Bobby Jain – Multi-Strategy Hedge Fund First Principles at Jain Global (EP.487)

25:08So I said, here's an opportunity I have to start one from scratch. I'm still young enough. Obviously, there's gigantic barriers to entry in this business, but I felt like Millennium was in a great place, extremely talented people. And so I said, this is a time when I can get off and do it on my own. One of the characteristics of the multi-strategy shops is they all have scale. And it's made it difficult to enter that space. How did you think about what you needed just to get going on day one so that you could compete with the larger players? One of the things my dad said is take the pain up front.

25:46What makes this thing relevant, whatever it wants, is another viable, competitive, first-tier hedge fund designed as such. The hard part is the normal stuff. You have to put together a leadership team. Thankfully, I've been doing this for 30 years, so I knew those people already. The second is you have to hire a bunch of people to build this with you. Most people in the infrastructure side of the world are playing for a beat. They're coming into an existing thing and they're saying, hey, go figure out how to go to the cloud from data centers. Go stack on this thing. Go tack on this thing. But build your architecture problems from the beginning attracted a lot of people.

26:23Then you have to attract a bunch of risk takers to say, I see the lane you're picking. I want to be the first one in a hedge fund. because everyone that's ever been in a hedge fund knows that the people get that first, do better than the people that get that later. Then you have to go put together an investor base. An investor base that understands what you're trying to do has been in this industry before and sees the prize at the end of the tunnel. The biggest barrier to entry is people say, well, there's a chicken and an egg. You have to put together the scale. What comes first? The investors are putting together the scale.

26:54Actually, there's no chicken and egg. It's just a chicken. You have to build it all off your own balance sheet. And then the money comes in. That's a barred entry that you have to get through. I was prepared for that. I've been doing this exact thing in my mind for 30 years. For the first many years as what's now called a PM, back then you just call it a trader. For the last many years as a leader and a designer of these businesses, we got the launch in about a year, which was a reasonable time to build something from scratch, especially with the advent of AI. You didn't have to hire as many programmers.

27:29The build versus buy decisions were better. A lot of that data stuff I was talking about, you could buy a lot of that now. In the end, it was a good time to start. You mentioned that all of these multi-strategy hedge funds have their own different flavors of how they do things. After seeing so much of this over a couple of decades, what first principles were you bringing to develop a chain? First of all, this core satellite thing bothers me. And it was something that to the extent a firm is seen as a fixed income firm or an equities firm or a quant firm. It's difficult to shed that label. When you're attracting people into the satellite, someone said it to me once, well, you haven't done this thing in 10 ,000 days.

28:08It can't be that important to you. People know it. You attract better people if you get it at the beginning. One way to do it is hire a bunch of PMs and put in a manager later to run that business. it's a lot easier to build it from the beginning that way. It's part of your core thing. You have a seven-legged stool at the beginning. That's a different topic than I have a one-legged stool and I've added a second layer of the stool. When that thing doesn't go right, your own investors, your own people say, why are you doing that then? Whether that thing's not going well, whether your thing's not going well, people say, why don't you get out of the non-core thing?

28:40The core satellite thing is the first thing. Second thing is the world has confused a couple things. The view of a PM in this industry is they want autonomy, especially the people in the next generation don't necessarily want autonomy. They want autonomy of compensation, but they don't necessarily want autonomy of lifestyle. So they want to say, if I make money, I should get paid on what I do. And if I don't make money, I don't want to get paid on what I do. That's a normal thing. But they do appreciate that the concept of five people sitting in a room with a few Bloombergs and a few phones. Not that easy.

29:12You want people around you. You want IP. You want a business that you're tapping into. You want an operating system you're tapping into. Some of the hedge funds do that and some of the hedge funds don't. The beauty of this industry is that there's successful hedge funds on every side of this, but you pick a lane. Third thing is where I felt you had a few great talent developers where 80 % of the people coming out of college, you're putting them through your training program. You're teaching them how to do the business. And then you have some great talent acquirers. A lot of the businesses that grew up in the last 10 years were talent acquirers.

29:48Talent acquirer is an expensive business, and it's a business that lends itself very well to the market leader. They have the most resources. What was missing, which is what the prop test was, was the talent accelerator, the talent transformer. You're taking the market maker on the desk. You're taking the guy from quant research. You're taking the equity research analysts and you're turning them into PMs. That's the core competency of what you're doing. You're also doing the talent creation and you're also doing some talent acquisition, but you create a core competency in that. I want to be a business of the 35-year-old killer, the person that has all the tools, but they need people in their corner.

30:23You can call that mentorship. You can call that guidance. You can call that coaching. You call that risk managing. That was a very important part of what I thought to do. Of course, I just started a firm. I had to acquire talent. But my real business proposition is talent acceleration and taking good people and making them great. I break up the world into killers, then steady producers. You need steady producers. If you had all killers, they'd start killing each other. Options on killers and options on steady producers. And I want a balance of the killers, the options on killers and the steady producers.

30:53And then fourth is I wanted to create something which was diversified at the beginning. The whole system wants you to create sequentially. They say, Bobby, why don't you start in one area? Start a billion and a half dollar fundamental equities business or quant equities. When that works, go do the next thing. Normal. The problem is now you started that first thing. You built everything for that. You've built your risk system for that. You've hired your lawyers for that. You've built your trading system for that. Now you want to do the next thing, which is quant or fixed income. A, you haven't done that in four years.

31:24B, you have the core satellite problem. And C, your system isn't built that way. I said, I want to build it properly. Fine. A little harder at the beginning, clearly. But over time, that pays huge dividends. I'm thinking about these decisions we made. Thank God we have one common risk system and we have one common architecture. Fifth, I picked a lane on the risk management. This industry broadly pays all these firms. When the PM's there, they're getting paid 20 % round numbers. Some people pay deferred. Some people have clawbacks. Some people have sharp ratio thresholds. But round numbers, That's the industry that we're in.

31:58Why are you paying people even that much? You're paying them for a sharp ratio, and you're paying them to manage money in a stop-loss context. In a stop-loss context, it's harder. If you're losing money in something, it's easier. If you could buy more, you buy more, you buy more. If you have to cut when you're losing money, that's hard to game, and that's why people get paid 20%. I've tried to focus on risk management as a core. This is what this is, a risk management business. Focus on controlling the losses and let the profits take care of themselves. but you have to pick a lane on that. We're going to take a quick break in the action to tell you about Ridgeline.

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33:51you to provide a service and we're going to pay somebody to provide that service. If the government wants to issue$2 trillion of debt, somebody has to buy that debt. When people want to use portable alpha type strategies, they want to buy futures instead of the bonds. Fine. They're going to pay up for those futures. There's an opportunity there. You can provide liquidity. People love index funds. Okay. But somebody has to keep those index funds in line. Same with the dispersion trade assets. Sometimes you can get paid for a service, even in fundamental equities. If you conceptualize it that way, somebody has to price these equities.

34:20Someone has to price them in the long run. Someone has to price them in the short run. The index funds are relying on that pricing service to happen. And so there are some services that we provide. The second is there are clever people. There are people that are experienced, that have done it, that understand it. The third is a bunch of IP. If you said to someone, go try to buy and sell equity, it's very difficult unless you put them into a structure where you say, here's how we do research. Here's the corporate access that we have. Here's the research model that we have. Here's the factor model that we run into.

34:50Then at least you give us some framework to make decisions. It's more than just the people. The biggest thing is that there are a lot of people that realize this multi-strategy model has moved towards the autonomy section, autonomy of compensation, autonomy of action. That's something that attracted people. I have a reputation for developing people, me and some of the other people that we've hired here to run these businesses. The third is it's a big thing. people that get here first to the extent that along that option, many people would like to work at Microsoft and Google and Apple, and many people want to work at Stripe.

35:23People want to work at the startup. That's a pretty attractive concept. There was a big talent war in 2017 to 2022. Interest rates were zero. The whole multi-manager industry was tiny in 2016, 17, when Millennium and Citadel were really the two big ones that were managing third-party capital. Then these smaller firms got fit. There was a talent war then. Now you have to pay competitively. You have to pay people a reward if they make the money. But the friction costs, not as crazy as it was back then. We were able to attract a lot of people. There's seven of us that are running the investment side of the business, the CIOs of the businesses.

36:01Good 30, 40 % of them, either I or one of them knew already. That created a ballast. Another topic is a lot of people like this business structure. The PM structure, one of the things is, as you raise more capital, you're going to have more people doing the same thing you're doing. I do say to people, it's not like you get a veto on anyone. I might still hire another person doing that same thing, but you're going to vote. And it's going to be done consciously. And we're going to say, how is this helping the people there? How is it helping the investor? And how is it going to return to the firm?

36:31If you're in a business where having multiple people touching the street, like in a dealer-driven market, it gets confusing to the street. Having that thought of ahead of time is something that's attracted to people. It's hard to actually do the interview process. All the risk takers here, I meant myself. We don't have a giant business development department. There's two or three dedicated people in business development. Then it's me and the CIOs that are doing the business development. If you weren't in the trenches for years, it's very hard to do. People know it right from the beginning. Your conversation changes from, let's talk about this trade.

37:04I think it's a market-driven culture. It's not a hiring-driven culture. How did you go about interviewing and assessing talent to tease out who you think is top tier from maybe somebody who's just good? It's a pattern recognition. I probably interviewed 200 people a year for 28 years. One is getting a feel for it. Two is, there's a word that gets thrown around a bit, but I'm going to use it here as alignment. What I try to figure out every day is, do I feel aligned with the people that work here, the risk takers? Do I feel like they're aligned with the interests of the investor? Inherent in these businesses is the trader has an option that if it goes well, they get some percentage of that.

37:42If it goes poorly, you're left with the bet. Do I feel a line? A lot of people, they talk about risk in the first couple of minutes. They're thinking about risk. And some are hedging to be polite. That's a different thing. Some people, when they lost money, they start using the passive tense. So when they talk about making money, they use the active tense. When they start talking about the winning trades, they talk about clever they were. When they talk about losing trades, they talk about the unwind. Okay, what about the wind? That you can get a pretty good feel. You start thinking about how they think about the people that work for them.

38:12Are these tools for me? Are these people that have their own goals and ambitions and how you're using them, how you're developing them? This process is more self-selecting than you would think. If people get a feel for what you're trying to accomplish, what they want, what's going to happen more and more is people are going to find their way to where they want to be. It's going to become a talent development industry. Whether it's talent development, talent acceleration, are people going to start molding people into the way that they think of the world? And those worlds will be different. Some firms, not in the multi-manager world, but in the multi-strategy firm, they run one global optimization at the top of the house.

38:47Four hundred gathers alpha, and then we rent as a risk on top of the house. You could do that. You just can't do that and pay people unneted compensation. Some people might move more towards that way and try to change their comp models and say, okay, I'm going to do clawbacks and do this. as this industry matures, it's not that old an industry. You had a couple of players that have been doing it for a long, long time. And then at actual scale, 10 years. So once you have the structure built and you've brought in these initial people, I'd love to dive into the investment model. What are the strategies you chose to participate in?

39:20Broadly speaking, in the equity side, there's fundamental, quantitative, and arbitrage. Arbitrage could be options. It could be what's called Delta One or index rebalancing. It could be convertible bonds. It could be merger arb or other types of event-driven trading. In the fixed income type strategies, rates and macro is one, credit is one, and commodities is a different one. There's a seventh business in the way we created the taxonomy, which was Asia, because I'm sick of people trying to run Asia from seven in the morning when they're busy or seven at night when they're tired. I said, Asia is going to be a more finessed market with the very Korea, China, onshore, offshore China, Japan, India, Southeast Asia.

40:02You have a lot more going on in Asia. Trying to do that from the US through the US news filter was a difficult thing to do. So those are seven businesses. I would view it as we have a common risk approach, which is focus on the tails and figure out how to mitigate the tails, but different investment approaches. There are CIOs for each of those businesses. I'm one of them. I'm for the equity arbitrage. And each one of them has a slightly different philosophy as to what the alpha engine is for that. What are some of the design elements of collaboration across the teams? I would say there's three models.

40:37There's discouraged collaboration for whatever reason, because A, you're attracting people that don't want to collaborate. B, there's something structural that you don't want collaboration, maybe it's correlation or something like that. One is enforced collaboration. You want to put an idea into the model, you have to come into the auditorium and explain it to everyone else. And one is encouraged collaboration. I'm in the encouraged collaboration model. If you ask me, how does it happen? What happens in these hedge funds, better or worse, is that the culture of the firm reflects their founder.

41:08I'm a pretty collaborative guy. My instinct is when someone needs something, I say, why don't you talk to these people That becomes a cultural thing and people realize that's the accepted topic of the day. It's more a cultural topic than a structural topic. Everyone absorbs information differently. Some of the groups have daily calls, weekly calls. I never build information that way. I'm more of absorbing information through reading. We're not a heavy call place. Having said that, for the first 18 months of the firm, we did a weekly call every Monday morning for 25 minutes where all the call was, was 1 p.m.

41:44got up in front of the whole firm, talked about what they do. Then someone from a staff role talks about what they do. After 18 months of that, I think it sets a tone of that type of collaboration. Let's ask about the capital allocation process, both starting with you at the top, the individual CIOs down to the PMs. First thing is you have these different businesses. Ideally, you don't get overweight one versus the other. So you try to keep it within some tolerances or ranges. Within that, you're competing with a Sharpe ratio. You're trying to find strategies that have a sufficient Sharpe ratio that clears your cost of capital.

42:18If somebody wants more capital, your instinct is to give it to them as long as they're within the relative Sharpe ratio threshold. You're not too overweighted. You can assess what the tails are. But the capital allocation model is a lot more static than you'd think. If you look at most of these multi-manager firms, it doesn't change all that much over a period. In certain market environments, you're moving capital to one place or another, but that's not the dynamic. It's not like every day we're saying, let's pull it from this person, move it to that person. We've been in a capital deployment phase for the last 18 months.

42:50We raised billions of dollars. We call the capital over a year. It took us about 15 to 18 months to deploy the capital. Now you have a little bit of scarcity of capital. I'd love to dive into the fundamental equities business. In particular, how do you view both the risk and the capital allocation, both for your team and then in a world where there are a lot of other fundamental equity businesses like this? There are some fundamental questions in the equities business. There's a concept of, are you factor ignored? No one's really doing that anymore. Are you factor aware or are you factor obsessed?

43:28I'm generally skeptical of models, especially empirical models. So I'm more in the factor aware than factor obsessed model. The empirical models are taking a bunch of historic prices and then creating some relationship about it. One Amazon is worth 0.2 Microsoft and 0.3. You need a bit of humility around the models. So that's one question around that. The second question you have to ask yourself is, what are you thinking about crowdedness? and how you measure in crowdliness, how you're dealing with it. The third question is, do you consider an industry bet, an alpha bet, or a factor bet? Those are different dimensions of these risks.

44:07We've tried to say, we're going to run it in a somewhat integrated risk fashion with some logic also as to how many people in each sector, how they interact. It's as much an art as a science. How have you thought about cutting off the tails? A lot of the multi-PM pod chops, there's certain drawdown and they're out. What's your game theory around that? There's the premortem and there's the mortem. So you try to do your best to figure out what the premortem. You've constructed a portfolio. Broadly, 95 % of what we do or more is liquid. The vast majority of what we do is exchange traded markets. So at least you have a chance to get out generally in exchange traded markets.

44:51If you do the premortem and you say, hopefully, have constructed a portfolio that is robust to many of the things that are thrown against them. Generally speaking, in these models, you make more money in a high vol environment, but you lose money in the move from a low vol environment to a high vol environment. As you've extended risk capital to the market, and now the cost of risk capital has gone up, you're going to lose on mark to market on your current risk capital. The second thing is the mortem. When it's happening, you have to move your feet. So does that get crowded? Do you get everyone to rush the hills at once?

45:22to some of that. The markets have gotten so big relative to the growth in this multi-strategy industry. The industry's put on tens of trillions of dollars of market cap in the last few years. The multi-strategy has grown by 100 billion, 150 billion. The second thing is the capital structures in this industry have gotten infinitely better. People have five-year lockups, three-year lockups, four-year lockups. So it's not like everyone has to sell because they're going to lose their assets. The third thing is there are a lot of different risk management approaches. They make a decision. If things are liquidating, I'm going to buy more.

45:59And if I think they're liquidating because the fundamental model has changed, I'm only then going to sell. Most people have been rewarded for buying on dips. Now, I don't look at it that way. Everyone looks at it differently. That's the beauty of the markets. I view it as the reason you're cutting risk in a time of stress is it might get worse. So you're trying to hedge. The bad news is you're locking in a bunch of losses and you're paying a bunch of transaction costs. The good news is when things settle down, when the VIX goes from 50 back to 30 or 20 or whatever, you now are clean. You're not nursing a bunch of positions.

46:34You have the ability to trade on offense. And so how do you get yourself on offense is the name of the game. if you can think that way and say, here's an opportunity. And the firms that did that in 2020 and thought that way did a lot better than the firms that were holding on because they're holding on. The thing went from 100 to 80. They're waiting for that 80 thing to go back to 100. You're buying something at 50 that someone else had to sell. You sold it at 90, fine, you locked in a loss, but you're buying something else that wasn't even on your pad, that someone needs liquidity. These are mark to minute firms.

47:04You'd run the premortem and you run the mortem. It's not formulaic. This is what hedge funding is. You have to be ready to deal with What's the culture around the behavioral aspect, the psychology for your portfolio of managers inside your shop? When you start a new firm, that's one of the things you don't really know. In the interview process, you tend to get people that are a little less optimist. If they were more optimistic and more growth minds, that they would have gone to a place where they could just belong. We emphasize risk management. And so people get that. We got a little lucky in that a financial crisis happened in March and April of 2025 with the Liberation Day and all that.

47:44So I got to experience it of how much did I feel like I was pushing people and how much did I feel like people were reacting. And it turns out, at least in that environment, I didn't have to do much. People got it. Harder to push people to take risks. What is hedge funding? Hedge funding is taking a bunch of information, turning it into data. Taking that data and forming convictions on that data. Then taking those convictions and doing things in the marketplace. When you have less data, especially in the first 18 months, it's hard to form those convictions. You don't have enough data on your own systems of efficacy, on your own risk modeling, on your own PMs.

48:22They feel the same way. They don't have data on how you're going to react at a tough time. So that data building gets better every day. In the beginning, it's harder to push people to take risk than it is to stop people taking risk. As we've gotten more and more data, we feel like we're getting onto offense, but that's a process. That's real. It's not like a philosophical thing. It's like, as you get more data, as you get more badges, as you get more experience, that all gets better. And it gets better every day. And the teams get more comfortable with each other every day. And I feel that palpably.

48:53And so that becomes a culture of risk management. How do you think about competing on compensation? If you tried to run this model on a different compensation model, meaning you have to rely on how everyone else in the firm, people that you haven't even met are doing, it'd be hard to do that unless you did the talent creation side. Unless you said, I'm going to hire everyone from scratch. A lot of the people that come into this industry are coming from places like that, where for whatever reason, they think they're producing more than the median of that group. the world has constructed these portfolio managers as unitary, one-track mind people.

49:34I'm just looking at my compensation. People want to get paid competitively. They want to get paid fairly. They want to get paid transparently. Once you're paying them fairly competitively and transparently, then the margin there has a lot more math going into it. The optimization functions are more complex. Fine. I can get paid a little more, but I got to sit out of the market for a period of time. In that period of time, is the strategy going to change? Is my market going to change? I got to put together a new team. Do I like coming to work? Do I feel like people are in my corner? Do I feel like what's the probability of success?

50:04Do I feel like the way I try? I think that's the biggest one is the way I actually interact with the market in Simpatico with the way these people think about that. And that's a big topic. You should be able to get that right 90 % of the time when people are coming in. it's a complex optimization function, but it's generally about fit more than about conversation. Once you're in the transparent, fair, competitive, and the basic point is you said what you were going to do and you did what you were going to say. Once you do that, you're in a good starting point. As you take a step back and look at all the structural ways that you've been able to make money in the past and are trying to do it today, what opportunities are you most excited about?

50:45What are you looking for? You're looking for areas that there's not necessarily enough capital to provide for the service the market wants, areas that you can find cheap volatility. And sometimes you're trying to find areas where you're willing to take complexity risk to get into some market. Banks trying to figure out how to get partners in hedging some of the risks that they're left with that either take up a lot of regulatory capital or are not necessarily capital efficient for other reasons. It's called strategic risk transfer. We've set up a business to do that. Asia has some of that. In the complexity side, you're setting up a business in India, not that easy.

51:22But once you do it, you could probably get access to some things. If you took it at a business level, a more concrete level, the fundamental equities business, I started trading indexes in the mid-90s. The S &P was at 500. About 5 % of a company was indexed. Now, round numbers, I'm making up a number, 25 % of a company's index, and the S &P is up 14X. So that's 70 times bigger. So the fundamental equity, someone's picking stocks in a structured way, doing the work, given the size of the market, pretty good business right now. There's really opportunity to liquid credit markets. A lot of people have moved into the liquid credit markets.

52:02The private credit business has been the biggest growing business in the world in the last few years. That leaves some opportunities in the credit markets. And then also what we call arbitrage. There's some money in the seams of different types of investors and different types of arenas. The biggest theme is in three or four years, apparently I read our industry until last year hadn't grown that much in terms of assets, especially the multi-strategy. I think it actually was flat. In that time, the government's issued another$15 trillion of debt. The equity markets grew by$30 trillion. The markets have gotten really big.

52:36Companies are starting to go public again. Some of the regulatory environment is starting to get balanced. Now you're getting regulatory competition. Different exchanges are starting to say, list here, it's good for the markets, at least in the short run. These models often bring with them a question of an existential risk. A lot of leverage. Leverage can cause problems. How do you think about the broader contagion risks of this model? The contagion risk is what we lose sleep about every time. Is everyone going to start heading out of markets now? Maybe the next one is going to be way worse, but you've had a couple of interesting events in the last five years, six years.

53:14COVID was a real event. Ukraine was a real event. GameStop was a real event. SVB was a real event. Let's say the data got good in 2005. So you have at least 20 years of good data to give you some sense of how these businesses have done in that period. And obviously, the next one could be worse. Now, we spend our lives trying to understand this. What are the only ways you can deal with is actual diversification. And some of these strategies are actually diversified. Again, market make, market take. The amount of dimensions that you could start diversifying, you have some strategies that are going to make money in times of stress.

53:45You have lots of different various tail hedges on. The market tends to be clever and tends to find a way to find the hedges that you didn't put on. Are you taking some crowdedness risk. There's some of that in there. When I'm in the market, I felt it crowded in various times. I felt it more crowded in 2010 to 2019. The markets were smaller, but vol was low. And so what happens when vol is low is some people accept a lower return and some people lever up to make the returns equal. People like me, we accept a lower return. We communicate that because the thing that we're most worried about is the asymmetry vol, 10-day vol in February of 2020 was seven.

54:2510-day vol two weeks later was 118. If you're not managing that risk, you can lose a lot of money. The second thing is the asymmetry of liquidity, especially in dealer-driven markets. People that grew up in the equity markets are used to exchange-traded markets. You go into fixed-income markets, suddenly liquidity disappears very quickly when things go wrong. You can manage it by portfolio construction. You can manage it by with premortems, and then you got to deal with it. And it is a risk that is embedded in this business. How do we deal with it? We deal with it with those concepts. Portfolio construction, premortem, postmortem, tail hedges, and really culturally making people say, that's what we're doing here.

55:03What people are doing in this business, they're giving us their money. They're not giving us their gambling money. They're giving us their alternative to fixed income money. We have to protect against that. When things go wrong, they want to look over this part of their portfolio and it looks okay. The good news is when it goes wrong, generally that next period is a very good period. Despite however anyone did in March of 20 or in the last quarter of 08, 09 and April to December of 20 were by far the two greatest times in this market. You have to survive that previous period. And that's what we spent so much time doing.

55:41When you go from a larger platform, the prop desk at Millennium to a smaller business, what are the things that as you look out over the next couple of years, as you develop scale, that you can add in to what you're doing that you might not be able to do today because you're smaller? I don't think there's much. One of the leaders in the industry said to me when I was starting, you're going to underestimate the benefits of starting from scratch. He said, And so often I want to throw the whole thing out. It's not just legacy systems. It's legacy architecture, legacy people, legacy processes, legacy mindsets.

56:16We got to build everything instead of buy everything. We got lucky that AI became native to this place. We didn't have to hire hundreds of technology people and fire hundreds of technology people. The biggest thing that would change as we scale is you're going to see the operating leverage start kicking in because we think we can get the two, three times the size without having to hire that many more people. So if we had more scale, would I start doing a couple of things that I say a little more speculative? You have some firms that view themselves as manufacturers and some firms that view themselves as packagers.

56:48Like I'm packing the alpha and we're hiring places. You hear them talk about the BD departments. We view ourselves as a manufacturer. And the first iteration of it, we're not doing a lot of speculative things. Let's figure out if AI can do this or that or the other thing. The model itself was innovative by launching it all at once, by launching comprehensively, by building it that way. The challenge in this business is balancing patience and excitement. I live my life in seconds and minutes and hours and days, and things take months and quarters and years. The metrics at the beginning of this, you have to get yourself into the model of, am I getting better every day?

57:25Did I put together this thing? Do I believe in my system? Do I believe in my people? That's the metrics. And then eventually the gross returns turn into net returns. And that's the evolution of this business. You mentioned earlier being on the boards of the investment committees of Harvard and Cornell. Would love to ask what you've learned from sitting in those seats. As you get into these large organizations, there are two different ways of thinking. Some people are like risk managers. Let's diversify. And some people are concentration. Let's figure out where things are going to go and let's go there.

57:58It's no different than Republicans and Democrats are two different religions. That's a core topic to talk about. The second topic is people that have been operators of businesses. I consider myself an operator of business. They think about what are your core competencies and what are your competitive advantages and how do you build businesses around that? That's what you're taught as an operator of business. Investors think in different ways, and that's a great thing. Taking the best of both of those people is something that these endowment boards have been good at. sitting on these endowment boards gets you into the mind of how investors think.

58:32Part of my job is figuring out how to make money in a risk-controlled way. Part of it is, especially in these past moves, to represent the investors, to say, I say every meeting I'm in, there's me, there's whoever I'm talking to, and there's an investor sitting there. Having been put in that investor situation in various different forms there have given me a firsthand look at how an investor thinks about things. These firms, not just the multi-manager firms, but all these asset managers and investors taking the leap of faith. They're trusting that you're going to do what you said you were going to do with that.

59:04That's a big responsibility. And it's something that I've learned firsthand of sitting on these investment committee boards. So Bobby, somehow, in addition to having built all this over the last couple of years, you also have for a long time run your family's charitable giving. And we'd love to hear a little bit about how you approach philanthropy. In 2014, we started something called the Jane Family Institute, trying to take financial concepts and bring them into the philanthropy world. Also, to try to take either left-wing or right-wing ideas and put them in the opposite language. The original project we started on was trying to turn the student loan market into a student equity market via income sharing agreements.

59:47Some people don't like it because it seems kind of icky. What if I took 100 % of your income for 100 years? That seems icky. So there's a branding element. There's a framing element. On the left, people think, well, college should be free. And so why should I even do that? There was a whole bunch of things. We did it with thousands and thousands of students. They're still running those programs. We did a lot of the guaranteed income pilots around the world. Generally, people hate the concept of universal basic income. It feels something for nothing. People like earned income tax credits. People like child tax credits.

1:00:19There's a framing element to it. If I hadn't started the hedge fund, I would have run with that I've done nothing on is I was heavily involved in the charter school movement earlier in my life. I wanted to start charter prisons, basically private not-for-profit prisons. Charter, the right wing likes charter. Left wing people like rehabilitation and chances are the charter prisons, the people that get involved in that will want rehabilitation as part of it. We had about 20 people in this organization. It's been 11 years. are pretty autonomous by now. What are you excited about for the next couple of years?

1:00:52It's the first time in my life I want to hit fast forward. I'm a cherish every minute guy, but everything I've done in my life, process led to outcomes. Now the process is there. We're doing all the things that I thought we'd do, everything we said we were going to do. I see the alpha there. I see the value add to the investors. I see a value add to the market. I see a value add to the people here. I'm enjoying what I'm doing. I'm passionate about it. All right, Bobby, I want to make sure I get a chance to ask you a couple of fun closing questions. Before we get to the closing questions, I want to tell you about one of our strategic investments.

1:01:24We've made a few and each are working on a product or service we think will be valuable to our community. One is Ascension Data. Ascension provides workflow software for compensation that allows you to track, plan, and take care of your team. We're excited for you to check out how they can help solve the sticky pain point of compensation. There's a link in the show notes so you can learn more. And here are those closing questions. What is your favorite hobby or activity outside of work and family? I'm a gigantic reader. I got it from my mom. I'm reading a lot of literature, a lot of philosophy.

1:02:01That's how I understand the markets. I view the markets as a complex system. I view myself as a student of complex systems. The most complex systems are actually systems with human interactions. The best place to learn about that to me is literature and philosophy. So I spent a gigantic amount of time on that. What was your first paid job and what'd you learn from it? In Queens, I did everything from a ball boy to a caddy, polling for NBC News to a paper route. That was just what you did back then. But working at the stockbroker was a really interesting entryway, especially during the crash. I'll never forget those days.

1:02:34People's actual money being lost. They gave me a flavor for, this isn't abstract. This is a real thing. Someone said to me, there's nothing casual about managing other people's money. I have that deeply embedded in my thinking. And I wouldn't say it's my first paid job. It was my first steady job. And that stuck with me. What's the best advice you've ever received? I had a boss at Credit Suisse who died in 2010 called Paul Colello. And he was my mentor. And he was the president of the firm. And he ran all the divisions I was part of. We had to do some layoffs. And he said, by the way, you should get a thank you note from all those people.

1:03:06Meaning, do it with dignity and respect. And treat people with dignity and respect at every turn. I got to say that, not that I've gotten that right every time, but when you start a firm after being in the market 30 years, you have a whole record of things. And I like to say, I was doing favors for people for 30 years. Now I'm asking for favors for the next couple of years. Everyone delivered on that. It takes a village to raise one of these firms. And that village came in and I was able to take that advice in for a long time and treat people with respect. And that's the advice that I think of every day.

1:03:38it. Bobby, last one. What life lesson have you learned that you wish you knew a lot earlier in life? When I think a life lesson, my parents taught us from the age of 5 to 20, focus on education, 20 to 35, focus on career, 35 to 50, focus on family, 50 to 65 on service, 65 to 80 on philanthropy, 80 to 95 on spiritualism. That's the stages. Obviously, you're not going to follow those timeframes. I knew that ahead of time. I haven't listened. I extended the career thing a little longer. I've tried to do service with some charitable activities and time and resource contribution. Family is an important part of my life.

1:04:15I have three teenagers, so that demands some time. It's a good thing for people to think of the stage of their life. Do I wish I knew that earlier? I didn't know that earlier, but I didn't really think about it until you get older. Bobby, thanks so much for taking the time. Ted, it's great talking to you, always. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time. All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms.

1:04:51This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of capital allocators or podcast guests may maintain positions and securities discussed on this podcast.