were set aside so it was easy to find mine but it was also weird that it was like your name and big letters on the uh on the box i wanted to take it just so you're like, wait, where are I going? Yeah. And then during lunch, I got to talk to the buddy Jim Carroll from Vixologist on Twitter X. You know, they're probably the nicest person in Ball's Face.

So it was great to talk to Jim. It's so funny. We've always tried to link up whenever I'm in Charleston area in South Carolina and end up running into him in Chicago. So hopefully I'll see him also next month in Charleston as well. But I had a great, great conversation with Jim during lunch. Just a reminder, like, that's the best part of these events is more of those personal connections and those side conversations that you get in during those interstitial moments.

So going back to the panel of advisors in the field of return stacking and practice, one it was obviously, you know, one of the things Homer kept pointing out was really the psychological effects of this or the sales side of it, not so much the portfolio construction. And what they've been focused on at Convergent that he's been focused on lately is also like saving clients that are selling their business on inheritance taxes, etc. and the amount of health you can get there as an advisor versus maybe the portfolio construction are two completely different things.

And that's the real value add. I think that a lot of advisors can think about is more the estate planning side than the portfolio side. Because as long as you're getting broadly diversified portfolios as Mab has shown a million times, you're going to get in relative bands of returns, but you can really make that difference on doing their estate and tax planning. But one of the other things that Homer pointed out

that you pointed out earlier is a lot of times when you have a lot of diverse client base as an RAA, you may buy in to like this return stack concept. But to get each one of those individuals to buy in is incredibly difficult. And we've seen this in practice a million times. But one of the things Homer pointed out was in 2002, it was great with clients for that quote unquote outperformance over like a benchmark 6040. But then since 2022, it's like, what have you done for me lately? Right. So if they've trailed it all in 2023 and 2024, 2025, that makes it an incredibly difficult to to clients because they conveniently or quickly forget how they were saved in 2022 by having

these diversified or un-correlator negatively correlated portfolios. There was a good point. I'm forgetting. I didn't write down, unfortunately, who exactly said it? But they were talking for a second about like, hey, even before you get to return stacking, there's return stacking like things you can do in your portfolio. So we've said, first of all, if you have a choice between a five-ball and a 10-ball program, right if like you're looking at two man's futures programs

once five ball one's ten ball choose the ten ball like you're getting free quote unquote leverage there free volatility and that's easy stacking you just choose choose that which I'll we're going to have 700 links in the

show notes the done just did an interesting paper of basically like you why you want high ball trend so it's kind of along these lines of like just saying I'm going to stack something it doesn't necessarily in a vacuum, doesn't make sense. The more volatility you have,

the less capital you have to put to that, and the more you can use that cash elsewhere and stack it. Well, I can't remember if you talked about privately, or you asked on the mic, but this is the thing we've been talking about a long time, even with institutional allocators, is that if I can give you the same program and it's a 10-ball or 20-ball or a 5-ball and a 10-ball,

you're going to pay less fees per unit of risk. And it's amazing how I don't care, right? Because it's more like the C-Y-A effect if everybody wanted low-volve. You know, we've seen in the last decade plus that everything's moved to sub 10 ball because that's what the institutional allocators prefer, whereas, you know, when you're coming up and we love our market wizards, you know, in the 70s and 80s, they were running 40 to 80 bowl, you know, and you can attenuate your allocation size accordingly, which you are saying is like, so you get

a better bank for your buck for lack of a better term and you get better usage of your fees and then you get better capital efficiency. And I think besides even what Dunn wrote about that, I think there was some great pieces more recently by flip fastness on hr go ahead throw that in the show notes as well it's just i'm just going to reference everything now so we get we have the show notes will be longer than the show um but cliff talked about too is like not only do you want that high vault you also want it in a in his references in a commingled fund right because you have all those protections um as an lp and a commingled fund especially if you're dealing with manager futures at high ball where somehow they

were to go into some sort of debit you're not responsible for that so i think that's just another layer of protection that people don't think about it's like if you can be in a high vol commingled uncorrelated strategy it has enormous multiple layers of value to you as a portfolio construction tool and then again a lot of this panel was spent which doesn't necessarily apply to maybe our listeners but how do you sell this to your board to your client to your RA to your wife I don't know what

who you're selling it to your husband who you're selling it to but a lot of that it just comes back to what I would just take it like ignore how do you sell How do you sell it to yourself? Like, how do you mentally, what is, they had a bunch of, what was the guy's example of, like, thinking about leverage when you're riding a bike in your cul-de-sac versus if you're riding it on the freeway, you're, like, doing the same thing, but two very different risk profiles.

And he's like, I didn't quite put together, which one's the leverage? But there's a weird dichotomy, though, too, of like, I think the simple way to think about it is the get-rich portfolio versus the stay-rich portfolio. And unfortunately, we've always maybe thought about 60, 40-year stocks is maybe the stay-rich where in the last 20 years, that's really been the get-rich portfolio. So now if you want to stay rich and, you know, we have times when, you know, inflation picks up or stock bond correlations go up, all of those things matter. But maybe that's

kind of the divergent part of selling or pitching it is that people that are pitching it are, you know, trying to convince their clients to stay rich when their clients still want to get even richer. And so maybe that's part of the process, too, that makes it so incredibly difficult to to really sell these programs to try to get your client just to admit they've been incredibly fortunate and now maybe it's time to shift

tact a little bit maybe do a 180 and try to stay rich The next one was requested that he, who shall not be named like Voldemort but he requested that he was not named

so we'll just call him a nice gentleman from a large pension one of the largest in the world top 10 um so a few my first interesting thing was he's turned out um a story which it feels like i've heard this story on dozens of podcasts of someone goes into a big pension or a big prop firm or somewhere and almost immediately as a young person is given some bucket of money to trade and loses it so part of me is like oh great you got training on the job but part of me is like what are these did the pensioners do the people the stakeholders know that their money is just getting thrown around and are is it

are the people in charge of that asleep at the wheel or is it part of their brilliance of like hey I can hone these people with real world experience with what's a rounding error on our hundreds of billions of dollars I don't think I you say it's more of that advancement of paper trading into a rounding error because that's what I was going to bring up more than anything is like when I talk to these some of these pensions are down it's as soon as you get over like $100 billion, you're in beta. You just have to accept it, right? And so a lot of them will talk about their active strategies, but those are on the periphery. I mean, some of the people there, we're talking upwards of almost a trillion dollars. So the idea that you're going to have

active strategies and you're not going to be passive beta, which essentially is like Norges Bank, the Norwegian sovereign wealth fund, it's like just accepting that. Because, you know, your active strategies in maybe less liquid markets, obviously are going to be severely capacity and strain. So, you know, you're talking a matter of bibs around the fringes. Does that really help at that level. And then even when they call me up to talk about volatility or tail risk strategies, at those sizes, once again, it's incredibly difficult to hedge that. You got, you know, you can't do that necessarily listed markets. So you're now going to have counterparty risk. Are they going to pay you out appropriately? Can you swap it, you know, like do a cash sweep on a daily

basis? There's like, there's so many inherent problems of once you get over $100 billion that when you're getting closer to a trillion, like it just accept it. Your beta. It's fine. And maybe you can, yeah, stack some betas. But even getting leverage is going to be. incredibly difficult because who is the counterparties to that leverage. And I think in this anonymous talk, there was some talk about, like, they can't even really move the needle, right? Like, no matter how much to persecate, basically what you're saying, which brings me, do you think CalPERS, right, when they, was it CalPERS who famously ditched the tail hedges?

Like, was maybe that wasn't because there was a line item. It was just someone there was like, hey, this doesn't even make sense. Like, even if we pay out on this, it's not going to move the needle. yeah the it could be that because we weren't privy to those conversations so it's easy to villainize them or and villainize that CIA when it happened the only thing the counter argument to that would be he only cut one of his tail risk programs they had two so he cut one of them and kept the other one so who knows what those conversations were necessarily like so they actually people do forget or don't know they actually made some money on a tailors program with the manager that we know very well um so that's part of that story too once again i i don't speculate what happens in those private rooms um than it's a Rorschach blot for everybody to put their hopes and dreams on. One of the other things I want to bring up with pensions that I've seen lately, too, as this is now you're starting to see this new nomenclature, the total portfolio approach. And once again, it's like, meet the new boss, same as the old boss.

Like all of this nomenclature verbiage changes, as you know, as we went from, you know, tech companies where it's like fan mag to like, they're always, the acronyms are constantly changing. But the newest one that you're going to hear a lot from pensions and endowments to the total portfolio approach. To me, it still seems the same as the Yale Swenson model. It's just they don't have buckets anymore, right? They're still doing broad diversification across asset classes, et cetera, but they don't have a hard and fast rule of like this has to fit inside this bucket, which is always actually a big problem, talking to some of those institutions, if you ran a different strategy and they didn't know which bucket to put in, they'd automatically kick it out.

So it's nice that they're not, I guess, strictly adhering to those buckets, but I can see the portfolios essentially look the same as the Swenson model. But I guess at the fringes, they're allowed to move the needle here or there without having to convince their board that there's any sort of portfolio drift outside of the specific asset classes. But maybe I'm missing something on the total portfolio approach. But it seemed pretty much similar to what they've been doing before. Just they're kind of removing some of their own shackles, I guess, a little bit.

But still kind of the same thing. And there was some interesting talk at the symposium round of using a, like, an 80-20, call it stock bond just for not that's an actual allocation like to what you're saying okay we have the classic structure but that's just to give us a risk that's what we want our risk profile to look like so that's where our risk assets are even though underneath there we're just going here there everywhere total portfolio approach but we can and you know that's basically like give me equity risk with or lower than equity risk with equity like returns the last one was with one of our favorites, Rockston.

I wrote down on my notes here. Has Roxen ever been in a room where everyone in that room understood what he's talking about? He just goes quickly. He speaks fast and he's as smart as it gets. So thoughts on Roxanne as I pull up my other notes here. Well, one other thing is like

when you're referencing something you want to say about the previous talk, and then also Roxen also had another panelist on this and Corey was moderating but for obvious reasons some of these institutions don't want it out there publicly necessarily what their managers were talking about which is another reason to be in these rooms

to go to these events like this and that way you know whether it's Chatham House or rules or people just don't want to talk about it at all this gives you insights to be in those rooms where people are at least allowed you know talk more freely than they normally would so you can probably get some better insights and then do those like I said those follow-up questions

Roxton obviously I can list to Roxden all day we think very like-mindedly I appreciate how he talks seeing how as you know I listen to things at two to three X speed so he's Roxon's like Taylor Built for me loved the podcast he's always done with Corey in the past and he so he was talking about orthogonal return streams instead of necessarily uncorrelated and so man after my own heart he was talking about correlations it's hard to figure those out because obviously correlations are conditions especially during liquidity events so therefore you shouldn't maybe rely on on correlations as much but if you have orthogonal strategies which is probably just a fancy way of saying uncorrelated but

you think through the return driver of that orthogonal strategy it's more like combining those or orthogonal strategy but at the same time man after my own heart doesn't necessarily believe in alpha and he said even those orthogonal strategies are just undiscovered beta um so eventually we'll write those down as beta i mean you know you can argue that basically basically, you know, that even Warren Buffett was just a factor investor, right? You used the low-volve factor and he leveraged it up 1.6 times, but discovering that before it was a beta and running it for 80 years is a superpower. So I think, you know, we can get maybe too much into semantics. Is it alpha or beta or is it just undiscovered beta? It doesn't really

matter. Is you just want to try to, you know, put together a portfolio of as many orthogonal return streams as you can. Which at the cocktail hour, the aforementioned Jim Carroll was doing, he's like, he's basically saying an orthogonal is a 90 degree edge, right? He's like, wait, if I have this one and this one and this one and this one, and this one, don't I just have a circle? He's like, do I have nothing? Which I know you and Corey have debated in the past, right?

If you have, what's the point of diminishing returns? If you have so many orthogonal non-correlated return streams, do you basically just get the risk-free rate? and maybe that's not a bad thing because if you lever it up and you get right well as as was talked about on many of these panels it's probably the risk free rate plus right so hopefully you're getting plus two to three hundred bips but then you know exactly what you are over that risk free rate and then you can attach any sort of leverage or capital efficiency to it and this is essentially what the pot shops do it right if you can consistently produce you know two to 300 bips over the risk free

rate well then you can use swaps at banks or you can use managed futures um to use better capital efficiency to toggle that to kind of whatever return profile you want. And then it can be arguable, too, if they're truly orthogonal or uncorrelated, you could also harvest a little bit of rebalancing premium, whether that's over calendar rebalancing or threshold rebouncing. That will probably add some bips, and it can be arguable how many. And so that's what you're doing, right? And I think that's just a much more rational and reasonable way to look at it is, you know, you're just trying to get a couple hundred bips over that risk-free rate, which, which will be probably a couple hundred bips over inflation.

And that's what's really going to protect your portfolio over time. And then by including as many orthogonal or uncorrelated strategies as you can, you'll hopefully reduce, you know, increase that sharp ratio, increase that mar ratio, reduce those drawdowns and those downside variance as much as you can. So you can hold it during times when everybody else is panicking. But I think that's a pretty resilient or simplistic way to look at it. That makes a lot of sense to me. two other things here.

Roxton was going super deep on plan dynamics in the beginning of like, well, this investment won't line up with that plan sponsor's views on this and this is how they get their bonuses. And so it's like for sure three-dimensional chess at that level of tens of hundreds of billions of dollars pensions and endowments. And who are the stakeholders? Who's getting paid what to do what?

Which is why I think that's when I wrote down of like nobody in here maybe knows or cares into that detail. but he just knows it off the top of his head. He was just ripping on it. And then two, they echoed one of my favorite concepts, right? Of like, it's not just enough to have statistical non-correlation. You need to have what I call fundamental non-correlation. I can't remember what their term was.

But, you know, orthogon, like, these need to be doing different things. Like, you can have, you can end up with a portfolio of all trend followers that have non-correlation in each other. Probably not trend followers, but maybe long-short equity managers that have non-correlation. to each other but when things go bad those correlations are more likely to go to one so um as you said nice to be a echo chamber and hear what i want to hear from them yeah and i'm sure you maybe we'll get to it next but after that we have the happy hour too and so rocks and i um we'll pull each other side and go a little bit deeper dive into even figuring out those orthogonal strategies or like

how do you look at that matrix or orthogonal strategies um because shout out to adam butler about the three body problem that he loves so much is like as soon as you have multiple orthogonal strategies, you know, how orthogonal are they to each other, right? Now you get a whole different matrix of, or morass of problems that you're running into. And we talked about different ways of ranking those off of, you know, information theory, you know, entropy, copulas, you know, but at the end of the day, you're still using past performance to predict future results. And it's still kind of finger in the air. And you're just trying to use probabilities statistics to build the best portfolio you can. And then, like you said, you need this fundamental overlay of what's

the general return driver and you know basically risk on risk off which is you know how the way you think about it's like you have offense or defense or the four quadrant model outside of that they're probably going to be highly correlated to each other within that framework um so maybe max you can get is two either offense defense correlated uncorrelated or maybe four given the four global macro quadrants at best and then i think it was roxton noticing he was just going deep of like yeah and we had a hundred million in profits from such and such tail hedge but the bank said no we're calling force major on COVID and we're not paying this out and he was like what the so it's just like literally you can't learn those lessons unless you're in the in the arena

yeah and that as well it's gotten better and it hasn't um so I was having this discussion actually actually after Roxanne mentioned that is another friend in mine in 2008 he made billions of dollars for clients in the tail risk catching right but it was all counterparty risk across investment banks and he was able to get his money to his clients but it took upwards of 18 months for the negotiation lawyers involved and everybody to get that settlement. So it's kind of like, to me, it's like FDIC insurance. Yes, it's say you've got $100 grand at the bank,

it's FDIC insured, but if the bank goes under and those assets gets frozen, how long is it going to take for you to get them back? So once again, time becomes your absorbing barrier and maybe I think people forget about that a lot. And luckily, like, you know, we've talked about these counterparty is does these days with, you know, cash sweeps on a daily basis.

So that's gotten a lot better. But I don't, you know, do worry that they'll figure out a way to screw the client in the end in the future, too. So there'll always be a novel way for them to make sure they don't pay out in any sort of timely manner. And quite frankly, even, you know, you and I argue about this, but the list exchanges, you know, could have some sort of cataclysmic event that blows out through all of the collateral and everything. But those are too big to fail. But the question is, if something does happen, how long does it take for the government to backstop that and how long until clients are

made whole? So, I mean, these are all things to think about, because, you know, time can be one of your biggest absorbing barriers depending on what your liabilities are. And then I asked, I think I asked a question on every panel, so I didn't disappoint on this last one, but basically said, which I want to get back to one of my other questions as we wrap up, but in this one I said, hey, all day we've been talking about adding these non-correlated strategies, right? Alpha matters, it helps, blah, blah, blah. But really what's happening outside of everyone in this room and everyone into portable alpha and return stacking, what's happening in the whole rest of the world is people are adding

correlated strategies. They're doing option overlays and covered call strategies and buffered notes and stuff which are basically just using the same equity index derivatives. So I can't remember my exact question, but I was like, what are your thoughts? Is that a problem? Is that a type of

portable alpha in Roxston? It's like, I don't want to be controversial. And then went into a five-minute tirade on how buffers or BS, just do less stocks. What are you doing? They're not going to protect you in the downside, like yada, yada, yada. So that was refreshing. And got me quick thoughts on them?

Yeah, I think even the guys that resolved for Returns Act, even years ago, I think they wrote a great paper and essay on it, or they've talked about it as well. I was like, just, you know, regress a buffered note to 60% exposure to equities. I mean, that's or any sort of call overriding, et cetera. Like those kinds of things, that's all it is is holding less equities, which is essentially what 6040 is, right? the you know almost you know 90 plus percent of your risk is in the equity bucket um so i think that's what

you know sometimes and and maybe we're we run afoul of this too is a lot of times maybe you don't have to use derivatives or options or um more complex strategies to um instantiate the trade you're looking for in a very simplistic manner and sometimes occum's razor is the best and maybe it's just holding less equities yeah i've our old pal uh ben ifer used to say that a lot which I've actually incorporated in my own trading. I used to sell a lot of covered calls against some of my positions. It's like, no, just if you're worried about the exposure, just sell some of it. Sell 10% of it.

Sell 15%. Then get back in. All right. Wrap up. Somewhere on my many pages here. While you're trying to find out, I'll jump in the one. I was, you know, maybe even thinking more. again today is

Corey's always being so good with me with thinking about this is especially because they deal with a lot of RAs and we

work with some RAs but it's not necessarily our wheelhouse is providing them with that client's 6040 portfolio but allowing them

to return stack these hopefully uncorrelated strategies on top of it but more importantly is like highlighting to me how important it is

that it's long short portfolio is all the way down is what he's always said is like if they have to sell some of their stocks and bonds to buy

this incredibly difficult for the client, and that makes the pitch even harder. So you just replace their stocks and bonds and offer a capital efficient way to get these on correlated strategies. And so I'm thinking about it even now, like, you know, that's when people keep it up with the Joneses, etc. It's like you really, it's a spoonful of sugar helps the medicine go down. Maybe you have to give them that 60, 40, or maybe now it's 80, 20, given that portfolio, but then use capital efficiency to stack some uncorrelated strategies or orthogonal strategies on top of it. And we're seeing it even now, maybe, you know, I think you want to, maybe we'll talk about gold a little bit.

But once again, it's like, if you want to add gold to the portfolio, it's a nice overlay, not necessarily having people sell off some of their stocks and bonds, especially after a run-up. So my thought was kind of equating your thoughts. I wrote down big takeaway. Nobody wants to sell equities. So that was one of my earlier questions. And then one of the panels that do you think this is, do you have any math? I think I was the first panel because he had all the math in church.

Do you have any math that's showing how much this is added to the equity bid, so to speak? right if portable alpha is growing as you just said those clients don't want to sell down the equities so they don't have to sell it down to buy the alts is that driving equities even higher is that a self-fulfilling proposition well like to your i think it's i'll use one of your other arguments against you like when you've looked at the the size of commodity trend followers or specifically yeah they think the cta space is like whatever number they threw out there like half of that number historically has been like bridgewater so like that number is just in the few hundreds low hundreds of billions? What do you say? Like maybe 200 billion max right? Well, and that's out of that's the whole

CTA and the ones that are overlaying portable alpha and giving people the stocks and bonds or giving them MSCI world. It's even smaller than that. And so, you know, maybe we get in that echo chamber that room, but we don't realize how how small we are on the periphery. But I think you're right at size. It does add to that bid. And it's almost similarly to Mike Green's passive theory is like it's a constant inflow to be buying more equities. That does affect the markets a little bit. But I think it right now we're at the size where it's not even near being consequential but it sort of raised my alarm bells of like if everyone's right if nobody wants to sell equities is that a good or a bad thing it seems like a bad thing it seems like a danger because then everyone will want to sell them at the

same time or no or are we creating a whole new type of investor like no you never need to sell equities it's fine well it seems to be the zeitgeist of the market right now so we'll see how long it all right that's all i got on that while we have you any thoughts of what's going on in the world gold at new all-time highs um well it's actually been scaring me how much back a little bit yeah how many text message etc i'm getting about gold um which i don't know if that's the old shoe shine boy or the cab driver i'm talking about gold but even i was at a a private event a few weeks back and a guy was talking about he got all of his kids to you know they're in their early 20 starting out their journeys and their working life and he was getting to put all their savings

is in gold, 100% gold. And, like, you need to bragging about, like, you know, it's 2x than the last year for them and everything. Yeah, wait until they have their first 30, 40, 50% drawdown in gold, which you've seen a million times. It's like, then they're maybe never going to invest in gold again because they got burned on their savings side. So I just thought, once again, it's just like 100% in gold.

Like, that's an awfully aggressive strategy. Obviously, we're thinking about portfolio diversification, especially against what I would consider your stable coin or your savings. Maybe that's not the best scenario. but like it is concerning but at the same time those that are calling for her top in gold and you've seen this minute it can run on a lot longer from here.

Yeah. And I know you love to play macro tourists but yeah. Joking. Well the reason gold's going up is because X, Y, Z. No, I've stated before I've been long, wrong, wrong not long, wrong on gold for years and years and years. I just, I don't get it.

It's just the classic, it's Bitcoin version one. point out. It's only going up because people think it should go out. I mean, I've kind of come around to who cares then. If that's, if that's the game, who cares? Get in the game. It's like placebo effect. Like I argued in this room a few weeks ago, it was like, is gold just a lindy effect? Like, it's just been around and people thought it was money, had some moneyness for so long. And that's what you're betting on, right? What's worked for 2,000 years is going to continue to work. And we don't know if Bitcoin

becomes the new digital gold. But once again, it's like, who cares? It's placebo fact. And if the psychology of the masses are to go to gold, then maybe that is it. But then like you're saying, what is given this recent price rides? I don't, like, the other thing is if you study gold for long periods of time, it maintained your purchase power parity over the centuries, but any year or multiple years or decades, it can disappoint you. And it has that lead lag effect, like the bullwhip effects like we have with supply chains that we've learned to quite a bit about during COVID. And so that's the other thing. It could be, you know, they're like gold hasn't, you know, allegedly if there's all this inflation from COVID into 22, 23, they were like where it was gold

and then now it's jumping out from behind the curtain. Maybe that's a lagging effect. I don't know because once again, you're basically creating horoscopes and where you can match any of your Rorschach plot over that and use any sort of global Mac or narrative you want. I used to read my horoscope when there was newspapers. I miss that. That's how I trade, right? It's just whatever. Any other thoughts? Why we have you? Anything? any splinters in your mind yeah yeah a couple of things when besides all the usual yeah the week before us that private event all the talk was about AI more so than even gold and it just reminds me that in real life is going to become

more and more valuable and there is something about being in the room with all of our a lot of our friends a lot of a lot of new faces and just being able to have those little conversations put a face with a name even if it's only five minutes here or there it's incredibly more valuable to make those connections in real life and I think that's going to become more and more valuable over time. And we'll see where these guys take it. If you're listening to Rodrigo, the next one's going to be 5,000 people. You know, if you listen to Corey, the next one's going to be a tight 50 and, you know, behind a rigorous process.

So we'll see where these guys take it from here. But obviously, it was great for us, but obviously a lot of confirmation bias and a lot of like-minded thinking. But I'm trying to put a positive spin on confirmation bias, because that's what you're saying. like in today's world how do I know all these podcasts all these blog posts on all this isn't just AI BS like it's good to hear people are actually doing this

who actually save this pension or actually doing it in institutional settings or doing it in RA settings like hey we're actually doing this it's giving people the outcomes they want so yeah long live humans I'm watching the Alien Earth

series right now on Hulu it's insane it's great like ignore the alien creature stuff and there's this whole subplot about like in the future it's going to be humans cyborgs which are humans with like a knife for a hand or whatever like enhancements and uh hybrids which are like they've put a human psyche into a synthetic body and then full on like androids full on robots um and that would be the battle so we fully digress but But I kind of like that. I can see the world going that way.

Well, like we said, we always hope with the best hedge fund managers now and that nomenclature would be like a cyborg hybrid, right? We use technology as much as we can, but then you still need the creativity of the human element. And maybe one day that will get computed away too, but we'll see. For the time being, it's good to be able to use both.

All right, ma'am, good talking to you. We'll see you shortly, talk to shortly. don't go changing all that good stuff thanks you've been listening to the derivative links from this episode

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