Will England, Derek Drummond, and Tony Caruso – Disintermediating Pod Shops (EP.501)

21:08Tony Caruso:This whole stigma of running a managed account, part of that was due to the fact that portfolio managers thought because you had this ability to pull the ripcord, that you would choose to do so and just get your money back. Our average hedge fund relationship is 10 plus years. We're sticking with these PMs even through difficult periods. If we need the cash, the hedge fund we'd have to put in for redemption and get the cash. With a managed account, we have the unencumbered sitting there. We don't have to be disruptive at all. We sweep the unencumbered. We put that cash elsewhere. We don't need to disrupt anybody's business.

21:44Derek Drummond:There's a dichotomy that you talked about, a model allowing you to cut off the left tail, moving faster. Then Tony's saying, we have average life of 10-year relationships. How have you put those two things together in Dockside?

21:59Will England:We all set up the arrangement on day one. We all know exactly what the rules are. As long as we're all in the rule box, we're not nearly as tight as others out there. Some of the rumors that you hear you're down to and you're done. We just set up the rules of the road. You can't sell naked options. You're a healthcare trader. You shouldn't be in TMT names. But as long as we're all in the same group, we're looking to grow relationships with these PMs over long periods of time. We started this almost three years ago. Huge chunk of our managers are still with us. We maybe have turnover once or twice a year during higher sigma periods like we're having right now as a volatile period in the first quarter.

22:40Will England:You get to see the reaction function of some of these managers. If they go outside of those risk targets, you sit down, you have a conversation with them, you come up with a plan. If they can't execute the plan, then it's time to move on. Part of the success of this model is having those risk controls to be able to capture the right side of the distribution. But the manager is coming in fully aware of exactly what the rules of the road are.

23:05Tony Caruso:The average length of our relationships, 10 plus years, we spend a lot of time on our diligence. Our hit rate is really high. For the manage account platform, we're not looking for 350 PMs. We're looking for 20 to 30. We're going to do a lot of work on them. our drawdown guidelines are relatively loose compared to the likes of other platforms. Because we keep it manageable at 20 to 30 PMs, we can have the conversations with each PM, understand what is driving that drawdown. The other thing that cuts the tail is we have the ability to hedge. Dockside has a dynamic hedger, like a zap factor risk.

23:42Tony Caruso:There's a position that's too big for a particular manager. And we've been able to have a targeted hedge to bring that position lower so that it fits within our overall risk construct.

23:52Derek Drummond:Tony, you mentioned you do a lot of work on these managers. Derek earlier said, well, in this platform, you do a little less because you have to compete with people that are hiring lots of these PMs. How do you retain the confidence you can be long-term when you're not doing as much work?

24:11Tony Caruso:We're doing as much work. We're doing different work though. We're doing a lot more reference work, speaking with anybody who had access to their P &L, any analysts who have worked with the PM to see what the PM was like working for and if he was able to actually manage a team and train his analysts. Lots of conversations with the analysts and PMs to understand the investment strategy. We ask for daily returns and like portfolio snapshots. We put that through our system, the bar attributions. We do our work fast, but we do all the work that we would otherwise do. The only thing that requires less work on our part is the ODD.

24:48Tony Caruso:We control the cash. You can invest in younger firms that aren't as polished or super institutional. You cut off that operational risk with a managed account.

24:57Will England:We have this engine and this tool, this managed account platform. We have some overlap in some names, but everyone's on their own. So are all the rest of the clients on Doctite. Our process is faster for these PMs. If I have a codified risk box that I'm putting around the manager, if I'm allocating smaller than maybe I would, it takes us a long time to write a four or$500 million check. If I'm writing a smaller check faster to a younger manager, I have full transparency and full control. We still do our work. Tony's right. The work you do is different. I'm getting full portfolios. If I can get to level of detail and put it into my systems to watch their trading over time and see how they made decisions through different periods, I can be a little bit faster.

25:44Will England:And I know that they understand what the risk box is. My dollar size is a little bit smaller. Our typical write-up is about 40 pages plus and probably takes us three months to get a deal done in our main hedge fund portfolio. Here, if we find somebody we really like, we could probably get three, four weeks, a 10 to 15 page write-up is much more looking at the decisions they've made over time. References are huge because you need to be in the network. It's uncanny the number of PMs in our portfolio where we got a reference from someone said, hey, I know this guy wants to spin out a Citadel. I worked with him for seven years.

26:23Will England:He's a good risk taker. You should talk to him. We get more of our ideas that way.

26:28Derek Drummond:What's different than what you've learned from having that level of transparency than what you see in your pre-doc side hedge fund portfolio.

26:38Will England:Intramonth volatility is a lot higher than you think. If you get one month snapshots and then you get to see the ride throughout the month, it can be a very different story.

26:48Tony Caruso:Derek and I have joked before, you learn more about a manager of three days on dock side than three years if you invested in a fund. You understand what they do, what their portfolio looks like, how it evolves. It's incredible.

27:00Will England:When you see what they're buying and selling every day, we're in the business of buying serial good decision makers. And sometimes I joke that my job is playing fantasy football. You're trying to find the best athlete, put them in the right position. Hopefully they all march down the field. Watching how they trade in a drawdown, we gave an example to my CIO yesterday, two different managers, similar drawdown. One got small, regrouped, and start digging themselves out of a hole. Another one would add to losers. You can see it. You can make much more informed decisions about the people that you're putting on the field.

27:36Derek Drummond:Once you have these several managers on the platform, how have you thought about capital allocation across the manager?

27:43Tony Caruso:It could be a bit clunky. Sometimes you want more exposure to the guys who won't accept more capital. Sometimes you don't want to be as big with some folks who required you to run a minimum amount. Ideally, how I would have it is equal risk allocations, incorporating some correlation matrix, changes at the margins based on the conviction level that you have with each manager. We're trying to guess their sharp ratio going forward, triangulating it using their experienced sharp ratio, trying to understand what they need to do to deliver the returns that we expect.

28:16Will England:One thing that was difficult for us, and it's still difficult to this day. Is this a product or a line item in our portfolio? Or is it a tool within your broader hedge fund portfolio? Say we have 25 line items. Is this line item 26? All these PMs you're managing as a portfolio. Am I trying to optimize that P &L? Or is this a capital efficiency tool for my broader hedge fund business? We recently had a manager that was in our hedge fund business and they've moved on to the platform. they were throwing off the risk budget of everybody else. And we were like, well, we had the same amount of money with them before.

28:52Will England:So what's different? Why are we trying to manage this P &L number? We came up with this heuristic. So we have 17 PMs and we're managing like it's a portfolio. But if we get confidence in that manager enough, they can graduate and become their own line item in our hedge fund portfolio. As we get more and more confidence, we can give them more capital. They come out of our Emerging Manager pod program. They've graduated to a line item in the book.

29:19Derek Drummond:Tony, how have you tackled that?

29:21Tony Caruso:We're not investing in single PM funds. Our allocations to the multi-managers can be much larger. It's a very diversified portfolio, much higher sharp ratio expectation. We can size them multiples higher than we would for a single PM. The goal of Dockside is to be able to create that same profile that a multi-PM fund would have. any individual PM is going to have a lower sharp. At Citadel, from their experience, I think they've said like a 0.7 to 0.8. Gross sharp is what you should expect out of any PM. But the magic of it is if you can find these managers that run at very low correlations, highly idiosyncratic in nature, not clinging on to any factor risk, hopefully not to loading on crowding either.

30:03Tony Caruso:Across a number of lowish sharps, you get a good net final sharp. The overall portfolio is sharp and grow from any single PM is 0.9, but the overall portfolio is two and a half plus. That's what we're trying to do. Our allocation to Dockside is sized about the same as any kind of multi-manager fund.

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31:13Derek Drummond:Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. How do you leverage the expertise that Wally's bringing on the risk side in your hedging program?

31:34Will England:We implement single name hedges. We have the full factor model. We have crowding models. Deleveraging risk is one of our bigger risk factors. We're trying to proactively allocate to PMs that are doing different things. Once you get everything together, we do have the tools and we have the team over at Dockside that can build the views. We used to have daily calls and that became a little bit too much. Now we have weekly calls with the risk team, go through the risk budget, what we're seeing, how crowded are we, how liquid are we, how that hedging overlay we have is affecting the overall book. We try and do surveillance.

32:08Will England:Am I using the same factor model as Citadel? And is Citadel using the same stock to hedge that I am? And if this goes against us, how bad could that be? One of the benefits is that we have the same tools as everybody else. One of the detriments is we have the same tools as everybody else.

32:25Tony Caruso:Clearly, Dockside Edge isn't the fact that they have access to Bara models. Everybody has access to Bara. One of the things that's been helpful is everything that the Bara factors don't explain, we try to figure out what that is. What factor is driving markets not being explained by momentum or quality or any standard risk factor, but maybe it is artificial intelligence, the war. Take that factor and see how much sensitivity your portfolio has to that. Being able to be creative and create custom factors, That's been very helpful. I've done a lot of work with that, with the Dockside team. I don't know if any other platform service provider can dynamically hedge.

33:04Tony Caruso:Basically, I'd give them some factor constraints. Say I don't want any style factor to be north of X percent. The hedger will zap everything and construct a portfolio that has that target IDEO and those factor constraints.

33:16Derek Drummond:How do you think about exiting managers?

33:20Will England:Yesterday and today, we had a manager. They were outside of their bounds. They continue to be outside of their bounds. Over the last week, we developed a playbook. These are the catalysts you're playing for. These are the stocks you're looking for. If this happens, this will be my reaction function. Then we say, when would you fire yourself? They give us a level and they hit that level. In a weird way, it's a much easier conversation than sending a redemption form and the marketing guy's got to go talk to the CIO or something. We all knew exactly what was happening. They pick up the phone and you're like, yep, I can't hold it against you.

33:54Will England:Yes, you're exactly right. How would you like to liquidate the account? We're all still friends. We all knew exactly what happened and there's no bad feelings. It was way more transparent. It's an easier process.

34:05Tony Caruso:That's why we set these risk guidelines when we finalize the IMA. Before they start trading, what risk guidelines should be appropriate for your strategy? We don't want to change a thing. We want you to be able to do whatever you're going to do. But tell us, what are the bans? Net exposure, GMV, concentration risk. What is a crazy drawdown that you never expect to hit? We monitor these, and if they go out of bounds, it's an easy conversation. You said you're going to do one thing, and this is what happened. Of course, we'll have the conversation, figure out how are you going to get back in bounds, or what's the solution to this issue that we're dealing with?

34:41Will England:Typically speaking, there's a lot of groupthink. Tony and I have had positions where the managers had a drawdown and we've treated those drawdowns differently. He gets to choose how he interacts with that manager. We don't get them to do something different than their commingled fund. I'm not trying to get them to run some special account, lower beta, higher beta. We want it to be parapassu. And in 99.9 % of the cases, the PM doesn't want to do anything special. They want everyone to be on the same terms and the same strategy. How Tony reacts to a certain drawdown might be different than I react.

35:13Will England:Every once in a while, we'll talk, but we're not coordinated because everyone's risk tolerance are different.

35:19Derek Drummond:I've run hundreds of managers over the years. A lot of different exit conversations as there's the nature of the business. The most adult conversations are when there's transparency. Everyone's an adult in the business, know what we're doing here. If things didn't work out, that's fine. No hard feelings and let's move on here. What people really hate in our industry is when they get surprised. The whole point of Dockside is to be able to provide the level of information intelligence, situational awareness so that no one's surprised. If everyone's reading off of the same playbook, here's where the line is, you cross the line, no one's fault, no harm, no foul, let's move on.

35:51Derek Drummond:Except for such an easy conversation, that's the exact mentality that I take in running our multi-strap business is just be up for all people. The hard part is with the traditional redemption cycle you get in combing the vehicles, there's a lot of guesswork that's involved. When someone's thinking about engaging with Dockside to create their own account, how do you think about the differences between this and the multi-manager pod shop? there's probably a dozen scale of multi-strats in the world. So there's relatively small numbers we're talking about. Those are premium products. There's businesses that we run that can't be run either as a managed account or as a standalone business.

36:30Derek Drummond:We have a large equity vol business as part of what we do. That's not something that would be run by a single manager. Not something we've lent itself to a managed account. Same thing with a lot of quant strategies or things that are on fixed income. That's a big part of what multistrats do is strategies that benefit from true scale. The thesis originally was a lot of the businesses that Derek and Tony run, especially in long short hedge funds, still want exposure to those type of strategies, doing it in a structurally advantageous format for all the reasons that we've talked about. I don't view it as replacing the allocations in terms of giving to managers like us.

37:10Derek Drummond:It's more saying, There's a better way to run this business and a better way to get exposure to some of these

37:17Tony Caruso:traditional single manager funds in a way that everyone wins and everyone does win. We are large allocators to the multi-managers. That's probably not going to change. We have great relationships with them. They're phenomenal, the best hedge funds in the world. Dockside is a way to gain access to certain PMs that don't want to join a multi-manager platform. We know that there's talent out there. We want to be able to access that talent in a similar fashion as those multimanager platforms by tapping into an SMA platform and having to be super cash efficient. This is our way to expand. We can't grow much more with these multimanagers, A, because they're closed, B, because their liquidity terms are a three-year or five-year slow pay.

37:58Tony Caruso:There's a portion of the portfolio that needs to be liquid. This is our way of being able to have unencumbered cash, modulate the overall leverage of the platform, and use that cash to fulfill our cash needs.

38:11Will England:Will has comparative advantages. He can pay for data for his quants that I just can't. I'm not saying Will does, but others might pay garden leave. I can't afford to pay for a guy to sit on a beach for 12 months or something like that. But those are costs too. He can run a 2-3 sharp. Some of these groups have six plus percent pass-throughs. You have to run more leverage to be able to do that. All that math works when you have 200 PMs, you can turn them over and capture that right to the distribution. We're playing a slightly different game where maybe I only have 15 to 25 PMs. I get to use a little bit less leverage.

38:47Will England:I don't have a 6 % pass-through. I'm taking the netting. My cost structure is a lot lower. Maybe my Sharpe ratio might be a little bit lower because I can't capture the quants that Will can. Because I'm not paying those fees, My Sharper ratio is unlikely to get exactly where Will is. It gets closer and I have the liquidity and I get to target my vol. The average hedge fund out there, down the fairway hedge fund, us dumb pensions did the wrong thing by incentivizing them to run lower vol and take in more assets and collect that management fee. If you're running a$10 billion book like I am and you have 30 line items and they're all 0.1 correlated.

39:28Will England:I can't get my vol high enough to beat my cost of capital without running a superstar sharp. Knock on wood, we have been because alpha has been pretty good the last couple of years. Three sharps don't last forever. This solves an important problem for me where I can have this risk control, transparent, liquid pool where I can lever it to my volatility target and get my total portfolio of all where I need to be to be competitive out there. But I'm not giving up on quality of PMs anymore. As you look at acquiring the talent you want,

40:02Derek Drummond:putting them on the Dockside platform and Dockside as a business, when you add it all up, what does the cost structure look like to the next investor compared to a pass-through multi-manager shop? This war for talent is a real thing. It's become illogical in many cases. The participants in it know it's illogical and they're just doing it for personal competitive reasons. The cool part about targeting people that are largely in a post-economic phase of their life, they want to run their own business. There's a personal motivation that extends beyond effectively someone pay them a large check for hazard pay.

40:38Derek Drummond:By definition, the managers that Tony and Derek and others are fishing into the dockside pool, it is a different conversation. They aren't the single source of capital. By design, it's more strictly advantageous.

40:50Will England:It became apparent to me when we had one of our first managers, we set him up on day one. We walk into his office. His wife was at Costco getting the snacks to put in the snack room. He was like, Derek, come over here, come over here. He had the name of the firm on the wall. We got to sign up. It's amazing. He's showing me every office and he's introducing me. These PMs take real pride in opening up their own business. They were inside some pod that didn't get to talk to other pods at some of these firms where there wasn't a level of communication and community and culture. For a large number of RPMs, that's the case.

41:24Will England:They have a culture they want to grow, a business they want to grow. They want to grow this next layer of talent below them and give them something to work towards. It's palpable.

41:34Derek Drummond:There's truth to some of these cost inflation things. Pathway models are necessary to be competitive. That's the reality of the world that we live in. The math does work at the end of the day if you're good. It's hard to run these businesses. The investor is the one that loses when you make non-economic decisions. I love the model because access the talent directly, you don't have to pay these fees in which you have no control over deciding what they should actually be. That's a good thing at the end of the day for the holders of capital. Derek, Tony, when you're talking to your boards, how do you describe the expected fee savings of the dockside platform compared to one of your multi-manager investments?

42:13Tony Caruso:It's so simple. We know what the fixed expenses are, the variable expenses every year. Put that in the spreadsheet. Then we could actually say, here's Dockside's fees. You were saving on this, that, and the other thing. We're not paying the second layer of performance fees. Estimate the financing terms. Here's what leverage we'd run at. It's math. This is what we're going to do. And here's the expected cost savings. And it's meaningful.

42:35Will England:It's explicit. For every dollar that I borrow from the house, because we were in full portable alpha, we have to lever up the entire firm. We have a thing called the fleet rate. I'm the biggest consumer of the fleet rate at SWIB right now, and I borrow$10,$11 billion. Every month, I get a bill for what my interest expense was. I can go to the board and say, instead of borrowing$10 billion, I borrowed$9 billion now because I can be capital efficient. My returns are higher, and everyone's better off. I calculate my interest expense savings from those managers. At one of our last board meetings, we brought in one of our PMs.

43:10Will England:They talked about it. The board got to ask him questions. Why are you doing this? Oh, you set up your own business. Why did you want to set up your business? And he's like, there's no way I could have gotten an account from the state of Wisconsin otherwise without being on this platform. Our board are huge availers of this program. They love it. They see the cost savings, how we're accessing younger, hungrier talent, the risk management. Our risk manager loves us, gets up there and talks to the board. It's good for the board.

43:38Derek Drummond:What does that add up to in terms of basis points?

43:40Will England:It's tens and tens of millions

43:42Derek Drummond:of dollars for us a year. I'd love to hear, since you've rolled this out, what were some of the challenges that you didn't expect you'd face?

43:53Tony Caruso:Learning the lingo. Typically, allocators invest and they think about AUM as a concept, right? A$200 million AUM ticket. In the SMA world, it's an arbitrary concept. We're choosing the denominator. We allocate in terms of GMV, long market value plus the absolute value, the short market value. Here's the GMV that you're going to run at. We choose the denominator to get to the risk profile that we want. That was a bit confusing going to the investment committee and saying, hey, we're doing a 700 million GMV ticket and everybody didn't understand what was going on.

44:27Will England:We don't typically have to deal with the financing side of things. Managing PBs, managing our excess cash. Do we take some risk with that excess cash? Do we do something cute with that cash? I don't want to take too much risk. Should we move balances from here to there? We are now a material client of one PB in particular. Who gets to use that goodwill with that PB? Is it state of Wisconsin? Is it Doxide? Oh, there's a new issue coming out. I want to talk to the UCM desk. Well, who's speaking for them? Is it Doxide? Is it SWIB? That whole world of the stuff opens up to you because typically I don't get to talk to the PBs.

45:04Will England:They don't care about me. They care about Millennium and Citadel. Now I'm participating in the markets. I want all this stuff. I want the research, capital markets access. I want to start doing some other things. You better know what you're talking about. The first time I walked in there, I was like, I want the things. They're like, that's not how that works there. Don't I get more things? And they're like, no. Well, who gets to say that those are my flows or I paid you this much. Sometimes it's Dockside, sometimes it's PM, sometimes it's SWIB. Learning all that was a new experience for us.

45:37Derek Drummond:How did you reconcile the centralization of the potential benefits that you get on the platform when there are so many constituents within the platform?

45:47Will England:I don't think we've figured it out yet. I did a whole trip to New York and met with all of our PBs and I said, who owns these flows? Is it Tony? Is it me? Is it Dockside as a whole? It's a gray area. If you're the one directing that PM to go and trade at XYZ firm, you can kind of attribute it. Maybe those are your flows. If it's the PM that's saying, hey, no, I need this execution to be at this place because I've had a long-standing relationship, maybe it's that guy's flows. It's not as clean cut as I thought it was. The state of Wisconsin has a large internal trading desk trying to combine all those flows with the dockside flows.

46:24Will England:It gets messy, but it does get figured out.

46:26Tony Caruso:The partnership has been mutually beneficial. Out of the gates, we were able to get financing terms that were good. That wasn't because of our small account that we started with. It was because of Walleye's activity. We benefited from that. At this point, we're very large. We're giving back to Walleye in terms of the GMV.

46:45Derek Drummond:There's an economy of scale argument to this. The smoky back rooms of how things work in the sell side, as Derek was referring to, but what's very clear is that as Dockside gets bigger, everyone involved participates from larger heft to be able to conserve better rates and reduce the cost for everyone involved. When you three came together to create this platform and now it's turned into a significant business with other clients, how did you think about who owns Dockside? We're all partners in doing this.

47:14Will England:They've become true partners of ours. We pick up the phone and talk to them multiple times a week. They're unbelievable. Faso and Michelle are just amazing. it's integral to our business. We want to see that business grow and thrive. Even if we don't bring in other clients, this is going to be core to our strategy for as far as I can see.

47:35Tony Caruso:This is the case with Walleye. I hate the notion of limited partners. We aren't limited partners. We are true partners.

47:43Derek Drummond:It feels good as a participant in the world to do stuff like that. Then as a practical matter, all three of us participate in the cash flows generated by Dockside, that's a good thing too. Where do you hope it goes from here? We want it to grow. This overall trend that's happening of managers wanting to put up their own shingle and realizing that they can access pools of capital that Tony and Derek represent through this format. Dockside is a classic economy of scale type business. As it grows, it grows in the right way. It gets better to everyone involved. And even from a cost sharing type structure, it's meant to grow with the right partners on both the client and the manager side.

48:20Derek Drummond:Derek, Tony, you've lived in a world for a long time where the growth of a manager doesn't necessarily accrue to you as an investor, a client of that manager. Now you sit on both sides of that. I'm curious how you think about Dockside from that perspective.

48:37Tony Caruso:When it comes to investing in hedge funds, typically it's performance attracts assets, assets ruin performance. This is not the case here. Obviously, with any kind of PM that we invest in, as they grow, the alpha is going to deteriorate. We try to find PMs that are going to be disciplined. We incentivize them too to not leave off the management fee. We're going to pay you less in terms of fix, but we're going to pay you more in terms of incentive. They eat what they kill. That's not going to change. We're going to find PMs who don't manage too much money, but we're going to be able to access it via this Dockside platform.

49:09Tony Caruso:And as it grows, we should reap the benefits as well.

49:12Will England:Tony, Will, and myself, we're entrepreneurs. We like to build things. There's a number of things that we have on our docket to build on Dockside. We're in a commodity super cycle. I would like to have a multi-PM commodity complex. I'm actively trying to find additional ways to keep growing the relationship. This space is getting more competitive. Now the big platforms are allocating external managers. Getting access to that next talent coming out the door is getting a little bit harder. Getting a separate account for$100 million on day one, they're starting to get two, three,$400 million tickets.

49:48Will England:Could we cobble together$500 billion and get a PM to manage just our capital for the first couple of years? Lock down that high-end talent that's spinning out so we can keep that alpha stream higher for longer? There's something about that. There's some ability for us who, as like-minded, sophisticated allocators, if we all see someone we like, can we put up a big enough ticket to be able to lock down that alpha for a little bit? That's interesting. Our team's constantly trying to evolve and use this tool in new inventive ways. There's a lot of things that we have at SWIB as a big pension that might be able to be additive to platforms like this.

50:34Will England:Now that we have control over the assets and the trading and the PBE accounts, the example I use is I have a very large long only equity index account. I know a lot of guys that need stocks to short. Couldn't they borrow them from me? There are things that you can vertically integrate in your business that's beneficial to both sides. Maybe I'm lending out more stock at SWIB. My PMs get to have certainty over their borrowers. Financing arrangements. There are a lot of things us big asset owners have as assets that we might not be utilizing nearly as much. But once you're in the mix and once you're in this whole world of financing and pipes and everything, you can start using them.

51:14Will England:It makes everyone better off.

51:16Derek Drummond:Well, guys, I want to make sure I get a chance to ask you a couple of fun closing questions before we wrap up. Before we get to the closing questions, I want to tell you about one of our strategic investments. We've made a few and each are working on a product or service we think will be valuable to our community. One is Oldwell Labs or OWL. OWL is the very best software I've seen for allocators to find and track managers, and I've seen a lot of them. Trust me, it'll be worth the look. There's a link in the show notes so you can learn more. And here are those closing questions. Tony, what was your first paid job and what'd you learn from it?

51:53Tony Caruso:I'm the son of an Italian immigrant who came to this country without any money. The value of the dollar was driven into my head at a young age. I didn't get an allowance for being cute or for existing. It was paint the fence or any kind of odd job around the house that I'd get money for it. It's kind of like a microeconomy. I remember I was at my friend's house. They had a window washer do all the windows. The mom paid$300 for this professional window washer to do all the windows. I was like, oh man, that's a lot of money. I decided to become a window washer, created my own window washing business.

52:28Tony Caruso:I ended up recruiting some of my friends. We ended up washing all the windows in the neighborhood. We washed 100 different houses in one summer. That gave me this sense of entrepreneurialism that I applied to when I was a proprietary prop trader in Chicago, when I worked for Bridgewater, when I joined the allocator community. I've always had that entrepreneurial spirit. It was that first job that lit it.

52:50Derek Drummond:Will, how'd you spend your ideal workday from wake up to bedtime? To the extent I have a superpower, I don't require variety. I'm happy doing the same thing every single day. I'm pretty boring too. I get up real early. I go and beat the hell out of myself in the gym, like moving heavy objects. I go to work. What makes for a rewarding work day is not sitting at a computer looking at numbers all day. That's fun too. But running a business with a hundred and a hundred people, there's leadership aspects. Building things, that's why probably this group has worked together well, is I like building stuff too.

53:19Derek Drummond:So if I could spend my day working with like-minded people on how to move our business forward, that's really fun. Then I go home, I got three kids. We've been married for over a dozen years and we hang out as a family and do fun things. Go to bed and do it all over again. Derek, what's the best advice you ever received?

53:35Will England:I learned this a little bit too late in life. Invest in those that invest in you. You have finite time. You want to invest in people where you're getting a return on that investment. As an allocator, you're not short on friends. Everyone likes you, but finding those real people, I've been doing this for 25 years now. I feel like I've gotten my core group of friends, the way I trust them, I trust their opinions. If I reach out and put time into them, I'm getting something back from them. That's been a huge change in my life over the last five or six years. My friend group has gotten a little bit smaller, but the quality has gotten a lot better.

54:10Derek Drummond:Tony, what's your biggest investment pet peeve?

54:13Tony Caruso:Overconfidence. People who think they can predict the unpredictable. If you've read any books by Nate Silver or Phil Tedlock, they call it the hedgehogs. the great storytellers, not the ones who actually assign probabilities and understand that there's uncertainty with any prediction. They call them the foxes. I try to find foxes when I invest in PMs. They don't tell as great of a story. They understand that my hit rate is 53%. I'm wrong 47 % of the time. I don't have 100 % confidence in anything, but if I can keep on hitting that 53 % over time, that's going to be a great business.

54:46Derek Drummond:Derek, how's your life turned out differently than you expected it to.

54:50Will England:I wanted to be a hedge fund manager when I was 16 years old. My grandmother gave me the book Predator's Ball, the Michael Milken book. This sounds amazing. She's like, what's a bond? I'm like, I have no idea, but it sounds awesome. So I set up my life to be on this trajectory. I never thought I would spend 16 years at a pension plant. I thought I was going to do the New York hedge fund thing. I'm doing the pension fund hedge fund thing. It's been better than I ever could have imagined.

55:17Derek Drummond:All right, Will, last one. What life lesson have you learned that you wish you knew a lot earlier in life? Jim McCall came out of the book recently where he has this phrase of live life looking forward in the saddle. And I've used that concept a lot more recently, which is live your life moving forward, not backwards. I'm a mathematician academically. There's concepts in math which evolve around a memoryless process. The only thing that matters is the current state. A lot of people live life trying to fix the problems of the past. That's a natural human bias. what makes sense on the go-for basis.

55:45Derek Drummond:And that's kind of the only thing that matters, which by definition, it is. You can only control the future. I wish I had a little more clarity around that earlier on. Well, Will, Derek, Tony, thanks so much for sharing the innovative new approach for how to access these assets and managers. Yeah, thank you. Thank you. 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.