Episode 11: Glenn Dubin - Co-Founder of Highbridge Capital Management

0:00Today, I was honored to have Glenn Dubbin on the podcast. Glenn is someone I consider a mentor and a friend, and I'm looking forward to sharing his insights and wisdom with you all. Glenn is the co-founder and former CEO of Highbridge Capital Management, one of the most prominent and influential hedge funds of the last century. Glenn founded Highbridge in 1992 with his partner, Henry Swayka. Highbridge was fully purchased by J.P. Morgan Asset Management in July 2009, with Glenn staying on before stepping down in 2013. He is now the principal of Dubin & Co., his family office, and has found much success in his private investments.

0:38He's a founding board member of the Robin Hood Foundation, along Paul Tudor Jones, and a trustee of the Museum of Modern Art in New York. In his first podcast ever, Glenn and I discussed his career, advice, insights, trends and tailwinds, and philanthropy. We hope you enjoy this conversation, and thank you for tuning in. Thank you for joining me, Glenn. I really appreciate this. This has been a long time in the making. Amir, very nice to be with you. So I want to start off in your early life. And I think a lot of people have the misconception that a lot of hedge fund managers are born with a silver spoon in their mouth.

1:16They get all their connections from birth, et cetera. But your father was a taxi driver. Tell me a little bit about your childhood in Washington Heights and kind of growing up and when you decided you wanted to get into Wall Street. Sure. Well, as you mentioned, I grew up in Washington Heights, the northernmost part of Manhattan. My children like to say that Poppy grew up in the Bronx, so I don't, you know, correct them. In the Bronx, northern Manhattan, it's really the same thing. My father drove a taxi, as you mentioned. I was the first one in my family to go to college. I went to the State University of New York at Stony Brook.

1:55I graduated in 1978 and immediately went into the real world to seek a profession where I could excel, excel commercially and professionally. and i want to kind of there's this story you tell um you had 30 interviews you set up 30 interviews with fun and you're coming out of college and the first or with firms in the first 29 you didn't get the job in the 30th tell us about the 30th with ef hutton and kind of building your the fun to fund business there well you've done your homework um uh you read the case study I guess, done at Harvard and Stanford. So yes, I took the summer off after graduating from Stony Brook, graduated in three and a half years, very anxious to get out into the real world and make some money.

2:52I took the summer off. I went into the Yellow Pages at the time and looked for all of the Wall Street investment firms that there were. I compiled a list of 30 firms and while I was in Europe where I had my summer break, I bought my first business suit. It was a wool pinstripe suit that I kind of recall I paid$90 for and I actually had 30 interviews lined up. And what I would do is I would if I had a 10 o 'clock interview, I would arrive at the office building at 930 because my interviews began in late August in New York City, where the temperature and the humidity was incredibly high. And that one suit was a wool pinstripe suit.

3:45So I had to cool my heels a little bit in the lobby before going up to my interview. But anyway, I was 0 for 29. You know, basically told you have no experience, you have no background. Thank you, but no thank you. And then in my 30th interview was with a gentleman from EF Hutton and Company. He offered me a job into the training program. And I was so surprised and happy that he said, you have the job. And he repeated after saying, you have the job, it's$1 ,000 a month. I thought he meant that I needed to pay him$1 ,000 a month to go into the training program. So I immediately said, yes, not knowing where I was going to get the$1 ,000, but I immediately said yes.

4:28And that was the story of my initial job interviews and my first job on Wall Street. And then from then, you developed, if I'm correct, the fund of funds business within EF Hutton. And EF Hutton became Shearson Lehman Hutton. And then you and Henry Swaika, your partner, went off on your own to first of all, found Dubin and Swaika Capital Management and then Highbridge. Is that the correct order? Yes. So I worked at EF Hutton and Company. My childhood friend, Henry Swieka, was at Merrill Lynch at the time. We decided to join forces together and form a partnership focused on not transactional business, as many of the retail stock brokers were doing, but on allocating capital to third-party managers.

5:17And the advantage that we had at EF Hutton is they had a very interesting program, very progressive program at the time called EF Hutton Suggest, where they allowed their brokers to gather money from clients and allocate it to third-party managers. And as opposed to getting paid on a transactional basis, you got paid a management fee. And Henry and I thought this was a much better business model to create value for ourselves than doing transactional business and calling up a a prospective client than trying to sell 200 shares of IBM or buy a corporate bond, but rather to gather assets and try and allocate them to independent professional money management firms.

6:01And so if I'm correct, after that, you kind of wanted to, instead of allocating, starting Highbridge, instead of allocating the third parties, you wanted to kind of build up those uncorrelated return streams within your own fund. And that was the idea for Highbridge. But other than that, what was the vision behind Highbridge? What were you looking for when you started it? And there's a really important point I want you to make about legacy and kind of building it for legacy rather than you don't want the largest hedge fund. You want the one that will stay around the longest. Right. Well, before we get to Highbridge, let me just finish the chapter about the fund-to-funds business that Henry and I shamelessly called Dubin and Swieka.

6:43We started that business in 1984. We had many early mover advantages of being very early in the hedge fund evolution. We found some great managers early on in their careers and began to allocate capital using modern portfolio theory to try and find uncorrelated return streams in the form of these third party managers. And in the late 80s and up to the early 90s, we built actually a very successful fund-to-funds business. We had at the time over a billion dollars of assets on management, which is a lot of money at any time. But back in the early 90s, it was a real lot of money in the alternative asset management world.

7:27And we had a great business. But we were looking at the managers that we were allocating capital to. and quite frankly, were a little bit envious that we were getting paid a 1 % management fee and a 5 % incentive fee above a 10 % hurdle, whereas the managers that we were allocating capital to were getting paid a 2 % management fee, a 20 % performance fee. Some of them are even getting paid a 4 % management fee and a 30 % incentive fee. And we said, well, isn't this wonderful? We've got a great business, but we'd much rather be principals as opposed to agents. So let's start our own hedge fund business, but let's borrow those same modern portfolio theories that supported our fund-to-funds business and apply it to internally managed strategies as opposed to externally managed hedge fund managers.

8:20So we built Highbridge. We started Highbridge, I should say, in 1992 with$35 million of capital. The first strategy we developed was a U.S. convertible arbitrage strategy followed by a non-U.S. convertible arbitrage strategy. And we slowly but surely began to build out multiple strategies that had the characteristics of being uncorrelated to one another, thereby reducing the volatility and increasing the return of the overall multi-strategy fund over long periods of time. And I just want to kind of touch on the first fund of funds business that you and Henry started was called Dubin and Swega Capital Management.

9:02and a very important point for people that don't know much about Highbridge and Glenn, I'd recommend reading the Harvard and Stanford case study about them. But you started Highbridge and you consciously ensured that it wouldn't be named after you guys because you wanted to build it for legacy. You wanted to build it for longevity. So can you talk a little bit about why you wanted to build it for longevity and also the steps you took differently than overhead? Sure. Well, the first one is somewhat obvious. we didn't name the business after ourselves. Unlike our fund-to-funds business, where we did shamelessly name the business after ourselves.

9:39In the case of Highbridge, we named it after a neighborhood in Northern Manhattan, Highbridge Capital. So that was the first point. We had looked at predecessors in the hedge fund industry that had gone on and retired and realized that, you know, once they retired, they didn't really have any, create any franchise value. You know, Michael Steinhardt is a good example of that and Steinhardt Partners. So once Michael said, I don't want to do this anymore, I want to retire, there was no more franchise value. So we said, well, the first thing that we have to do is not name the business after ourselves.

10:14So we picked Highbridge as an example. The second thing that we did, which was, I think, equally as important, as opposed to being the traders or the investment portfolio managers ourselves, which Henry and I never were, we were the business builders, we were the risk managers, we were the asset allocators. We had to identify strategies and businesses that had more of a process orientation to them than strategies simply find a great portfolio team or portfolio manager or trader that can out trade other people in trading currencies and dollar yen, or let's find a great stock picker or let's find a great credit manager.

10:57What we were trying to look for are process-oriented businesses where the portfolio manager was part of a team and the process was an investment process that involved creating investment returns, excess returns. Examples of that were the strategies that we gravitated towards. So the convertible arbitrage business. both domestically and internationally. Again, as I mentioned, convertible arbitrage really is a process business. If you think about it, you're almost acting as a non-bank bank. What you're doing as a creditor to these non-investment grade companies is lending them money in the form of a bond.

11:41But you're lending them money at a below market interest rate. And in return for accepting a below market interest rate, they give you a call warrant or a call warrant or option on their underlying company if it goes well. And to protect that loan that you've just provided, the money that you've just lent to that company, you short their stock, which again hedges the downside of that particular corporate credit in a very effective way. So that's what we refer to as a process, almost like a lending business to non-investment great companies. Similarly, the risk arbitrage business, another business we pursued.

12:20What we're trying to do is we're trying to underwrite the probability that a transaction, a stock-for-stock transaction, is consummated over a period of time. So you buy the company that's being acquired, you sell short the acquiring company, and you deliver the package over a period of time for a defined rate of return. So that, again, is a process-oriented business. And I think there's a very important point to be made there in terms of management. Not only did you and Henry step back or originally weren't traders, because if you left, then the whole thing wouldn't go kaput. You guys were managers from the start.

12:58You guys managed the businesses. But not only were you guys not traders, but you ensured that each vertical within the business didn't have one superstar trader, one superstar dude that kind of managed all of it, got all of its returns, got everything. You build processes out instead, which I think is very important because the business wasn't relying on one or a handful of people. Exactly. Exactly. It truly was a business. And that was the criticism in the early part of the hedge fund industry is that, you know, these are not real asset management businesses. These are just individual partnerships with star portfolio managers, star traders that are generating exceptional returns for their LPs.

13:42We saw it much more as a business. And fortunately, so, you know, we started the business in 1992. And now we're kind of in the 2005 period. And in 2005, we were in discussions with J.P. Morgan about them buying a strategic interest in our business. From their perspective, they appreciated the fact that Henry and I were the business builders, asset allocators, and risk managers. And to your point, not the talent generating the excess return, generating the alpha. So it really did have franchise value above and beyond just the two of us. And what we saw in J.P. Morgan, it was actually bought by J.P.

14:30Morgan Asset Management Business, is a very large, very successful institutional asset management business that we could partner with and, quite frankly, learn best practices from in addition to continuing to grow and develop our business. And so it was a fantastic partnership on both levels. We started the business, as I said, in 92. Excuse me, started the partnership rather with J.P. Morgan in 2005. At that time, we were a$7 billion multi-strategy hedge fund. So a very successful but single product multi-strategy hedge fund. When I left in the beginning of 2013, it was a$35 billion alternative asset management business.

15:18But I think most importantly, by virtue of the strategic advantages that we were given by partnering with a large money center institution, we built out a physical commodity business, a merchant energy business. We built out a very robust and very diversified quant equity business. We built out a very successful private credit business called HPS, High Bridge Principle Strategies. So we did a lot of businesses and strategies above and beyond what a traditional hedge fund could have done on their own. And I want to touch on each of those a little bit later. But then after you stepped down from – so J.P.

15:57Morgan fully finished the acquisition of Highbridge in 2009. And then after that, when you stepped down as CEO, you went on to found your family office, Dubin & Co. And what was kind of going into your family office? What was the vision? What were the companies you were looking to invest in with your family office? Well, you know, when I finished my – I actually stayed on a little longer past 2009. I stayed on – they asked me to stay a little longer because some of the businesses were still in development. And so I ended up staying until the end of 2012, beginning of 2013. And I knew that when I left and would start my family office that I didn't want to be passive in what I was doing in my family office.

16:42I didn't want to allocate money to third-party managers. Frankly, I'd find that pretty boring. But I wanted to continue to benefit from my 30-plus years of being in the alternative business, be informed by all the experiences I've had in building out those businesses, and try and identify, cherry pick, if you will, those businesses that I thought I could recreate in a family office environment and have an edge. So the first business that we started was actually a business that was started at Highbridge, a partnership between the Louis-Dreyfus family and Highbridge, our fund, where we formed a joint venture and created a merchant energy business called Louis-Dreyfus Highbridge Energy.

17:29When I was ready to leave in 2012, beginning at the end of 2012, beginning at 2013, I knew that the Louis-Dreyfus family was looking for liquidity for some of their family members. I also knew that Highbridge had an experience of owning this asset for a period of time and was also interested in liquidity. So I went to senior management at J.P. Morgan and said, I would like to, it's time for me to leave or like to leave, but I'd like to buy this asset. And they correctly said to me that I really had to put together an investment group together and have an arm's length transaction, which we did.

18:08And we ended up buying Louis Dreyfus family's interest with an investor group. I ended up buying Louis Dreyfus interest in the business and Highbridge's interest in the business. And the new co is called Castleton Commodities International. and Duven & Co. was the lead shareholder. I started out as being the executive chair and having two board seats and that was the first investment that we started out of the family office that's been highly successful. And you've invested in a lot of other companies. Can you tell us a little bit about the other companies you invested in? Sure. And the move data as being one, there's a couple of biotech hedge funds that you seeded.

18:54Tell us a little bit about that. Sure. I'll walk you through quickly in chronological order. It's been 11 years. So the first business was Castleton. The second business that we started was a quant equity business. I mentioned that quantitative equity trading within hybrid was a highly successful strategy for us. We had a great team and ran a lot of capital very successfully. And so we started, I seeded within the family office, a business called Engineers Gate. And Engineers Gate was meant to be a multi-manager platform focused on quantitative equity trading. And, you know, little did I know that the business of quantitative equity trading is a very technical, very complex business.

19:49It requires very sophisticated technology platform, risk management systems, historical data, and the depth of the J curve, so to speak, the amount of time that it takes to build out the business and really become profitable, it takes a long time. But anyway, we started to build out that business. We had a number of portfolio teams that we had built or, excuse me, recruited. We had built a very sophisticated operating and technology platform. And then in 2014, actually, excuse me, 2020, made the decision to spin that business out and attract outside capital, third-party capital. And my partner at the time, Greg Eisner, became the CEO of the business and has been operating that business very successfully as an independent hedge fund.

20:51And looking back on, you've invested in a couple of other businesses too. You've invested. Yeah, we did. We've been involved in GP seeding. We seeded a small middle market biotech fund. That is one part public equities, one part early stage private equity. We seeded a middle market, small middle market private equity fund in the consumer space, made a number of investments, venture investments, early stage technology investments, early stage biotech investments. So really, you know, been very active and very busy over the last 11 years, building out a diversified family office across everything from physical commodity trading to private equity investing in small middle market consumer businesses.

21:44So we've had a lot of fun. Yeah. And after you sold private to JP Morgan, you could have easily just been a passive investor and somewhat retired. But why do you think you wanted to stay on as an active? Do you think it's something about you? Do you think it's something about your nature? Why did you keep wanting to be an active investor? Well, I think my wife tells me that I have a screw loose, that I've got to slow down and stop working as hard. But the honest answer is I enjoy what I'm doing. I really look forward to going to the office. We've got a bunch of people in the family office that are very talented, very smart.

22:23I enjoy the camaraderie. I enjoy the dialogue. I enjoy building things. I enjoy being a mentor to younger investment professionals, which is another important part of what I've done out of the family office. And I find it very stimulating. And among the people you've mentored that turn out to be successful and among the investments you've made in your family office in which the companies have turned out successful and successful CEOs and such, what do you think are a couple of common themes that you see across the successful CEOs that you've either mentored or invested in, et cetera, or founders?

23:03There's an element of pattern recognition, Amir. I've been doing this for, it's hard for me to even think about how long I've been doing it, but 44, 45 years. And after a while, you spend time with an individual, you get to know them better, and you have a sense of whether or not this person is, A, somebody that you want to be in business with, and B, whether or not they have the ingredients to be successful in what they're doing. It's not foolproof. I've made many mistakes in my career, but I also have a reasonable track rate of identifying talent. And so the identification of talent is one part.

23:49The mentoring and the helping build a business and a strategy and having a longer term strategic plan is another part. So I try and spend time with young investment professionals imparting whatever knowledge I have and have gained over my 40 plus year career being in the alternative asset management world. And there are many, you've been across a lot of investment businesses in your career. There are many great traders, amazing traders, but there's very few great traders, great investors and great leaders. What do you think makes a great leader a great leader? What are the traits? Well, a great leader is, you know, it's not just in the investment world, it's in the world at large.

24:43But a great leader is somebody that commands respect, somebody that's admired, and somebody that has a vision that people want to engage with and follow. So I think, leadership has different forms, but leadership is most important during difficult times. leadership is less important during good times. And so I think, you know, the leadership qualities that I've seen demonstrated are most apparent during bear market periods, market dislocations, where people are generally feeling very down and uncertain about their futures. That's when leaders in the investment world tend to stand up and shine.

25:34And circling back to your family office, across all the businesses you've invested in Cia and etc., what are a couple of common themes you've seen looking back? Yeah, again, I tried to use my 30 plus year career in the alternative world as an information basis to inform me about businesses that I thought were attractive and that had where I could have a competitive edge. I think now, as I look back and kind of examine the businesses that I've started or helped seed over the last 11 years, the common theme is they tend to be small middle market businesses or businesses that large asset management organizations can no longer participate in, either because of liquidity reasons or because the market opportunities simply aren't there for a large asset.

26:31management, a large asset manager. So a lot of the opportunities I've identified have been in a small middle market space. And that goes to the commodity business, the energy business, where we're focused on trading and identifying asset opportunities that are below the radar screen for the big majors and some of the big trading firms. It goes for Engineers Gate that's focused on a lot of strategies that cannot be scaled, that are capacity constrained. It goes to the small middle market biotech business. It goes to the small middle market private equity business. So a lot of them, the common theme seems to be, let's try and identify these markets or strategies or sectors that still have a lot of alpha, but are constrained in terms of how much capital you can invest in that particular area.

27:30And typically what happens is that a lot of the great managers start their careers or start their businesses in the small middle market space. And then as more and more investors want to give them money and their asset base grows, they have to move up market. And once they move up market, they leave this void in the small middle market. And so, again, if there's a common theme within my family office investment activities, I'm focusing more on the small middle market alpha than I would be if I was running many, many, many billions of dollars in an asset management business. and i think although some people that are smaller in scale to larger know that there's more alpha in those smaller businesses there's kind of first of all people want to make more money obviously but there's also kind of ego in it they want to get bigger they want to get um and it's it's kind of going against um against human nature to invest in those smaller businesses and you've already built up quite a reputation so there's no i wouldn't assume there's much ego at play for you to go into those smaller businesses, to invest in them and to see them.

28:41But I want to talk a little bit about your risk management approach. So you mentioned that you and your partner, Henry Swayka, very successful partnership and you balance each other out well. You said you were more of a risk taker and Henry Swayka was less of a risk taker. How has your risk approach changed throughout Highbridge and then going into Dubin and Co.? Well, I don't know that I necessarily said that I'm more of a risk taker and Henry was less of a risk taker. I'm saying there was a great partnership, a great balance. And partnerships that work, there is that balance. and usually what happens is you have one person on a risk spectrum and the other person on the other side of the risk spectrum and you end up meeting in the middle.

29:26And I think in my partnership with Henry during Highbridge, that was the case and the returns reflected that. We had exceptionally good returns with a very attractive Sharpe ratio. I will say the difference between running your family office and being a fiduciary and running a hedge fund, you look at risk differently. Quite frankly, you're much more risk adverse and risk sensitive when you run third party capital. You're very concerned about drawdowns. You're very concerned about consistency. You're very concerned about delivering bad news to your investors. at least we were, and you tend to be more conservative and you tend to be much more risk adverse.

30:22I won't say that I've thrown caution to the wind in my family office activities, but I will say that after 40 plus years of market experiences, I understand the volatility in the world, that there is volatility in the world. I understand the market cycles. and because I'm not managing somebody else's capital, I'm managing my family's capital, the emotional toll or the emotional volatility that I have when the markets are volatile is much less. And quite frankly, that's greatly appreciated because it's very stressful to run third-party capital when you go through a very volatile market environment.