Episode 43: Ryan Tolkin - CEO and CIO of Schonfeld Strategic Advisors

0:00This week on Generating Alpha, I sat down with Ryan Tolkin, a transformative leader in the hedge fund industry and a key figure in the evolution of the global multi-strat model. As the chief executive officer and chief investment officer of Schoenfeld Strategic Advisors, Ryan has been instrumental in the firm's evolution from a U.S.-centric family office into a global multi-strategy powerhouse. He's known for spearheading the firm's transition to an RIA and leading its expansive international growth across Europe, the Middle East, and Asia. A former high school intern at Schoenfeld, who later spent five years on the corporate credit trading desk at Goldman, Ryan rejoined the firm in 2013 and rapidly ascended the ranks, becoming chief investment officer at the age of 27.

0:44His leadership philosophy emphasizes empowering a vast network of highly skilled portfolio managers, driving innovation and quantitative investing, and successfully integrating new strategies like discretionary macro and fixed income. In our conversation, we spoke about his unique path from a young intern to the firm's leader, how Schoenfeld manages a large and diverse set of investment teams under a single platform, the importance of culture and collaboration in a high-stakes trading environment, and his outlook on volatility and opportunity in today's global markets. If you enjoy this episode, please follow the podcast and rate it 5 stars out of Spotify, subscribe on YouTube, and share it to anyone who you think might find it valuable.

1:20I really enjoyed recording this with Brian, and I hope you guys enjoy listening. Thank you. Awesome. Happy to be here, Amir. Let's do it. Well, I want to start where I always do, at the beginning. So we'd love to start with a little bit of background about your early childhood and upbringing and tell me a little bit about the environment you grew up in. What was it like and what were your early interests? Sure. So I grew up about 25 miles east of New York City in a town called Jericho on Long Island. I am the oldest of three boys in three years. so we were all in high school at the same time 12th grade 10th grade and ninth grade and so I would say my house was very very competitive as my mom would would describe it she spent the majority of her day breaking up different arguments around who was winning different in sports games or perhaps, you know, other things as it relates to social interactions as we grew up.

2:28But, you know, it was a dynamic environment. It was one in which, I would say, a combination of academics and sports were sort of always at the center of our discussions. um my dad um was in the travel business uh so uh part of uh the perks of him being in the travel business was we had an opportunity you know to uh to experience a lot of different cultures um and as he was hosting conferences um for travel agents around the world get to get to experience and go to you know a bunch of different destinations which i think gave me an opportunity to fully appreciate different people from different backgrounds, different cultures, you know, travel the world at a relatively young age and really kind of understand that the bubble that to some extent was the sort of the 25 mile area surrounding New York City in all four directions was not necessarily what the rest of the world looked like or felt like.

3:41And so I think that was a unique experience at a relatively young age, you know, to help shape who I am. And around that time, you got your first exposure to investing, if I'm correct, in a stock picking game in Newsday. Tell me about that experience and how it evolved into getting your Series 7 in high school and then ultimately trading securities at Schoenfeld as a high schooler. Sure. Yep. So Newsday, which was the local paper on Long Island, you know, ran a stock picking competition, I think, for middle schoolers. you know, at the time. And so my first exposure to stock picking really came from the Newsday stock picking competition.

4:20And the reason why I got hooked on it was Newsday had a great local sports section. And so I spent the early part of my childhood where I was really fascinated in sports and most importantly, not just the actual watching of sports, but the analytics and statistics around, you know, what made teams good, what made individual players on teams good, how did people perform, you know, in one game or throughout the course of the season, how was that predictive of how they would do, you know, in the future. And so, you know, just being exposed to Newsday analytics and sports ultimately, you know, gave me this exposure to the Newsday stock picking competition, you know, and then I became a bit obsessed.

5:03At that point, you know, the newspapers were publishing, you know, how stocks performed, you know, every day, there was no sort of Bloomberg terminal or kind of internet to go on, you know, at that point to sort of, you know, be able to get any stock pick, you know, in real time. And so you look in the paper and you look and they would publish how the stocks did, you know, each day and prices at that point were published, you know, in fractions, not decimals. And so you'd see Apple stock is up by a quarter of a point today. And you'd really on a daily basis get to track how your individual portfolio was doing.

5:39And so that was my first exposure to stock picking. In my mind, it was very similar to the way I thought about sports analytics in that there was a daily report card. There was a scoreboard. You could easily see the scoreboard. You knew how you were doing and you knew how you were doing relative to the competition. And so I think that that was fascinating. It sort of gave me a metaphor of, you know, how the stock market in some ways, you know, tested similar skill sets, you know, and characteristics to being in the sports analytic field. And that sort of drove an interest in it. And, you know, from there, at Jericho High School, we had an opportunity to do a work study program, you know, in lieu of of taking certain classes.

6:25And so there was a firm, you know, that had a significant presence, you know, in Jericho, which was called Schoenfeld Securities at the time. It was a short-term trading oriented firm run by Steven Schoenfeld. And, you know, I applied to do a work study program, you know, at Schoenfeld, where really the job was quite similar to the way in which I thought about sports analytics, which was I would develop report cards for each of the different traders around things that they did well, things that they did less well. And then I would try to provide the traders insights and analytics on ways in which they can improve their performance.

7:09And that led to me developing certain insights as it relates to patterns, pattern recognition, amongst this group of traders, which then I had an opportunity to present and share with Steven Schoenfeld, the namesake of the organization, who was obviously responsible for developing and providing capital to this group of traders. He was interested in what I presented. And from there, he gave me an opportunity to ultimately clerk for some of those traders. And eventually, as you just suggested, take my Series 7 and actually begin to start to trade a portfolio. And so I did that once I got into college.

7:53You know, I had the opportunity to have a little bit more free time in my life. And so I took the Series 7 training class as a senior in high school, eventually passed the Series 7, you know, and then got the opportunity to trade, you know, as part of the Schoenfeld Securities trading team, you know, throughout my college career on and off at several different points. And that really obviously drove meaningful interest in asset selection, stock selection, and short-term trading. And you were trading at Schoenfeld during college when you were at Duke. And then before you returned to Schoenfeld, you became a credit trader at Goldman Sachs for a couple of years.

8:35I'm very interested in you rose to the ranks of Schoenfeld relatively fast. You became CIO at age 27. What What do you think the experience at Goldman or the experience between gave you that insight in that you wouldn't otherwise have? Yeah, so an interesting question, and maybe I'll sort of go back to college for one second here just to talk a little bit about it. You know, I interned at Schoenfeld after my sophomore year in college, and that was a great experience. And then I got to like full time dedicate myself toward, you know, seeing how the traders operated every day, all day throughout the course of the summer.

9:12Obviously, I developed certain relationships from my first internship work-study program at Schoenfeld in high school, but then just getting to be a part of the action, you know, all summer long was really rewarding. And I thought like at that point, I was pretty young-ho that I was just going to go to Schoenfeld straight out of school. You know, I developed relationships. I was doing all the things that sort of mentors in my life, you know, had told me to do. And I was pretty set on that path, you know, and then I had the opportunity to go study abroad. And, you know, and through that study abroad experience, I had the chance to meet several other people who, you know, through certain conversations with them, just, you know, shared with me the advice of like, maybe I should go out and get a little bit more of a well-rounded perspective on how the business world operates and how the markets operate.

10:06before being sort of dead set in terms of going back to Schoenfeld. And so I decided to apply for, you know, summer internships, you know, at some of the bulge bracket firms, you know, in trading oriented roles. I was fortunate enough to land an internship at Goldman Sachs. And, you know, I decided that after my junior year in college, I was going to take that opportunity And and then compare sort of that opportunity to the opportunity to work at Schoenfeld and think through sort of what was a what was a better path for me. I ultimately chose to go to Goldman. And I think that was a really good choice in that being a part of an internship class of at that point, probably 300 individuals and then a first year analyst class of roughly the same, you know, provided me this unique opportunity to, you know, be part of an additional network that I think would be able to stick with me throughout the rest of my life.

11:11And as somebody who's kind of always focused on building networks or having sort of common experiences that you can then relate back to at different points in life, I think that that was just an awesome opportunity. And many of the relationships I developed from that summer internship experience at Goldman and then working at Goldman throughout the first few years of after my college experience, you know, were really, really leverageable throughout my experience now over the last 13 plus years, you know, at Schoenfeld. So if I said to you, first and foremost, how did the Goldman experience prepare me, you know, for Schoenfeld, the number one thing I would point to first and foremost is relationship building.

11:53You know, and relationship building such that, you know, you had common ground or common experiences with with said individuals that you could then rely on or relate back to throughout the course of your life. And frankly, my Duke experience has been, you know, really the same. I'm here, you know, recording today from Durham, North Carolina. And, you know, and the reason why I'm here in Durham, North Carolina is really twofold. Number one, Duke had a basketball game last night against the University of Florida, which we won by one point. But, you know, Duke is a special university because not only is it a great academic university, But the tie in of Duke basketball brings people back to this common interest or this common ground throughout the course of of one's life that that sort of emboldens or embodies like this further sense of school spirit, further sense of the power of a network that's pretty unique for, you know, a really, really well-rounded, large academic institution.

12:51And so that's been another rewarding network in my life. Secondly, I'm here because I'm now on the board of the Duke Endowment. And through being on the board of the Duke Endowment, I now have an opportunity to develop an additional network of people who are in the investing world, who are running several other large investing organizations, who we gather together to help give advice to the Duke Endowment on how to deploy capital, how to think about risk management, how to manage the assets of the university. to develop a consistent return stream for the university over time. And so we unite over a common ground as it relates to how to do that.

13:34And I've had the opportunity to learn from this network in other ways that certainly helped my Schoenfeld experience. So sort of the power of networks and developing networks would be the number one way in which Goldman helped prepare me for my time at Schoenfeld. Secondly, culture. I learned a lot about how or what a well-functioning culture looks like from my experience at Goldman. Goldman did an amazing job in terms of giving people an opportunity to be successful at a young age if one was able to deliver outcomes. And so they created this environment that helped propel successful people to want to win, want to compete, and want to challenge oneself to be kind of the best version of themselves.

14:24And they did that by putting you side by side on the desk with other really, really smart people, all of whom wanted to continue to figure out how to win, but do it in an environment where you were united behind common outcomes or common objectives. And so while each of us were responsible for running risk or running books, you know, in different sectors or in different industry groups, like we were there together to maximize the P &L, the desk that we were working on. And so, you know, working in the credit business, you know, we were there to maximize the credit P &L of the Goldman Sachs trading desk, albeit we were each responsible for a different set of names or a different set of credits to do that.

15:09And so I think like being on that in that trading desk environment, you know, having that will to win, having that will to compete, having that will to be the best version of myself, I think certainly helped for me create an environment that I knew that I wanted to take, you know, to Schoenfeld if I eventually found myself, you know, in a more leadership oriented position. Third, you know, thing that I would take away from my Goldman experience is the notion that like crisis and or challenges are the best learning opportunities. And so I got lucky. I got thrown into a situation, you know, at Goldman where early on was the GFC or the financial crisis.

15:48And so stress levels were high. Anxiety was high. Risk was high. You know, and we had to navigate through that. And so at such a young age, being exposed, you know, to what many would describe as maybe a once in a once in a decade or once in a multi-decade type experience, you know, to really learn through crisis certainly helped me think about, you know, how to develop skill sets that would ultimately be able to, again, be leveraged upon as we navigate crises, you know, here at Schoenfeld. And then the last lesson that I would say I took from the Goldman experience was sort of the opportunity to escalate risk or the opportunity to speak up, you know, when you felt like you needed to share a perspective that might not be being easily surfaced amongst a group of people for ABC or XYZ reason.

16:49And so I was presented with an opportunity to speak up, you know, and or challenge, you know, one of the one of the things in which somebody I was working for was doing, you know, and it was it was a difficult thing to do because I was directly reporting, you know, to that individual. but by speaking up and escalating a risk that I saw developing in a book, you know, to, you know, to other people in the organization, you know, I was presented with a lot of praise and a lot of endorsement as it relates to having the courage, you know, to challenge the norm, to speak up, you know, to present information, you know, in a way that ultimately would help the organization make the best long-term decision.

17:34And I think from that experience, I took, you know, to Schoenfeld, the notion that we needed to create a culture at the organization where people were given the form to be able to share their perspectives and speak up, whether you were the most junior person at the organization, a mid-level person at the organization, or a senior person at the organization, because by having that type of environment, we are going to long-term make the best decisions as an organization. And Goldman's famously this meritocracy, as are a couple other banks, like Bear Stearns used to be, or like even some in Brazil, like Garantxa.

18:10But I'm interested in these two aspects that really interest me is kind of your love and passion for statistics. And then also what you described as like network building. I'm interested in how you kind of parlayed those into becoming CIO at Schoenfeld at age 27. And ultimately at age 29, you convinced one of the greatest traders of all time to take outside capital. Tell me a little bit about how that became possible at 27 and then ultimately what that was like at 29 being able to convince and what it made at me kind of went into making that decision. Sure so actually the two things you mentioned are ultimately what convinced Stephen to give me the opportunity to become the CIO.

18:44I think the leveraging of statistics analytics and insights you know to help identify patterns was something that you know I had an opportunity to showcase to Stephen you know at a young age. And then secondly, by doing that and then continuing to develop that relationship with Stephen from that early experience allowed me throughout my Goldman days to maintain that type of connectivity, to ultimately be given an opportunity to come into Schoenfeld and help shape the future of the organization as Stephen was looking to evolve his role in the organization. And so throughout my time period at Goldman, Stephen and I would go out for dinner once a quarter, if not more frequently.

19:35And I would share my perspectives on what was going on on the credit desk at Goldman. You know, what was I learning about Goldman Sachs that I thought the Schoenfeld organization could incorporate into its organization as it was developing its business? And so I gave Stephen some great ideas as it relates to the importance of leveraging data, technology, analytics, building a best in class platform, how to create competitive edge and not only create, but then be able to sustain competitive edge in certain areas, you know, as you're building a business. How do I identify areas to create moats around some of the revenue streams that you're building?

20:21And I thought we did that uniquely at Goldman Sachs because of the strength of our Strat organization and the strength of our technology as compared to some of the other banks throughout the course of the financial crisis. I'll share one story with you. During the GFC, in the days before Lehman ultimately filed for bankruptcy, we were brought into the trading desk on a weekend to have a weekend session where we, alongside many of the other bulge bracket banks, would conduct a weekend trading session that would allow us to do certain trading. such that if Lehman were to file for bankruptcy by XYZ time, these trades would go into effect such that we would have reduced counterparty risk to Lehman on our credit default swap portfolio throughout in the aftermath of Lehman filing for bankruptcy.

21:22And what was particularly unique about the setup at Goldman Sachs during that trading session is we understood our risk and the way in which our risk would shift if in the end of the day Lehman filed for bankruptcy in a way that was so dramatically different than the way in which any other bank understood its risk. And that gave us as a trading desk a significant competitive edge, not just during that weekend trading session, but in the aftermath of Lehman filing for bankruptcy to be able to price risk, identify risk, and identify opportunity in a very meaningful way that allowed us to have an unbelievable trading quarter in the fourth quarter of 2008 and even into the first quarter of 2009 in a way where many of the other banks spent a lot of the time just trying to figure out the risk because they hadn't invested the time, effort, and resource in developing the right systems, developing the right processes, you know, to be able to visibly see risk and stress test how risk may change if certain scenarios play out.

22:27And so, you know, we at Schoenfeld, you know, frankly, even before I got there, tried to identify, you know, what it meant to have best in class technology and systems in some of the asset classes that we wanted to trade or wanted to be invested in. And so I think that through sharing some of those experiences with Stephen and by ultimately sharing with Stephen that where my passion lies is not just in investing, but the combination of building a business and investing that ultimately sort of created the opportunity for Stephen to take a chance on me, you know, to be a part of the next generation of leadership at Schoenfeld.

23:05So that was kind of the convincing of Stephen to bring me in, you know, as a CIO of the organization. As it relates to the second part of your question on sort of convincing him to take third party capital, that was much more nuanced and a much more challenging and difficult conversation. You know, but I think ultimately, the convincing arguments became the opportunity to do at a larger scale across a more meaningful pool of capital, what we were doing for him and his family, you know, for the last several years, and frankly, even for the years, you know, before I joined the organization. And why was it important to do it at sort of larger scale?

23:55One, that would give us the opportunity to have more capital to invest in the technology, infrastructure and data to be able to maintain a competitive edge on a go forward basis. Two, we would be able to build a better portfolio by investing some of that capital and building out infrastructure overseas to be able to port some of the strategies we were investing in in the US into some overseas markets. And so, you know, in the aftermath of taking third party capital, we expanded into Asia, into Europe, and certainly over the last few years into many different emerging markets, investing in some of the strategies that have been a part of our portfolio in the US for quite a while.

24:43And then lastly, the strategy was really about how through time could we attract, develop, and retain the best talent? And the view was that talented risk takers ultimately want to challenge themselves by having the opportunity to manage larger pools of capital and do it in a way in which they could responsibly grow each of their businesses. And while the Schoenfeld family had significant capital to invest, we ultimately had a view that having third party capital in the business would give us the opportunity to attract better talent and ultimately retain better talent in the organization. And sitting here, you know, roughly a decade, almost to the month from when we took in our first third party capital, I would say that each of those three parameters has largely played out in the way in which, you know, we expected it to play out, you know, roughly a decade ago.

25:46What's been different, I would say, has been just the scale of the infrastructure that we've built over the course of the decade to support, you know, going from what was a family office, managing the assets of a single family to today, you know, running roughly a$17 billion hedge fund, you know, that's investing across many different global markets across lots of different asset classes. And so we joked around at the time that, you know, by bringing in third party capital, we'd probably need, you know, maybe three or four additional people in the organization. And I would say what we got wrong was that we underestimated that by several hundreds.

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27:10And exclusively for Generating Alpha podcast listeners and viewers, you'll get a$1 ,500 statement credit plus a ton of exclusive perks when you manage your company cash with Rho. Terms and conditions apply. To learn more, visit rho.co slash generating alpha. Rho is a fintech, not a bank. Checking and card services provided by Webster Bank, member FDIC. See reward terms for details. Thank you. And back to the episode. You spoke about this idea of pattern recognition and then also statistical edge to an extent, but I'm also interested in, I've interviewed a lot of the better traders in the world in this podcast and be able to spend some time with some incredible people.

27:48And there's a lot of people that can pattern recognize or can dive really deep into kind of the analytics. But the best traders, I mean, at least what I've observed sets apart the best traders is kind of anecdotal insight and the ability to really express their views and also kind of use the insights that they get, consume a lot of information and use that in their trading. So I'm interested in what you think kind of between those two factors makes a great trader. And then also how much of being a great trader is innate versus taught? Because for you, it seems somewhat innate in the sense of you've had that statistical, that love for statistics very early.

28:23And it doesn't seem like for a lot of the best traders in the world that it's taught. So I think there is some element of it being innate. And I think every trader is different. So I don't want to speak on behalf of many of the other great traders that you've spoken to or certainly that exist out there. But having Having watched many traders develop at Schoenfeld over the course of the 13 years that I've been at Schoenfeld, I do think it's a combination of both. I think there is a certain element of how much raw skill set does an individual have, how much drive, ambition and passion do certain individuals have.

29:08have people throughout the course of their life demonstrated a consistent ability to win. And I do think that that is a predictor of future success as a trader or as a portfolio manager managing a pool of capital. That said, I think there is many things that can be taught by having good mentors and by investing in good and repeatable process that I think can also meaningfully change the probabilities or the odds of one being able to experience long term success, you know, as a risk taker or as a portfolio manager. And I think as I have gone about building, you know, our business, you know, at Schoenfeld, I start by trying to have consistent and repeatable processes that allow me, as you suggested, to process significant amounts of information rather quickly.

30:17and then be able to store that information, you know, through my own brain or through a team, you know, that I rely on, you know, to then help me make better long-term decisions. And so I think it's a combination of continuing to develop good process, good repeatable process, develop a team that can then help you be intellectually honest around that process and challenge you around the way in which you leverage that process, you know, to make decisions, you know, and then, you know, also having, you know, good raw innate abilities, you know, to be able to see things one, two, three steps before, you know, other people are able to identify those things.

31:06And Schoenfeld's in a space with a lot of giants in a sense of the likes of Citadel, Millennium, 0.72, and even ones that have been growing relatively recently, like BAM, in which Dimitri came from Schoenfeld, despite having lower even than a lot of these larger competitors. I'm interested in how you describe what it takes to win in this industry. Sure. So, look, all great firms, and I won't comment specifically on any of them, but, you know, all of them have talented leaders and all of them, you know, have developed over multiple decades, you know, a great ability to figure out, you know, how to win quite similarly to what we've been able to do at Schoenfeld.