The Derivative - Podshops, Prices, and Physical Flows: A Commodity Trading Framework with Stephane Bernhard of CAM/ETG

Episode Date: April 24, 2025

In this episode, we dive deep into the world of commodity trading with Stephane Bernhard, CEO/CIO of CAM Multi-Strat Asset Management. Drawing from his 30+ years of experience starting at Louis Dreyfus through commodity trading house ETG, Stephane shares how commodity trading has evolved from pure fundamental analysis to today's complex intersection of physical, financial, and systematic trading.The conversation explores the world of commodity houses and physical trading of commodities, before diving into CAM's unique approach to building a commodity-focused multi-strategy fund that bridges physical and financial markets. Stephane details their innovative risk management framework that gives commodity traders more flexibility than traditional pod shops while maintaining portfolio stability. You'll hear why VAR doesn't work for commodity risk management and how they've developed an anti-fragile approach to drawdown management.Throughout the discussion, Stephane weaves in fascinating historical perspective - from his early days in the Madrid sovereign debt crisis to parallels between the end of Bretton Woods and today's shifting monetary landscape. Whether you're interested in commodity markets, multi-strategy fund construction, or the intersection of physical and financial trading, this episode offers unique insights into an increasingly important corner of the investment world – SEND IT!00:00-01:06 = Intro01:07-13:42 = Commodity Trading Houses: Bridging Time and Risk in Global Commodity Markets at Louis Dreyfuss and ETG13:43-29:50 = Commodity Trading Dynamics: Navigating Physical Footprints, Basis Risk, and Market Complexity29:51-40:51 = Constructing a Multi-Strategy Commodity Trading Platform: Exploring ETG's Strategic Vision40:52-53:29= Commodity Market Dynamics: Weather, Volatility, and Global Supply Chains53:30-01:13:51 = Risk Management and Trader Psychology: Mastering the Art of Commodity Trading01:13:52-01:29:34 = Lessons from the 1971 Gold Standard: Adapting to Historical Market ShiftsFrom the episode: The Secret Club That Runs the WorldFollow along with Stephane on X @TCS_Trader and LinkedIn, and be sure to check out ETG and CAM on LinkedIn as well for more information!Don'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

In commodities especially you go from underinvestment to overinvestment and typically periods of low volatility are followed by periods of high volatility because of underinvestment. I think that's a real theme in commodities in general which has laid the ground for what we've seen for the last few years and I think it's actually only starting. Welcome to the derivative by RCM Alternatives. Send it! Hi this is Stéphane Bernard. I'm the CEO, CAO of CAM Multistrat Asset Management, part of ETG Group and I'm here to talk about commodities, for-shops and more on the derivative. management part of ETG group and I'm here to talk about commodities, for

shops and more on the derivative. Thank you, Stephane. Now let's start. What's the proper pronunciation? Stefan, Stephen, Stephane? I'm Stefan. You get it all? You got it. And you, we were just talking before we started, you're in a hotel in London, but where are you usually posting up? Yeah, so I live in Paris, but we have our headquarters, ETG headquarters in Amsterdam,

in the Netherlands, and I spend a fair bit of time in New York where we have the headquarters of our asset management firm commodity asset management and we're based in in in New York on 6th What's it like living in Paris? You know, it's always it's been it's I've lived outside of France for 20 years, a long time in Spain, in Madrid, and when my kids were at the age of getting to university, it was the time to get back to Paris. But I must say, it's been very exciting. You know, this city has something special.

So, yeah, enjoying it. Now, I'm torn whether to come visit you in Paris or in Amsterdam. I've never been to Amsterdam. I've been to Paris. Yeah, well, you know what? Amsterdam is a really lovely city. I actually listened into the post you did with the founder of Trondstrand, which I think is interesting.

Yeah, we're doing like a tour of Holland here. Yeah, I can see that. And he was mentioning that Amsterdam is the place where the Dutch people spend the money. And that's true. It's a very long. Do you know him personally or no? No, unfortunately not. It's really something you need to organize, maybe for you.

Is there Amsterdam versus Rotterdam? Is there like a. So, you know, in the actually in Rotterdam, you got really the commodity hub, the historical commodity, many commodity firms are there. And I guess Amsterdam is more the, you know, the tourist city. But... So, yeah, let's start with a little bit of your personal background. And then we'll dive into what you're doing on the

commodity side. But yeah, how'd you get into this crazy business? Yeah, so I actually started my career as a fundamental grains and ulcis trader with Louis Dreyfus in 94. And I was very lucky to start in Paris in that firm learning, you know, surrounded by a lot of talented people. In a moment that was quite special, the mid-90s was a period where, you know, you still had in those places big firms, an information edge. And so it was really interesting to see that. And at the same time, it was the start of a transition in the commodities world. And that then pushed me into looking into many different ways into commodities, not only the supply demand driven fundamental view, which was the backbone of what I learned

in Dreyfus. So it's been a very interesting period. Was Dreyfus mainly cotton still at the time or they had expanded? Cotton was very big with Jornico Si obviously, but it was grains in all seeds, you know, and the very big and great in all seeds actually bigger in terms of size than in cotton. But cotton, yeah, sugar, coffee, so all the ads really, and then the group diversified in other stuff, including energy. And it was a very lively place. And I was with them between 94 and 2007. And then I was doing a bit of a round.

I started in Paris, then I was in Germany, in Hamburg for a year. And then they sent me to Madrid as the head of trading for the office there, that was in 98. And that was really super interesting because that was a very big office, very complex, trading many, many different commodities, agricultural commodities. And as I say, that was at times where things changed quite fast in those years. And that's when China came in in our market, in the commodity markets as being a very big factor and as well CTAs.

CTAs started to really be very important in agricultural commodities at the end of the 90s. And then I think one of my best experience back then was actually for two years to be in the dry bulk freight, which is probably one of the most exciting commodity in terms of volatility, complexity. We have a very strong team back then, we drove first and there it opened my eyes to the macro really and coming with a different angle to commodities. One of the most volatile markets too, right? Yeah.

What was the average volatility of that? You know, you know, I mean, still today. So what happens in freight is that you have to nearby that the cash positions that are extremely volatile for Cape sizes, you have daily moves of 20%. And then the curve is less volatile, but still it's very trendy, very volatile. So Cape sizes are most volatile, the smaller sizes are less volatile, but grain houses and freight traders, they typically trade in the so-called Panama size, which is the maximum size that vessels can cross the Panama Canal and Cape sizes, which are able to go around the Cape.

And those sizes, you have to be learning risk management, really. It's about, you know about risk management and respecting the volatility market, which is always a good thing to learn as a commodity trader. And the idea there is that next week I might decide I'm not going to make that shipment or whatever and the price is very volatile on the short term versus longer term. We know we're going to have to ship this stuff eventually. Right. I think the longer term, it's very interesting. It's been used historically and still today by macro trader and directionally driven people that express a macro view for

freight. You know, we always mentioned Dr. Copper as being the commodity that reflects more the macro environment. Yeah, Dr. Copperra is important for us to understand macro, but probably freight is more so in my view. It really reflects where the tension in terms of global flows and what the world needs and do we have enough transport to respond to the growth of global commodity flows. And so freight is a really,

really interesting. I learned a lot in that those years and we are actually still trading it quite actively. Nice. And I can't let you go on Louis Dreyfus without mentioning for our listeners who don't know that in America, the Louis Dreyfus name is famous from Julia Louis Dreyfus. But she's the heir of that fortune, right? She's related. The daughter of William that was the chairman and major shareholder when I started my career there. Yeah, did you ever meet her? No, no, no.

Other members of the family, but not Julia. Yeah, so all you Seinfeld Veep fans, she's a commodity, old, old, old commodity money. Never had to work a day in her life probably, but she's done well. All right, so you're Louis Dreyfus then, where'd you go? Then I've been, you know, I was 37, had quite a bit of an active career and then I thought, you know, it's time to do something else. For seven years, I wasn't working for anybody. I was really running my own businesses, investments as a business angel. I was living in Madrid back then, 2007 to 2014. It's been quite a rocky period in the history of Spain with quite a bit of, you know of almost a depression really.

And so it's been a very steep learning curve to be an entrepreneur in that country in that time. That's like the sovereign debt crisis and huge like 30% unemployment. What did Spain have something huge? It's been huge and it was really on the bottom for an over leveraged banking system in Spain back then. And you know, some things that are still today,

the Germans not spending enough money, but happy to lend to Spanish banks that were over leveraging the property markets. But the burst of that was quite intense. And there again, you go through very interesting periods. As a macro trader, commodity trader, you recognize some tensions there that can be helpful in your decision making. But nevertheless, in an environment like that of a depressing economy, it's been a challenge being an entrepreneur. And then by 2014, I had to get a job again. Not being extremely successful as an entrepreneur. And, and came back in the commodity industry as the managing director of in vivo trading in vivo are the French agricultural cooperatives, quite a big entity.

And there I was running the trading arm and was a very complex space, very different from my natural space, I would say, you know, cooperative is a different setup than a commodity firm or a fund. And so I brought a lot of trading skills, I guess, and risk management, and we tried to turn this thing around. It's been quite intense, learned again a lot. But the most important thing I learned that that's the only thing in my life where I was not a full-time trader or a trading manager.

And being a CEO was something that was very interesting. But that I think the biggest learning for me in this period was that I realized how much I was missing trading and the love of trading, the process. And so when I left in 2019, that's when I had a great opportunity to join forces with with an ex-Louis Dreyfus colleague, who is the CEO of ETG Commodities. And ETG Commodities is part of ETG Group, a conglomerate that is with African footprint. And around 8,000 employees in 42 countries are active in fertilizers, seeds, logistics in Africa, fast-consumer goods, speciality commodities that don't have a futures market. They're relatively attached to them like

cashew nuts, those type of specialities. And then the commodity division that we run. So we run, so our CEO, Ronald Jett and myself realized we share a vision when we met in June 19 and we were very lucky to have our shareholders that fully back that vision. An ETG group is, it reminds me a lot of Louis Dreyfus, you know, all shareholders, they are traders themselves. They're deeply knowledgeable in trading and risk management. And another thing that is interesting, this group, 35% of the group is owned by Mitsui, the huge Japanese conglomerate. And that brings a lot of structure as well. So we have, in my view, a bit the best of both worlds, having shareholders, majority shareholders that are traders reminds me again,

a lot of the redifes genetics. Um, and at the same time, I'm it's we, and you need to G it's really been fascinating, you know, because it's, um, we trade all the commodities, you know, agricultural commodities, industrial metals, energy freight, and we highly diversified. Uh, but our edge is Africa. And out of that vision was to say, how do you connect global prop trading, so derivative based with physical footprint and what's the synergy there from the bottom up from the physical into the derivatives and derivatives into the physical to take the best decision in terms of risk for the firm and and that's been five years

Back up for a second describe whether it was Louis Dreyfus or right people are familiar with Glencore and some of the big commodity chain firms like what what are they trying to do right everyone here is commodity trading but in our world people are trading on the screen and getting in and out of corn futures or options but what are these commodity houses trying to do at the end of the day? At the end of the day you know if you really think about that, those firms, they built a bridge in time between commodity producers, whatever type of commodities and industrial end users that need the commodity and why I'm not saying bridging in time, agricultural commodities

get harvested during a short period of time and then they need to be supplied to the global market every month, obviously, over the year. Before they spoil or what not. Yeah, and then even for industrial commodity, it's the same story, right? If you have to give an incentive to producers to pull the art, refine it, and then bring it to market. And those commodity firms, what they do, they take decisions based on their assessment of supply demand and in a way build that bridge in time.

And without that bridge in time, you know, you don't have the ability for producers to sell when they want to sell or to, you know, to secure, to secure their margin. And at the same time, you wouldn't have the ability for industrial users to get a coverage of commodities that are not even produced yet. Yeah. A bridge in time. that's the first function. The second function. So, and real quick on that.

So there that's the forwards and just contractual, like, okay, I'm letting you buy this that hasn't been produced yet. Forward in time. Here's what our pricing is going to be. Absolutely. And then so they have huge risk based on that alone because if the price spikes and they've locked in here so now the game is to manage that risk. Absolutely. So that's where derivatives come in place or those commodities as you know very well Chicago Board

of Trade was created on the back of agricultural commodities and the derivatives market, the roots of derivatives market, it's not the standard impulse 500 or bonds for that matter, right? It's agricultural commodities because you need those derivatives to hedge and to manage the risk of those inventories or for what contracts that you sold for for commodity that isn't even produced yet. Right. Yeah. The bridge in time, it's critical function without those commodity firms. The world economy could not function. And then the second function is a financial. I mean, you know, you're financing inventories, you're financing, you take risks on, on counter parties, and you have to know both producers and then users.

And so there's a financial risk that is requires a fair bit of complexity and expertise. You deal with difficult countries, different currencies, regulations, regulations, absolutely. So that's great to me. And it just popped in my brain of like, wasn't Bitcoin supposed to solve all this? Right? Like the blockchain of because to me, it's like, why don't some of these largest producers and maybe they do, and I think they do go direct to the right or the largest consumers, Alcoa or something I'm thinking of, I don't know if they have their own aluminum mines or what,

but why don't they go straight to the producers and cut out these commodity firms? Because the probability that when Alcoa wants to secure its aluminum matches precisely the moment where the producer is willing to sell is very low. That, you know, so the commodity firm in the middle takes a view and creates that bridge. So it can make some market, right? It's like a big physical market maker, essentially. In a way, yeah. Plus, all the risks attached to them, again, it's the price risk that we've mentioned, the financial risk, and then the logistical risk. You still move mentioned the financial risk and then the logistical risk.

You still move commodities that are physical goods and the complexity of storing, transporting, you know, it's an expertise by itself. So those are the different elements. And many very often in the commodity business, when I started, you actually start your career by spending a fair bit of time in the logistic department and the operational department. You have to know your contract, you have to understand the logistical footprint. So it's a very interesting space because it's multi-dimensional and for a risk taker, I guess it gives you a different genetics than if you start trading effects or bonds, where in a way you're in a world that has a certain dimension.

If you start to carry in the physical commodities, one of the things that I find is useful is that you have to think in multi-dimension. You cannot just focus on one single dimension. And that's been, I've seen very good commodity traders, the best commodity traders are people that have been embracing those multi-dimensional aspects of the commodities. Which is odd because you'd think it's simpler, right? Like, oh, they're just growing this grain and you buy the grain and ship it here and it's like a simpler thing than owning a stock or analyzing future cash flows or whatnot. But I think everything is complex. You cannot, you know, I'm not making the statement. It's more complex. I think what it is, it obliges you for certain

plasticity, mental plasticity, and because you have so many dimensions to take into account. And you're saying like the trading house also might be right, our alcoa example, cool, we did this contract, we owe them this aluminum, right? You say it better aluminumium. However, I say that in my European English, Now there's a trade there, like, okay, I could deliver it from this hub and pay X. I could deliver from this hub and pay Y.

Y is cheaper. Now let's switch around all the logistics. So the logistics becomes part of the trading as well, right? Not just we need to get it there because we have this contract. How do we get it there as cheaply as possible? That's what some, you've probably heard the story of those soybeans cargo that have been shipped from Brazil to China.

And by the time they reach China, they've been sold to a few times. And why is that? It's because when you have a commodity book, you create optionality and you actually acquire optionality by having sales purchases. Then you can start to turn around and depending on what your derivatives do, certain commodities, then the basis risk is very high, but the basis is an optionality. So yeah, it has that multi-dimension that is, and still today, you know, we probably will get back to that, but in the derivative space today in commodities, you know, the impact of the physical distortion in a way in price discovery is still sometimes the most important driver of price. Not always, you know, sometimes the physical side. And I think it's what the vision we had with

the ETG is to say, you know, how do you connect that, right? How are you able to both understand the financial side of derivatives, what screen traders would look at, but at the same time understanding when the physical may be the main driving force or not. That I find is a very fascinating. You think those are the three big basically supply, demand, transport and financing. Those are the three big movers, price movers. No, that's only on the physical side.

Right. So price moves globally. I would call that the cash. So within what moves the cash, those are the three elements. But then on the overall price discovery on crude oil or copper, you have the physical, but then you have all the rest, right, which typically screen traders would track and, you know, macro, the dollar, sentiment, geopolitics, sentiment, geopolitics, and CTA systematic strategy. You have all those drivers. And what is very interesting in commodity, I think that's the difference. If you trade stocks,

at the end of the day, if you think about it, you have to have a micro expertise on that particular stock. You probably have to have a view on the sector. And then, OK, the macro, you know it can have a systemic impact, but you could be a stock picker and still hedge out the macro for the index. Or at the very least, you just take the macro as your background picture, but you can trade your stocks just focusing on the micro. The problem with commodities, again, is that sometimes it's the physical, the micro, the idiosyncratic variables of the commodity itself that drive. Sometimes it's totally overrun by the dollar or geopolitics or actually CTA. CTAs are friends from TransTrend.

Those people can have a very significant impact on, especially in turning points and acceleration points. You cannot really separate them, I think. Last bit, then we'll go into Kam, how directional is ETG or any of the larger firms as far as you know, like how much directional risk are they actually taking on or do they prefer to have zero directional risk and just earn the spread when they can? In an ideal world, those firms and for many of them, you know, if you look at the biggest so-called ABCDs in the grain and the traffic, Mercury, Vitol, et cetera, you know, you would in an ideal world,

they would like to be able to hedge out their direction risk and capture those relative value and, you know, cash to carry, for example, or just secure their industrial margins, conformational storage, etc. That's, I mean, that's the ideal world. Now, the real world doesn't allow you know, you don't have the luxury. It's too hard, or it's too quick. It's too all the above. It's too hard or it's too quick. It's too all the above. Yeah, I think it's, you know, you have to have a view on the market and be able to express it to bring down the risk to acceptable levels that are, you know, that fit the mandate that you get from your stakeholders. But the reality is that so many firms, they just try to pretend they don't trade. That's, it's not the reality. The reality is that you have to take a view

and you have to manage risk manage by using all the possible tools. And that's why, you know, at the end of the day, for commodities in the derivatives space, hedges and the commodity firm still play a big role because you cannot do without the risk management. And so I would say it all depends which firm to answer your question. And some commodities allow for lower price, directional price exposure. Take for example, coffee. Last year was a very special year of direction in coffee, but for many years, because there's been a downstream effort with quality and sustainability, et cetera, et cetera, you

came to a point before the rally last year. And probably that's one of the reasons as well why the rally was so intense, that the basis, volatility on the basis or the size of the basis compared to the total price was quite high. And I think what we see the last few years, what I find very interesting as well is that there is a bigger, the convergence of the physical commodities with the derivatives is has lowered. So what I mean with that is the world got more complex and that creates a very interesting environment as well if you position as is come on trading purely derivatives.

You know, if you want to get an exposure on derivatives in commodities and you don't have the link to the physical, it's actually more challenging today than 10 years ago, 15 years ago, because the physical side of the equation is actually more volatile than it was in the past. And per your coffee example, we're saying that people want Sumatran GMO, non-GMO beans, blah, blah, blah, and that doesn't tie directly to the futures contract. And then how do I hedge it? How do I? Absolutely.

So when the prices were low and derivatives were not as volatile as the recent environment, the price that you were paying for that coffee was maybe three times or two times at least two times the price of the derivatives. Whereas if you trade corn, US corn, it will be a fraction. The basis would be a fraction of the derivatives. So some commodities have decommodized in a certain way during a period of time when commodities were less volatile. What I find again very interesting is those are cyclical things and in commodities especially you go from underinvestment to overinvestment. And typically periods of low volatility are followed by periods of high volatility because of underinvestment.

I think that's a real theme. We've been cooking an environment, say between 2014 and 2020, 2021, we've been in an environment of gradual underinvestment in commodities in general, which has laid the ground for what we've seen for the last few years. And I think it's actually only starting. And I'm not saying by that statement that commodities are bullish. That's not the topic. Commodities are bullish and bearish. Although there's a lot of good literature out there of that malinvestment is like extremely communities are bullish. That's not the topic. Bullish and bearish.

Although there's a lot of good literature out there of that. Malinvestment is like extremely bullish, but we'll leave that be for now. And what's interesting to me along these lines, you'll see CME comes out with like the pork cutout future or the new southern pine future because lumber was mostly Canadian this and they're like well all these U.S. builders are using Southern Pine so the basis what I feel like if the basis gets too big they'll launch another futures contract but in coffee how do you do that there's 700 coffee contracts yeah absolutely. So let's get into, you touched on it there, so all this ETG background, then you guys did a deal with CAM to start trading a model that's informed by the physical.

Explain what CAM is and how that all came to be. The vision when we kicked off, when we took over the management of ETG commodities in 2019, we've just seen your management team, especially with Ronald and myself, we had this thought that, you know, as a firm, based on everything we've said so far, as a commodity firm, you run so many risks, right? And you have to deploy so much resources to trade and to perform a function. And you do that with a mandate to protect and to deliver the best possible risk-adjusted return to your shareholders and to make sure that you mitigate as much as you can the risk because banks don't like to fund you if you

take wild risks in terms of speculating on commodities. So that know-how that was the core of the know-how that I've learned in Louis Dreyfus as well. And when you think about it, what it means is that expertise, we apply it to a restricted pool of resources within ETG, even though it's a big firm, but there are so many different businesses. The shareholders can only allocate a certain part of those resources to us, but the expertise, we can actually leverage it off.

And us, remember one of the big edge we need to dig out is the tracking, the supply demand of each commodities, tracking the ability to deploy and be aware of what the commodity environment is on the physical side. So that requires resource. So we thought, you know, if we would, so we are not the first ones to do that. Actually, Louis Dreyfus and Cargill were running their own asset management businesses.

Louis Dreyfus was in Desiard, it was the name of the hedge fund and Cargill was Black River. They were running asset management businesses, allowing external investors to get exposure to their know-how, to this expertise and that edge. What's that word? I'm missing that word. You're saying know-how. What is it? The know-how, right? Your expertise. Got it. All right. Know-how. That's my bad accent. And so when we kicked off five years ago, commodities, each commodities managing or expanding the footprint,

we thought, you know, it is important for us as well to bring the ability to get more resources to spend on analytics, on developing that edge. And that we will only be able to capture by managing third party money. And so that's how we came to four years ago, actually for your firm. We got into, you know, we've been helped by some of your colleagues into scanning in the CTA space. And we thought, you know, the best way for us to get into that business is actually look for a platform. This is a business that is new to us. We've always been managing our shareholders' money, our own money.

Managing third-party money requires an order. And so we started to scan the CTA space in the US and luckily got connected to Jonathan Troukhoff, the founder of Commodity Asset Management, a great metals specialist. And John realized, so we actually started by investing as an investor into CAM and then we realized that we are very much aligned in how we see the opportunity and the vision very fast was to say, we want to have these platforms. We acquired Commodity Asset Management, was acquired by ETG two years ago, with a view to use it as a platform to offer what we think is the first existing multi-strat commodity fund and SMA.

When we say multi-strat, because that's a very hype word. Yeah, it's a loaded term. It's loaded and hype. I just want to make sure, you know, I think it's one of the things that is interesting to discuss around the commodity space and derivatives. It's multi-strat means you have a diversification in the number of assets you trade, but that statement you can make it for any CTA. They made all the possible markets, right? So diversification is not in what you trade is not sufficient to describe it. When we say multi-strat, we wanted to inspire ourselves of what we've been doing on behalf of

our shareholders for a long time and what multi-strat firms are doing for their investors, which is essentially to create a product that resolves some of the issue that people have had historically with commodity funds, which is the volatility, the profiles of risk adjusted returns. And so when you're employed by the cargills, redrive, et cetera, at the end of the day, somebody is watching over your shoulder to make sure you don't blow up the firm. And you are dealing with highly volatile commodities. We discussed trade, but coffee is another one that's highly volatile.

So in practice, you're given a budget, you get to trade this much and you can only lose this much. Exactly. So the only way to approach that is to say, you know, you've given a budget in terms of maximum losses. And then the know-how, I guess, that we've developed over the years of managing so many different traders is to realize that, you know, you have to give them the room. And probably that explains why some of the big multi-strat are sometimes turning a little bit with commodity traders because you cannot expect the same volatility profile in commodities than you have from an FX arm strategy. But at the same time, at the portfolio level, you do want to have that profile of stable volatility and risk adjusted return.

So Multistrat in the sense of having what we build is, so it was our internal desks that we ring fenced to offer them as a product to investors and where we bring both fundamental discretionary trading in all the commodity groupings. So grains, oil, seeds, soft commodities, energy, metals, freight. Those are specialists. So real people that are experts coming from the physical background, understanding the optionality and the complexity of the physical commodity and bringing in a lot of analytics, internal and external analysts, a fair bit of money that we spend on that to get a view on each of those commodities in terms of supply demand. But then we add hybrid pods that I actually oversee and trade directly with my teams, hybrid parts. One of them is that we take all those models, analysts, brokers,

in some cases, but let's say the vast majority being our internal analysts and some specialist externalists that create those fair value models on each commodities. And we take them for systematic process and algorithms that are rule-based, that use price triggers and different temporalities to then deploy risk. Then macro, we've discussed a little bit in commodities. One of the things that has changed in the last 30 years is, well, actually it's not true. years is well, actually it's not true because if you look at the 70s, you know, the rallies in crude oil and corn in 73 were driven surely by fundamentals, but as well a lot by the end of Bretton Woods in 71, right?

And inflation cycles. So macro can always be a significant travel, but I would say you get the sense that the macro input into commodities has grown over the last three years and very clearly during COVID period and most recently, you know, the inflation round and then the geopolitics, tariffs, tariffs are a big driver of commodities. Right. Well, stick a pin in that because I want to, right, tariffs, you could argue might de-importantize macro, right?

If like it's less of a global trade. Yeah. But at the same time, what remember commodities, there's a lot of substitution in commodities. What happens is that if tariffs are put on certain commodities in certain countries, what will actually happen is you radically change the supply chains and the flows. Overall, as a planet, you most probably will still consume maybe a little bit less because you push demand a bit lower. The most critical thing you do, you change the flows. And that has a direct impact on spreads and on relative value. And that has a big impact on the derivative. So I think macro, we approach it with, that's what I've been doing for 30 years. It's really,

we approach it with that's what I've been doing for 30 years. It's really, since I was in freight and drafts, it's how is macro playing out into the specific commodities? And so that part then as well has this macro view. And then there's a systematic process to define which commodities and directionally what we do. And then we have allocated, we've worked for a long time. I've been very lucky in my career since the end of the 90s to work with very bright

mathematicians and systematic people. So actually, I know very well that space actually, even though I've never fully myself embraced a career into it, but I've been coding personally more than 1,000 strategies in my life. So a little bit about that. And most importantly, I've been lucky to have partners with whom I'm working since, in some cases, more than 15 years, even 20 years in the meantime. So you use the word pod, right? So multi-strat pod shop, do you consider them synonymous? Same thing?

Exactly. So we have a pods currently, which is four pods of the main commodity groupings and specialist fundamentals, then two parts hybrid, the model based and the macro, and then two parts fully systematic. One internal, which is mostly driven towards quantum mentals. So what we do there is we use, and that makes us a bit different, a lot of fundamental data to turn them into inputs to deploy into the different commodities using some price elements, but mostly fundamental data in an online way. So, you know, as well, I think that's maybe something always interesting to note is that

commodities, distribution of pricing commodities is actually different than financial markets. You tend to have fatter tails, more kurtosis, you tend to have those drops in liquidity or burst in correlations that you don't have in some other markets. And that creates a very interesting profile in terms of how you approach risk management. And so we do use that into our quantum mental analysis and that's fully systematic. And then we have a pod that is a partner of ours. It's actually a partner of mine for a very long time, probably 18 years. We go back and he's very famous, or he's very well known in the CTA space, been around a long time. Raphael Molinero, Molinero Capital, he's been a pen follower

traditional with Rotella. And I think Raphael, with us the last few years, we've worked a lot on research, shared research so that he's still a pure CTA. But let's say that maybe when we started working with Raphael, he was Molinero, there were like, I don't know, maybe 75% trend followers or 80% trend followers. And today, I think in his portfolio, it's maybe down to less than 15%, I think 10% trend. So we tried and we worked together to adapt a CTA model into the idiosyncracies of commodities because they have a different behavior as a group. We've all fallen into the pitfalls of data mining and optimization, not at all, but nevertheless from those different behavior.

And we think that's very interesting approaching commodities. So in that sense, we are multi-strat because we do approach it all commodities. So we trade all the major commodities and the major exchanges for three or four different approaches, right? Purely discretionary, fundamentally driven, then model-based, macro and systematic. And I think for us, you know, in my, having been in commodities for 32 years, it's, I've realized that you, if you, if you focus your attention to just one type of commodity, you may suffer from long periods of times where there are essentially no trading opportunities. Yeah.

Or you force it and then you're trading when you shouldn't be. Yeah. Exactly. That's one thing. The other thing that I've learned over the last three years, and I think this movement is increasing, is that for the years ago, you could say there's no reason to trade commodities with any other approach than fundamentals, because there was an informational edge if you were sitting in the big firms. That informational edge has reduced because, for example, the impact of weather on agricultural commodity today, most funds or market participants will have the same information and squeezing out an edge on whether today either is super highly costly or the edge you create is so marginal in terms of your peers that you can't see in a different way.

So I think what the other vision we have is that we've learned that you never really know what will be the next big mover in a commodity. Is it your fundamentals? Is it your politics? Is it macro? Is it the impact of CTAs, non-linear models and all the space of sentiment driven. We've seen, I think it was two years ago, something like that, the type of memes that we saw in GameStop. I remember for a few weeks, some of the same crowd getting really excited with corn on the ETF. How do you deal with that? Right. So I think what is very interesting is like putting together those different layers and dimensions. And then of course, multi-stratas well, because on top of it, it's a very structured risk management so that we are on more or less on a

constant volatility. And more importantly, we have a defined maximum drawdown. So to go back to our initial conversation, the mandate we had for our whole professional life, that's the same mandate, you know, we are building the machine or the system, the overall system so that we don't break a maximum drawdown. And I think that makes us different. And I believe it makes us different.

And as we are launching, it feels that people are interested by that. And I think we solve a little bit of an issue right in this. If you are a big institution and if you want exposure to commodities, you have to invest in many different commodities, funds with their own volatility and it's complex. Yeah. And what but what is the so what is the profile you're trying to get like a commodity profile that should do well in inflationary times, that kind of thing, or just an absolute return?

Absolute return. We we don't really I think, you know, having started our careers in many of us in agricultural commodities, some of us in started our careers in many of us in agricultural commodities, some of us in energy metals, but many of us in our commodities, we realized that, you know, this idea of supercycling commodities, we kind of struggled to buy into that. Yes, there are some supercycling commodities, especially in industrial commodities due to underinvestment.

Yes, you do have periods in history where if the dollar gets debased, by definition, you create an environment that is highly bullish for commodities. But as well, you do have But as well, you do have human ingenuity and productivity, means that our yields are constantly... Yeah. And the usage of commodity in the economy, the impact of, say, cold oil in the production of one point of GDP in developed economies today is a fraction of what it was in the 70s. So we have everything in economy is transformation of energy. But nevertheless, we've been able to create more GDP out of a single unit of energy. And so overall,

commodity have those cycles. What we think is very interesting for the next 10 years compared to the, say, a difficult period for commodities in general was, say, 2014, again, to 2020. And that was a period where there was no real story fundamentally, there was no real story macro-wise, et cetera. And there was a real story macro wise, etc. And there was a big cycle of under investment. And then since COVID, there's a bit of a difference. But I think what people must realize as well, and what makes what we like a lot in terms of potential opportunities going forward is there are a few things

that are significant. We have a change in the global monetary regime and that has an impact on the dollar. We have obviously big shifts in geopolitics and for commodities that's very major. If you go from a world that is US-centric to a polarized world with, say, in the future, free blocks, the US, Europe and Asia, Southeast Asia, it has very significant impact in terms of commodity flows. Then there's something else which we find and we try very closely, of course, and it's very complex. It's the impact of weather change on commodities. And you know, last year was a very good example where

soft commodities, so essentially coffee, cocoa, sugar, in a lesser manner, but as well, you know, they are produced, essentially think of those commodities as commodities that are produced in a relatively narrow band of the planet, right? Between the tropics or a bit more than tropics. And then you have your grains and all seeds that are essentially, for most of it, produced outside of the tropics, right, above and below. So what seems to have happened for the last few years is the variability of weather. And again, it's not bullish or bearish. It's the

variability of weather, and again it's not bullish or bearish, it's the variability, heat and rain falls within the tropics has increased dramatically, whereas variability of weather outside of the tropics has not increased, but on the contrary has kind of frumped. So what does it do? And on the whole, maybe it's net even, but it's concentrated in the tropics. Right, the variability has increased there. So what does it mean? Last year, well, you have quite exceptional, the last two years, weather conditions that have affected coffee, cocoa, in a lesser amount, but still in sugar. And you look at those charts, you know, they go go with amazing.

Yeah. Coffee is actually amazing as well. It's been and even sugar, you know, has has rallied quite a bit. And on the other hand, look at soybeans and corn. Those markets have dropped because those crops at the end were quite good globally. So the weather viability within the tropics clearly has increased. Outside it has decreased.

Now, how stable is that? And if you read through all that material, it very much has a lot to see with the you know, the sea currents on the global level on the planet. It's we have turned into a more unstable environment. That's my point. And, you know, if you are able to understand what it means and track it. Yeah, that's that's what you're saying. Weather is weather has become more volatile, basically.

Well, I'm actually well, I'm not saying that it's within the tropics, yes, but outside the tropics actually not. That's why we don't have, you know, when I started my career as a wheat trader and a driver, the Russian winter kill was a topic almost every year. You had most, you know, a fair chunk of the Russian wheat crop was affected by winter kill or very strong heat in June. The last few years, look at those crops. I mean, you know, you don't have almost any winter kill anymore. That means a much more stable wheat production in Russia. Same story in corn. You know, it seems now with technology and the way we produce, you

just need the right amount of rain, the right precise day you need it and you make your crop, right? So the viability of yields has actually decreased in grains and oilseeds. So that's my point, the last few years, where it's had increased dramatically in soft commodities. And that's due to the change. So what does it mean? And I could also argue that soft commodities has less tech, less investment in the yield increase. I don't know if that's true, but from my... I would say so. I think it's a fair... That might be part of the equation as well, right?

Yes. Yes. Yeah. might be part of the equation as well. Yes. Yes. Let's take two steps back. Why is why does ETG why did Dreyfus before I want these groups just to add another some more profit to the bottom line or to diversify their revenues? Like what's the game for them? Yeah, I think so obviously, it's it's having a fee based businesses and interesting mix to the quality of your earnings. But honestly, most important driver is that remember we

are belonging to groups that are highly diversified, that are present in so many jurisdictions and so many businesses that we have a limited pool of resources to allocate. And especially it's not the purpose of the firm to be speculating, right? You cannot avoid it. You have to risk manage, but it's not the end game, right? So for us on the prop side, the reason, the main driver is that by raising third party money, we can spend more money in having more talents, in being able to better understand each commodity, giving a better return to our shareholders, a better

synergy, but at the same time, by doing so, you increase the diversification for investors. So it's very much of a positive feedback group. Yeah. So you get two way flow. So ideally, the podshops going to give flow to the physical traders of like, hey, here's where the systems are lining up. Here's what we're seeing from our models. Exactly.

So we obviously it's a Chinese wall on the trading side. The traders have no clue what the fund does and the fund has no clue about the physical. I mean, the Chinese walls are very strong on that. But on information on intelligence sharing, it's fully transparent. So the guys that sit on the pods understand and have the same information on analytics. And to give you some example, I mean, you know, we are, last year was a really, really interesting year.

And we did quite well last year because we are, as a firm, ETG is one of the top 10 global coffee trading firms on the physical side. And our traders, they have the ability to understand much better the pricing of the physical commodities than if you sit in a bank or a hedge fund because you actually deal with those big consumers and you realize you can develop some models to understand the supply demand of pricing right of the physical pricing and if you and then if you identify an imbalance there which was the case last year, plus you have your internal agronomists and agronomist models,

you identify the viability in the Brazilian weather after a year that was bad in Vietnam for Robusta coffee. If on top of it, you see that the spec community doesn't pay attention to coffee because it was trading low prices, low volatility, then you have a very interesting configuration. And that explains really a lot of how powerful that trend was. And it's the same story in cocoa, but cocoa is a very small commodity, right? So coffee, robust, because actually already a little bit bigger. It's been a bit the same story in sugar.

And I think, you know, by having so for us, we need to be making the best out of the physical footprint, but by managing third party money, we can add capacity in terms of analytics from a top down approach. And of course, the end goal is a multi-strat strategy. It's a bit of a big world to describe yourself as a multi-strat with eight pods. I'm sure that if some of your listeners are working with the great multi-strat, they say, this guy, what is he talking about? 8 pods is not a multistrat, right? So that's why I'm stressing that it's the philosophy of multistrat in terms of risk management and diversification, but of course our end game, what's our end game?

To raise, to get to our maximum capacity towards 25 pods, 30 pods. I don't think you can go beyond 30 pods being a pure commodity player. There's only that many ways to... I don't know. I see groups that have like 20 power traders just themselves. So you could do it, but it would start to get specialized in certain

Yeah. And I think it's a good point that made there the only thing we want to make sure because you can go really big, just essentially being an energy trader that does a little bit of the rest. Yeah. Keep it balanced between ads, metals, energy, freight, and some macro linked effects, especially a few currencies that are actually driven by commodities or that have a very big impact on commodities. And you need to have that in your portfolio. So we want to be balanced. For us, it's not about the privilege of being backed by a big group like ATG, is that maybe we are less in a hurry to get any mandate to go real fast. And then you realize you need to hire more energy traders to be able to manage your book.

We have a very clear defined strategy. We have a clear view of where we want to go, which is having a very balanced overall commodity exposure to offer to our shareholders and investors without being just another energy fund that does a lot of things, right? That's not what we want. And talk two more questions just on the pod structure, the multi-strat structure. One, how do you compete with these huge firms you just sort of mentioned to get this talent? Or do you think like there's maybe talent that's not getting put into those shops because they're commodity focused? I think, you know, we can, it would be arrogant on our side to believe we can compete with those great shop

structures because they have resources we cannot have, they have technology that we don't have. So we, I think, try to displace in a way the battle, I would say, by making sure that we offer a place to commodity traders that is more commodity traders friendly, that makes sense, in different aspects. So the first one is that from a pure commodity trader that has his background in physical commodity, even if you are in one of those very big shops and with all the resources they have, at one stage, you kind of start to lose a little bit your edge because to get this physical feel, you need to be active in the physical side, or at least very directly connected to it.

And just out of some information you know, information flows that it's not by paying physical brokers that you will get the information. So I think it's the first thing. It seems like they could buy their way into that. But you're saying, no, it's like dozens of years of boots on the ground of figuring out logistics and contacts. Yeah. Yeah. And you know, it's just, it's a give and take. It's you still need to be, you know, involved in the physical.

So I think that's our pop traders. So we offer them a platform where they have this connection to the physical. I can give you one example that's quite interesting. We have a very talented grain trader with us that has been here for 15 years in a hedge fund, but a hedge fund run by our ex-mentor from Louis Dreyfus, so a NOSPRW wingspan hedge fund. And he's been with Bruce Reiter for a long time. And I think then he's been involved in some other big funds. And I guess for him being with ETG, he again finds this edge of the physical driver.

And I can give you an example where in the last few weeks, at one stage, if you remember after the Zelensky-Trump meeting and the tension that came out of that, we had a very steep sell-off in corn futures in Chicago. So one of the things that happened there is that the physical corn, and it was the tariff, the worries around the US tariffs as well, obviously. But one of the things that happened is that our traders were able to track in real time very, very aggressive offers on the physical corn into destination countries that were a reflection of the worries around the conflict and Ukrainian sellers dumping their corn.

around the conflict and Ukrainian sellers dumping their corn. And that undercut then the US corn competitiveness. And you know, so those moving parts, sometimes they're really the trigger. On top of it, you have the CTAs that were quite long. Then the tariff discussion came in. So you get those little moments where the tipping point can be actually the physical pressure. So if this very talented gain trader would be sitting at, I'm not giving name, but one of the big pods, he would not have this information. So they see the value of

that, so that's the first point. The second point, as I mentioned initially, I think we've seen quite a bit of churn in those big historically, in those big multi-stratum. I think the reason for that is that it's very hard for commodity trader to be able to fit within the risk mandate that you have in most of those shops. I think where where we are different is that say they have a tighter leash and planes be. Yeah, the leash is really too tight for commodity traders. And I think the art of what we do, having managed traders, you know, and myself, I have been a trading manager for 26 years. You know, so you learn to say, OK, I know the profile.

Now, how do I by binding them together? And that's the idea of the multi-strat different approaches, etc. By putting that all together, how do I make sure that at the portfolio level I have the type of stability I'm targeting, even though I give the single dimension a bigger leash, right? And more so we have a different approach in that, I guess, that is some very senior commodity traders realize that it offers a space for them that is more favorable for commodity traders.

And you touched on my next question was going to be how important is that center book for lack of a better term right of the big multi-stratus will say hey it doesn't quite matter what all the pieces are doing our total our risk management our center book controls all that I think there was a paper out we'll try and remember and put it in the notes that basically said you could put all these bad strategies together but if you have this risk management is where the the key is more so even than the talent underneath. Yeah so we don't have a central book we don't believe in a top-down approach but what we do is that we we have assumptions of the training profile and personality of traders, right? A fundamental trader, you have different types of fundamental. But say you have a value trader, somebody that has, the decision-maker is driven by value. You can describe them in some aspects as deep pocket traders.

Obviously, if you have a value-driven approach, the cheaper something you get, the more bullish you have to go and the higher it goes, the more sure. That has obviously a certain profile of risk to return and you can make assumptions on that person. So we screen them, we know them, we manage them. And I feel that there's something else which I'm not here to sell. My idea is really to discuss commodities and trading. But I think we do something unique in common, which is that we actually have an incubator

whereby with our ETG money, we have those pods trading ETG money for at least one year before they actually can join the platform. Why do we do that? We know when we hire those people or they are with us, we already know their trading personality profile, but we want to see them doing a full year of actual trading, how that fits to the portfolio. So we have assumptions on the trading personality, so deep pocket type of value traders,

very different profile of relative value commodity traders, traders that trade mostly calendar spreads, right? And that's actually calendar spreads are probably a more pure way to trade fundamentals than flat because flat can be altered by so many things. Relative value spread traders, they will be sitting almost in terms of trading personality profile on the other side of the spectrum.

They are your grinders. They tend to grind constantly. They don't shoot for the stars. They're not gamma short, but they have more of a profile where you need to be careful that they don't get overrun by a big systemic wave. The very opposite of so.

We make these assumptions on that personality, and that means that in the overall portfolio, it gives us an optimal allocation in terms of drawdown. Right. Now that sets a basis of 100 for each of the pods. Then we have developed tools to identify market regimes. So if you are a trend follower, a value trader, directional, you tend to do well when the market was in low vol, starting to go into a more volatile environment with a direction, so a linearity.

That's when they tend to do well. They tend to do poorly when the market is shrinking wall constantly in range bound environment. So you make those assumptions and you identify those regimes and that's a quantitative process. And that means that you have a first rebalancing on a monthly basis where you can go from the initial 100, you can go as low as 50% or as high as 150% of the initial allocation. So it's a dynamic risk allocation. That's doubled up with P&L management.

So we have a very simplistic approach which I've done for 30 years or 28 years managing commodity traders. It's maybe simplistic, but it works, which is, say, if they lose money, you cut the risk. If they make money, you may increase the risk. But we have an anti-Martin Gale approach. So we blend that together with the market regime, although it's not disconnected, they work together. And then that gives you on a monthly basis,

is now your trading risk 100 or 110, 120 or 80, 70 based on those things. And then super important, because we've seen in our world of the physical commodity, we've seen firms blowing out. I mean, I've lived in our world of the physical commodity, we've seen firms blowing out. I mean, I've believed the end of continental grain. That was a big firm, or Group André, maybe less known name. But those firms blew up not necessarily because of their commodity business, but because

they were leveraging themselves up into other things and they blew up. But we see... Or Amaranth in the hedge fund space. Amaranth, absolutely. You know, you just dig a hole by not respecting the risk, right? And so what we do as well, I think, you know, as an overall design, and I think it's very important for people to realize that in commodity, the way to approach risk is you cannot make... VAR will not help you. That's a backward looking way to look at risk and especially commodities having this

characteristic in volatility, you know VAR is essentially useless to be very honest. What we do is draw down management. So we allocate a budget and now remember it's, you can navigate from 50 to 150, but then you have your budget of risk. If you draw down a third of that budget, we have a risk committee and we discuss with those commodity traders, why is it concentration risk? Is it, we don't challenge our traders or strategy to say, why are you long or short? So we don't have a central book that say, I know the market goes up, so I'm overriding the short. That's a conversation. It's why are you there? If they draw down 60%, then the risk committee has actually the authority to cut the sizes because very often for commodity traders, especially for value driven and fundamental traders, they can start to be a little bit

sticky. Married to the position. Yeah. Exactly. So the risk committee is then cutting the sizes, they can still be sticky, but not really the same size. So and what Is it hard for them to ever bounce back then to ever get back in the green? Or because they have these outlier moves? Exactly. So and the other thing is, remember, we are very dynamic in that if they start making money, we then increase their risk, you know, if we realize. So we measure a lot the quality of trading.

And I've been very much influenced in my life by a few books. And there's one book that is not directly at, I've read many, many trading books. I know you do and you did and you're extremely knowledgeable. But there's one book in decision making that I find fascinating. It's actually not written by a trader. The book by Annie Duke. Thinking in Bats. Exactly. Thinking in Bats.

I think for me that's the essence. It's helping because remember commodity trading, it's like any other type of markets, but in commodity trading, you really have to build a view. And so for me, there is a very smart guy in Europe, he's a macro guy that is running hedge fund and Alfonso Picciololo and he's always saying, you know, the trading is opinion strongly held. No, you have to have strong opinions and you have to hold them weakly. Right? Yeah, not strongly. And that's the thing is super smart because in commodities, that's the issue is that I've

seen in my career commodity traders having doing a lot of work to build a strong view and then being too loyal. Like Pierre Anderon, right? Like would you have him in your book if he's like that profile? It's too all or nothing, right? Yeah, no, that's not what we do. And maybe because of lack of talent. I don't think any of us is as smart as Pierre on the road. I'm surely not. And maybe we see ourselves

more as grinders. We see ourselves more as being in everyday grind and not the big view that will make you the year. It doesn't mean we cannot capture some more clients. Again, we had really an exceptional year last year and it was on the back of our soft group doing exceptionally well in coffee. But not because we bet the house, not at all. It's just that they've been able to deploy very nicely into that theme of riding with it and it's very good to us but not because we are betting the house on one view. How do you keep everyone happy? Like if you're cutting someone's risk is their income going down

you don't have to get into specifics but like if I'm a trader and I'm like, well, my income just went down, how do I deal with that? Sure. So, you know, remember in the multi-strat world, one of the very essential components is that each pod has to be reinforced. You have a pass-through cost to your investors. As it is, you cannot bear the risk of the netting risk between the pods. I mean, you cannot attract a great trader by telling him, you know what, your bonus will be dependent on your colleague making money. That's what happened at banks where all these traders left the banks because they were getting netted out and they got upset. You cannot. So how do we attract? I mean, we, you know,

the netting risk lies with the investor. And so a trader that doesn't do well by cutting his risk, we actually protect him to limit his drawdown. So that's, they understand that quite fast. As you know, if you, if you draw down 50%, you have to return 100%. If you only draw down 25%, you only have to return 30% to get back. So it's, we are absolutely not in a linear world when it comes to drawdown. So our aim is to make sure we give them the ability

and the leash not being too tight, but at the same time, helping them to say, hey, you know, let's work it out so that you don't draw down more than 50% of your risk, because you can come back and we'll be increasing your risk as you do well, etc. So we had a few pods. We have, by launching CAM, we actually ring-fenced those pods internally with ETG so that we can show a track record. We have around four or five years of track record that we can show a track record. We have around four or five years of track record that we can show.

And some of those pods have actually drawn down 50, 60%, I think, even 70%. Nevertheless, they are still there. They're still part of the structure and they are coming back. So for me, this is really the essence. How do you help commodity traders to navigate the volatility of markets? How do you give access to investors to this very nice uncorrelated revenue stream? And today, I think probably something that would be more important in the next few years than it's been in the last few years, just because, and maybe I'm wrong,

but I get the sense that we are ending the financialization of the economy, that Main Street will take the revenge on Wall Street in a certain way, not only in the US, but globally. And that means commodities. At the end of the day, we transform still stuff into other stuff. Into other stuff, right? So think for us, we want to be able to offer that to our vision and the vision of our shareholders is commodities provide an opportunity and you can do good to your farmers in Africa. That's the mission of ETG and it is a fantastic story in that sense and very inspiring. And we try to do the same as CAM. We are connected to this philosophy.

How do we bring a risk-adjusted return product to the investment community. So we target institutional clients, pension funds, your investment platforms, big family offices. And we have a hedge fund, a retirement fund that allows for smaller tickets for wealthy people, people that want to diversify. So it's really this idea. And again, the more we raise, the more we can invest. That's the idea. The more we can have a stronger analytical framework, it's money, it's resources. Well, you get, yeah, you got a fan in us of going to be cheering on the commodity pod shop, right? To combat with all these big equity pod shops or what would we call them? Financing pod shops.

Yeah, exactly. And I think, you know, it's very clear that, you know, we can prove it. It is totally uncorrelated to the other asset classes. It's more uncorrelated what we do to your bonds and equities than CTAs. CTAs are exposed to the same asset classes, right? So even though they provide great diversification in moments of stress, at the end of the day for us, we are gnostic, bullish, bearish. And again, most of the times we are both bullish and bearish. I mean some start you know because we trade all those commodities for those different layers and dimensions right. Let's finish it off with a little bit of fun here and ask if you could go back in time and trade one sort of major market event.

What would it be and why? You see, I was born in 1970 and I wished I was already adult when Nixon came out on TV saying that it's the end of Bretton Woods too. that it's the end of Bretton Woods too. And, but that unleashed, right? As a trader then the dollar and then, you know, the, uh, the, the, the OPEC, uh, suspending or cutting the quotas. And then the disaster in Russian grain cops in 73 and the, you know, the Russians stealing US grains.

So between 70 and 73, but it kicked off with this moment where Nixon comes out on TV and tells the world, you know what, the world you know is gone and it's a new world. And I would love it because you know what, I'm a trader. So for me, I'm driven by the next trade. And I believe we are back in a moment like that. You know what? I don't know the history of that, of like, what was their electronic trading? No. So like, how did that first trading day react?

I don't even know. Like in the dollar and gold and all that stuff. Yeah. So obviously, gold popped up immediately. Right. So you debased your currency immediately. The dollar got debased in one shot. And that started then that ignited then all the... Yeah. But it was like 5%, 10%.

I don't know what that next day is. We'll look it up. I think I have it still here. I can tell you that. But it was a quite a significant event indeed. So the day it came out essentially adjusted by inflation, okay, so if you take gold adjusted by inflation, it went from $295 in September 70 up to $1,200 in April 74. So it kicked off a movement, right? Initial movement was maybe price going up by 20%. Then it kicked off a trend that lasted into the peak of the 80s.

For me, it's not that much the impact of one day. It's what it started to snowball. Right. Exactly. What does it mean in terms of then the world changing and as a trader, you know, if you read those great books and stories around great traders, some of the most iconic traders were actually born as traders in a certain way. Yeah. In the 70s, like Ray Dalio is an example. And that's really when Warren Buffett in equity, but equities was the same approach at the end of the day.

If you understand those moments in history where history changes and you're able to adapt, you can really do well. And, and, you know, we get the sense that we are in some kind of similar moment where Bretton Woods has been killed by the US two years ago, essentially, when the US sees the assets of the Russian central banks. That was a message. We'll say, you know, the US treasuries is not the safest asset anymore. And now you see the consequence the last few weeks with all the evolution of the US policy, and people starting

to freak out, hey, you know, your treasuries is not. It's a fact. It's not anymore. Yeah. That's it in the world. So what is Yeah, it's odd to me the big huge bounce back when like a little bit the genies out of the bottle, right? Of like, things have been said, things have been done that you can't just undo. No, you cannot undo, right? So you get that sense that we are living for historical moments. And as a trader, I would have loved I've studied that quite a bit. I know my sequence on who the world corn and the whole story and, and, and, and, and Bretton would end, et cetera. But one thing is to study, look at, study them.

But as a trader, I know that it's when you feel it in your bones that you can really understand. And I wish I would have been alive back then as a trader. What were you feeling in your bones last week when silver was down 15% and then rallied? Were you earning your risk management? I have no stress when I'm trading. People that know me, my team knows I literally don't stress when I trade and it's maybe because we are so structured in how we do things. But the last time I could not, it's not that I could not sleep, but where my brain was so

excited that I was waking up at two o'clock in the morning, checking out things and sleeping again and you know, just to feel the huge of being understanding connected to it. That the last time it happened was October 2008. Yeah, we were saying in the office, this was ranking up there with the flash crash. Oh, wait. Absolutely. I think it was for me, at least last week was more intense than COVID clearly. And then, you know, you have multi strats,, you have multiple pods as the CEO, CIO, you just want to make sure everybody is fine, etc. And you know, I'm super proud of my team because we actually made money last week. We had low volatility and made money, which is, for me, what I think is most important is when you have stress, this concept of mass interlebe

anti-fragility, we are driven by that. We want to be not being resistant. We want to be able to strive when things get stressed out. So for example, as a firm, that was the genesis that got in Louis Dreyfus. We do the same in ETG and we do the same in CAM. None of our pods has a gamma short profile. It's not a load. I will not have been asking about the volatility of Vendurant.

You know, I believe the most important thing is that you need to understand where your edge is. And, you know, we want to play in a structurally inefficient space. And the structurally inefficient space for us is the connection between the physical and the financial side of commodities. We want to make sure that what we do is uncorrelated for structural reasons with the rest of the environment.

So we try to approach it with a way that is, you know, we don't do the type of strategy that the banks would do or most hedge funds would do. You know, you need to make sure you're uncorrelated. You know, you clearly, my focus of attention is making sure people have an expertise. There's just no shortcuts. You cannot think you can approach the commodity space by just doing a plain vanilla rule that works on average. You have to have domain expertise. And then, yeah, understanding the risk and how to articulate the risk around that portfolio.

And yeah, so that's really what... And so last week for me was really... If you put that all together, it was... I couldn't sleep. I couldn't sleep. So it's funny because my co-CEO of CAM, Jonathan Tulkow, the founder of CAM, it's funny because you know he was telling some investors that it wasn't a weak business as usual, you know, it was quite for us and it's true, it was quite P&L brain. That happens to me in

Las Vegas, not because of the gambling, but like the math of it all. I like sit there and then I get back and I'm asleep and my brain's like seeing all the cards and the numbers and doing math. And it's just like, yeah, you get that excitement.

And and for me, so last week was really that and and, you know, I think from for us and for me in particular, trading commodities, physical commodities and derivatives for such a long time, it's a passion around human behavior, really. And so last week was one of these moments where as well, you know, by having the ability to understand, you know, the, you know, behavioral biases and how to mitigate the impact on our trading. I find that fascinating. I think that's when you

feel you alive, you know, and in the zone and you connect those dots. And it's more fun. We're beating the robots. We're beating the AI when we get to feel something, right? Yeah. But that's a topic for another discussion, Jeff, because AI has a lot of many things to say on that. We'll do that on our next one. All right, Stéphane, thanks so much for coming on. We talked through the darkness.

It got dark in London from when we stopped, from when we started to when it stopped. So we'll talk to you soon. Thank you very much. Thanks for the invite. Pleasure. Thank you. Bye bye. Links from this episode will be in the episode description of this channel. Follow us on Twitter at rcmults and visit our website to read our blog or subscribe to our newsletter at rcmults.com.

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