How to Think About Alternatives with JPMorgan's Alternative Asset Management CIO Paul Zummo

27:54But compared to the rest of the industry, it was outsized. It was outsized, you know, which is interesting. There have been a number of academic studies that say female fund managers outperform their male counterparts by anywhere between 50 and 100 basis points. And it's always – the joke is testosterone poisoning. But it's fascinating to hear. I'm curious as to why female short sellers – is it an objectivity? Is it just a different approach? It's kind of really intriguing. Yeah. Well, my wife would probably say it's because they don't have the egos of the man. Right, right. That's the poisoning.

28:34Absolutely. If it doesn't work out, they cover it and move on. Yeah. You know, I think there's probably some, you know, of course, there's great examples of both. But, you know, again, risk management and discipline is definitely is definitely the key to successful short selling. So there has to be something about it. Let's go with another bullet point that speaks directly to that. I love this one. Avoid casinos. Black isn't on a roll and red isn't due. Very few managers add value over time through timing the market, even if it sometimes looks like it. Don't reward a manager for gambling. Yeah.

29:13Again, so much insight in two sentences. Explain how you reached this conclusion, which I just think is brilliant. Yeah, so I give credit to Chris Marshall on the team. I think he's the one that came up with that quote. But it really, again, is the observation that the vast majority of managers are – the vast majority of them are good stock pickers, but bad portfolio managers. Too different skills. It's too different skills. And timing decisions, the vast majority of managers are subtracting value from that portfolio management decision. Really? The vast, you're going to say top quartile, top decile?

29:52Where's the alpha coming from? I mean, the alpha is coming from, like, if you look at, let's put it this, if you look at fundamental long short equities that live within the pods, and you look at alpha generation with them on, you know, eternal leverage or whatever you want to say, and then you look at the standalone long short universe and the alpha that's generated there, there's a disconnect, right? And it's not because they're not good stock pickers. The disconnect, I think, is because the bad portfolio management or subpar portfolio management is subtracting value from their stock picking.

30:29So maybe they're adding 5 % of alpha in their stock picking and it's decaying that by 3 % from portfolio management decisions. And I just think it's difficult. And there's been tremendous factor moves in the last number of years. There's also issues when you're operating on a standalone basis, like there's business considerations, rightly or wrongly, right? So, if someone's operating in a 10 vol and markets are going down and they're in a hole by 8%, now are they acting differently? They should be buying a lot more because the markets are down and things look interesting, but are they? Are they - They're playing scared.

31:06They're playing SCAD. And I think it's – again, it's not everybody for sure, and there are some that do it well. I just think it is very challenging to do. It's much easier to find good stock pickers that are adding alpha than it is for someone to consistently be able to make, I don't know, contrarian or correct portfolio management decisions. The old joke is the crowd is right most of the time. So if you're constantly fighting the crowd, you're on the wrong side of the trend. Yeah, there you go. Last one. And again, another brilliant one. Dinosaurs go extinct. Innovation must be constant. Yeah.

31:48And this is for hedge funds as well as us. And part of it relates to the managers themselves, part of it relates to strategies. And again, part of it is business model. But when I think about strategies that we used to invest in in 1995 where you can make a lot of money, like it's like merger arbitrage. Merger arbitrage, again, you can make double-dusher returns. It was less competitive. Plus, you need mergers. Well, yeah, that helps for sure. But now, like the strategy – I mean there are some very successful people that do it on a standalone basis. Usually, they do it with credit or other events.

32:24But like it's a much more difficult place to make money. It's become largely commoditized. When it becomes interesting, there's a swarm of money that will kind of go into it, right? Isn't that true for every style, every sector? Well, eventually, which is why you need to innovate. You need to, you know, so let's take, you know, like machine learning quant, right? Like machine learning quant started investing 10 years ago. Like that was novel. And, you know, today it's obviously gaining a lot more momentum. People understand it more, but you have to kind of continue to reinvent, like from our perspective, need to continue to do, look after different strategies, different types of managers to find kind of high alpha.

33:04And then from a manager standpoint, again, let's think about quant. Again, the managers need to reinvent themselves and refine themselves from an alpha standpoint. So like alpha is decay. You know, yesterday is alpha is tomorrow's beta, right? and a lot of what has made them successful from an alpha standpoint is going to decay. So if you don't, maybe it's 15%, 20 % is going to decay and be irrelevant each year. So you need to constantly kind of reinvent yourself. So when you start putting together the next 30 over the next 30 years, yesterday's alpha is tomorrow's beta. That's number 31 for you.

33:44There you go. That's right. So let's talk about what's going on today. Hedge funds have had to adapt to a very challenging era, certainly since the financial crisis. I've heard financial repression and all sorts of reasons for why some funds have been underperforming, less volatility, increased dispersion in equity returns. What's going on in the world of hedge funds today? So, yeah, the last five years, especially, have been a great time for hedge funds. So let me maybe frame it. And actually, we just came out with a paper called Hedge Funds in the End of the Alpha Winter. And I should do a shout out for Emmy Hodges, who did a great job on putting the piece together.

34:33But maybe just taking a step back. We identify kind of three big picture variables that really drive excess return in hedge funds. So one of them is volatility. Everything else you could want vol higher. That creates dislocation, sloppy trading. Opportunity. Opportunity. It's the fuel of what drives alpha, right? The second is dispersion. So equity dispersion first and foremost, but wider dispersion as well. So more winners than losers. Obviously, if you're a stock picker, that's helpful. And the third is rates being higher than 2%. And higher rates help in a number of ways. but both kind of mechanically, obviously, if you have floating rate debt, it's hopeful, higher rates.

35:17But also, again, we've seen this like in a period of rising inflation, where rates are going higher, that's going to fuel increased volatility. So it's a little circular, right? But elevated volatility, or at least normal volatility, elevated dispersion, and rates that are greater than 2%. When you have those three elements, so even two of those three variables kind of as a tailwind rather than a headwind, alpha generation is really, really strong. So what we've done is we looked at three different periods. The first starting with 2000-ish, kind of a 10-year period. I forgot the exact percentage, but a large percentage at a time, two of those three variables were at your back.

36:01They were helpful. And you saw excess return that was very, very high. The middle period, which is the alpha winter - 2010s? Is that what we're talking about, essentially? Yeah, 2010, right? The middle period, which is, I think, nine-ish or eight, nine-year period, which admittedly is quite long, was one where you saw a lot of central bank intervention, where those variables were generally depressed. You could think about a 2017, realized vol being really low. Obviously, we had rates at zero for a chunk of that period as well. That was difficult to generate alpha, not only for hedge funds, but more broadly, and that's kind of the alpha winter.

36:41We would suggest that that period is abnormal. And even if rates go down, even if vol comes down, you're not likely to go back to a period that's so dominated by that period of central bank intervention. And most importantly, the postscript to that is for the last five-ish years, you've gone back to kind of the good old days of alpha generation, right? So, last five years, you've had volatility that's generally normal or higher, dispersion that's really high, and rates that are accommodative as well. And excess return on alpha has resumed and looks very much like what it looked like 20 years ago versus that kind of middle alpha-winter period.

37:26So the past five years have been really interesting. 2022, obviously, stocks and bonds down double digits. That seems to happen once every 40 years or so. Yep. What about 2025? What sort of role is deglobalization and shifting trade policies playing in shaping hedge fund returns? Yeah. I mean, obviously, you have a lot of different strategies, a lot of different And sub-strategy, it was very difficult to talk about the whole hedge fund industry as one thing. But when I think about excess return, all the things that you mentioned are generally good for hedge funds. So the rest of the world is getting worried.

38:05That is, again, the fuel of what drives hedge fund returns. So when you see rising vol, and that's going to be good from Cisco arbitrage. It's going to be good generally for balanced stock pickers. It's going to be good for discretionary macro managers. When you see deglobalization and some of the trends that come out of that, whether it's onshoring, whether you see some of the moves in gold, that's good from a trend following standpoint. It's good for discretionary macro managers. When you see Japan increasing rates, the US decreasing rates, that's hopeful because it's two bets. Discretionary macro managers are in place.

38:47It's not just like everyone operating in the same way. So those things are good, I mean, generally because it gives people more of a palette to, you know, an alpha palette to which to choose from, place more bets, diversify more. And also heightened volatility and heightened uncertainty is going to be positive for the vast majority of strategies, especially from an excess return alpha standpoint. So you mentioned Japan. I'm curious what regions around the world are attracting the most new capital. We've seen Europe suddenly catch a bid. You know, obviously, Japan has been doing well, the rest of Asia, the Middle East and even the US.

39:26What areas are attracting new capital and what's driving that trend? Yeah, I mean, one of the areas that we're most excited about for sure and have been leaning in for the last few years is Japanese corporate governance. Now, interestingly, if you look at dollar flows into Japan, it's actually not. I mean, it is positive, but it's kind of modest in the grand scheme of things, which kind of shocks me, honestly. And like, I don't mind because we're playing events first and foremost. But you really haven't seen how many dollar flows in, which again is unusual given like everyone in the world in every way, shape or form is probably underweight Japan.

39:59And it's obviously inexpensive. But most importantly, you have a material dramatic catalyst that's driving value through Japan. And yeah, we're excited about it. I mean, corporate governance has been talked about in Japan for decades. The reality is until Abe had his third arrow, which really set off a number of regulatory and policy changes, and importantly, cross-shareholder relationships started to unwind, that really set the stage for increased corporate governance. So, again, we've been there for three years. I think we're maybe halfway through what needs to be done, and there's still a very, very fertile opportunity set.

40:44So that's one. The other thing I would point out is just the Middle East. Now, obviously, it's not to say that there's a lot of money from an investment standpoint going into the Middle East, but I had just come back from a week-long trip in the Middle East and got there maybe 18 months prior. And it's really exciting what's going on. I mean, clearly, there's a lot of interest from an investment standpoint in hedge funds and alternatives in the Middle East. There's no question about it. Is this because all the sovereign wealth funds located in Qatar and Arab Emirates and go down the list? It's certainly coming from them, but it's broader as well.

41:24I mean, it's family office money in addition to the sovereigns. And they're interested in alternatives. They're interested in hedge funds. Local family office or European American family office in the Middle East? All of the above. I mean, there's also been, which is maybe to tie together one other part, I mean, there's also been a lot of movement of people of hedge funds setting up businesses in Dubai, Abu Dhabi, and people moving there with wealth. And in turn, they become potential investors in alternatives. So that's definitely a prominent story as well, the number of people that are setting up in the region or opening up offices.

42:01So when we used to talk about New York, London, Tokyo, Hong Kong as centers, do you put Abu Dhabi or Dubai in that list? It's, you know, for the larger hedge funds, for sure. I think it's becoming, you know, the vast majority of them are opening offices or have offices in the region. So it is definitely an area that is attracting a lot of interest. And then from an investment standpoint, again, it's a much smaller market, but I think the policy changes and regulatory changes which allow foreign ownership and derivatives markets starting is encouraging as well. It's early days. And again, it's not – the breadth and depth of the market still needs to improve.

42:45But again, it's exciting from that standpoint as well. Really kind of intriguing. What are hedge funds thinking about with assets like crypto or gold? How are they dealing with what are some of the biggest winners past couple of years? So you've seen, I mean, on gold and precious, but I mean, discretionary macro managers have, you know, many have had that bet on. It's been a very successful bet and theme given, you know, concerns on inflation and debt levels. So, you know, you continue to see that theme in people's portfolios. Crypto is a little more, you know, interesting and specific. Some managers, again, mostly discretionary macro managers, have invested in crypto, mostly Bitcoin or ETH, more from that inflationary debt standpoint.

43:37Although others have from other standpoints as well, from a trend following standpoint on futures, people have done it, a bid on statistical arbitrage side. Some people play from a cash future standpoint, from an ARB standpoint as well. But it's still small, at least, let's say, the traditional hedge funds investing in crypto, it's still small. That being said, obviously, you have a large number of, like, dedicated crypto funds that are trading both directionally as well as on the upside as well. Coming up, we continue our conversation with Paul Zumo, Chief Investment Officer at J.P. Morgan Alternative Asset Management, discussing the state of hedge fund investing today.

44:18I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

44:39I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Paul Zumo. He is chief investment officer at J.P. Morgan Alternative Asset Manager, helping to oversee $35 billion in external hedge fund assets. He's also chair of the Alternative Asset Management Investment Committee. He co-founded the group back in 1994. So what styles and hedge fund worlds are doing well in 2025? 25. I've noticed over the past few years, emerging managers have made some consistent gains. Quants have done well. Some of the multi-strats have done well. What are you seeing in the rest of the field, some of which, even in this high volatility, high alpha market, have been struggling?

45:27Yeah, I'd say, so we look at Pivotal Path as their indices, first and foremost. I think it's They're very, very good quality indices and I think paints a very good picture. And that's kind of what I have in mind. So when you look at it, you'd find that most strategies and sub-strategies have done pretty well this year in the grand scheme of things. The one exception to that is CTAs, which have struggled. Even with gold running away and – So CTAs got hurt in April where they were very, very long equities. And you had Liberation Day and the market's correct a lot. So you saw a bit of a retrenchment in CTA's performance in April.

46:09They got hit pretty hard. And they've been trying to piece it together. And they have the last couple of months have been stronger. To be fair, it's very challenging to follow a trend when the trend is dependent on the whims of one person. That is true, for sure. Right? It doesn't show up. But the good news is most other strategies are actually doing quite well, right? So if you look at across relative value, as you mentioned, quant, the multi-striped pods, convertible bond arbitrage has been good with strong issuance. Discretionary macro, as we talked about some of the themes, whether it's gold or rates themes, has done well as well.

46:50You might say, OK, well, the markets are up. But it's not just beta. It's alpha. So a couple of people have come up with, if you look at the alpha generation this year, it's about 5%, 5.5 % in longshore, which is quite healthy. And even merger arbitrage events done well. Credit's done fine. So I'd say it's been a good year overall with most strategies generating strong kind of single, mid-single-digit to high single-digit returns or high single-digit returns. And overall, definitely a good year for the industry. So we've seen the rise of multi-strategy managers over the past few years. And there have been a number of very large multi-strats.

47:32And it seems to be a direction a lot of funds are heading. How has that changed competition within the industry? Is there more collaboration within a multi-strategy shop amongst all the different pods? How is that playing out? Well, I think collaboration amongst themselves. I think there's a pretty - I'm assuming they're not collaborating with the fund across the street. It's all internal, right? I'm sorry, collaboration for the pods, pod to pod or within the pods? collaboration within a multi-strat from, hey, here's the macro, here's the long, short, here's the quant group, here's the trend group.

48:12Are we seeing - So like cross-pollinization across teams. I think it depends on the model. If you look at the pods, obviously there's some prominent ones out there. They differ materially from strategies that they pursue. They differ materially from the culture that they pursue. They just differ in many, the risk management approaches is different. So it really depends. There are some managers where they are benefiting from maybe cross-polarization across teams or a center book that's maybe drawing upon best ideas. But it's really going to differ kind of pod to pod based on the style and how they operate.

48:54Fair enough. Let's talk about risk management. There were obviously some lessons learned this year in April. and plenty of lessons learned in 2022. What do you think are going to be the most impactful lessons for managers looking forward? Looking forward. I mean, things we're worried about today is just complacency. You know, I mean, Mark, anytime you have markets going up for a while, inevitably complacency develops in some way, shape or form. So we're certainly being, you know, front-footed and having discussions. Where is that? And whether it's credit or equity markets. and like how do we, or specific areas with hedge funds and how do we guard against that a little bit?

49:35But I think some of the events last year, like we're talking about, you know, Liberation Day or maybe a DeepSeek event and some managers being, you know - God, was DeepSeek 2025? It seems like decade, years and years ago. You know, maybe it was, you know? No, it was. It was January this year. It blew everybody's minds. I mean, I think it really underscores a couple of things. I mean, one, risk management first and foremost, right? And certainly on Liberation Day, I think a lot of people were caught off balance in their books. And then again, oftentimes kind of retrenched after that, lock and losses.

50:09It's not a great recipe. So like sizing positions and sizing risk across areas in which people invest are obviously always critically important. And then on DeepSeek, look, AI is extremely exciting. It creates tremendous opportunities. But going back to what we were saying about short selling before, it also creates tremendous risk. And risk of just being one-sided bet, but also risk of, again, operating in a long, short fashion and thinking about offsetting risks and basis and sizing. So those things are critically important. Um, so speaking of AI, I just overheard Paul Tudor Jones speaking to somebody on Bloomberg saying, you know, maybe AI might be developing into a small bubble, but it's not a giant headache.

51:02How are you looking at all this bubble chatter, high valuation, concentrated markets? This seems to be part of the wall of worry that markets are climbing. What's your perspective on this? I mean, if Paul said it, it must be right. You could do worse than following Paul Tudor Jones. That's right. That's right. I mean, look, is it a bubble? Obviously, it's real. It's going to be impactful. It's going to be enormously important. and it's going to reshape how we do so many, so many things for sure. Is there excess in certain areas related to it? There has to be for sure. Again, I think it comes down to risk management first and foremost.

51:44Assuming you want to set up a balanced book, it comes down to risk management first and foremost. And if you don't, if you just want to play it from a thematic standpoint, again, it also comes down to risk management just from a sizing standpoint. You need to size it to be able to handle the inherent volatility of it. but is it rich? Well, of course it's rich. Is it a bubble? I don't, you know, I'm not the best one to say, but it certainly is real. It's certainly going to revolutionize and change our lives. Every time someone asks me about it, I like to remind them Greenspan's irrational exuberance speech was 96.

52:19You still had a long way to go before that really became a bubble. But also look at, you know, we were talking about, you know, dot com, right? So, I mean, as a little bit of your model and your playbook, right? So, I mean, obviously Amazon came out of that, but there's a lot, you know, Pets.com, you know, dating myself. But, you know, and I have the stock puppet on my desk, you know? Like it's going to be winners and losers. Right. And it is extremely important, extremely powerful, but it's not going to lift all boats at all times. So you need to be selective and you need to size it right. Makes great sense.

52:59Last question before we get to our favorite questions. What do you think hedge fund managers and investors are not talking about, but really should be? What topics, assets, policies are getting overlooked, but shouldn't? um well i mentioned complacency a little bit just because where we are in the cycle but maybe if it's okay i'll take in a different direction to say like it's more of a misnomer about the hedge fund industry which is if that's okay it's a little different so i like one thing i would say that's that's frustrating i think a lot of people get wrong is they look at the hedge fund industry as an asset class and what i mean by that is if you have an asset class then you know everything in an asset class should be more or less highly correlated to each other, right?

53:46It's the same thing. And if you take the 10 ,000 or so hedge funds that are out there, the correlation, the cross-correlation, pairwise correlation is something like 0.2 or 0.25. No way near one. It's nowhere near one, right? So what you really have is a collection of strategies, a collection of sub-strategies. Importantly, the characteristics of those strategies are is vastly different from each other in many cases. And the way you use them in a portfolio is vastly different. So when people think about the hedge fund industry and they're looking at a hedge fund benchmark, which is like 10 ,000 funds cobbled together, oftentimes they look at it and they're like, well, I don't know what to make of this.

54:29It has an okay return and an okay volatility with okay characteristics, maybe I don't need it. And it's the right conclusion to the wrong answer, right? And, oh, I'm sorry, the right conclusion from the wrong question, right? And like, again, the observation is correct, but really the question is, can I look at subsets of this industry that are deeply valuable rather than just looking at the whole thing as a whole? And we would strongly suggest that if people are just looking at the aggregate industry, they're missing a point that beneath that there are strategies and sub-strategies and certainly managers that are adding enormous, enormous value that's being overlooked by someone who's plugging the average into an optimizer.

55:19I'm so glad you said that because over the course of 25, 30 years, I've watched the hedge fund industry change so dramatically. And my own views on it have evolved. It's very easy to look at a broad index and say, gee, this is expensive and doesn't generate great returns. But again, depending on where you want to draw the line, top quartile, top decile, when you look at the top performing funds, there is genuine alpha generation. Yeah, for sure. And interesting, like if we would have met, you know, 25 years ago, 15 years ago, like I would have said the same thing is that like I'm not here to say the hedge fund industry as a whole is such a tremendous value proposition.

56:04Like that was never the thesis. You know, the thesis is more are there 100 or 200 managers out there that are adding enormous value? Yes. And can, through great due diligence, can myself and other people find them if they spend their time and do a great job? Yes. And is that tremendously value in portfolios? Yes. But it's not about the hedge fund industry as a whole and the averages are going to knock the lights out. Jim Chanos has this quote I love. He says, you know, when he started out in the late 80s, early 90s, there were a couple hundred hedge funds and they all generated alpha. Today, there's 11 ,000 hedge funds and it's the same 200 hedge funds generating alpha.

56:50Which, you know, there's a lot of truth to Sturgeon's Law. There's a lot of truth to 90 % of everything is not great. Yeah. Yeah, I don't know if it's the same 200, but - No, he said the same number, not necessarily the same funds. They come and go. Yeah, look, it's an industry and an asset class and a fee structure that attracts a lot of people. And many of them deserve that fee structure and many of them are great. But yeah, obviously, you need to be selective. Absolutely. All right, let's jump to our favorite questions that we ask all of our guests, starting with, tell us about your mentors who helped shape your career.

57:34Sure. I think, so two come to mind. I mean, if I go back really, you know, back to high school and I'm forgetting his name, it's my wrestling coach. I swear to God, I knew you were going to say that. Yeah, it's my wrestling coach who was my economics professor. And this is when I first started getting interested in investments and started reading, you know, I don't know, some of like the classic books from way back when. one of them on Wall Street, reminiscences of a stock trader, you know. And he was the one that kind of encouraged, and we actually played this game at the end of the year, which was like a stock market game.

58:13And I actually found an arbitrage and we made more money than anyone had ever made, you know. And he's like, you know, that's kind of like real life finance. You should, you know, if you, is that interesting, you should explore. So I credit him for kind of pushing, helping push me in that direction. And then from a career standpoint, I mentioned Joel Katzman, you know, hired me to, you know, start to visit with him. And yeah, he was really instrumental. I mean, one of the things I don't think we spend as much time, but like skepticism is really important. I'm a deeply skeptical person. I think it helps you navigate things.

58:49It's one of the pearls of wisdom. Be a skeptic, approach due diligence from the perspective, where does this break? Where does it break? Yeah. And I mean, it's like approaching due diligence, I give an analogy of thinking about a balance sheet where people, again, behavioral biases, too many people say, approach it from the asset side. How much can I make? What's the story? You need to approach it from the liability side. What can go wrong with this manager? What can go wrong with the strategy? Where does it break? And then turn to the asset side and effectively say, am I getting compensated for that?

59:22And you could teach people some of that, but part of it has to be innate as well. Like you need to be an innate skeptic maybe. So any case, Joel, you know, Joel, I think shared my skepticism for sure. He certainly taught me a lot about the business and, you know, running a business. So yeah, you know, props to Joel. Let's talk about books since you mentioned some books. What are some of your favorites? What are you reading currently? Yeah. So books, so I have a, so we invest with around 120 hedge funds and And the vast majority of what I'm reading is their letters, my analyst research. And that's the vast majority.

1:00:04And then Michael Semblas does great work. Yep, love his work. Really good work. So I have to say that's consuming the vast majority of my time. The only thing that stands out, there's a book, what is it? Speak Like Churchill and Stand Like Lincoln that my old boss Jamie Cramer gave to me, which is about public speaking, which is actually really good, insightful, like easy, easy read books. Speak like Churchill, stand like Lincoln. Yeah. And it's a real, real easy read to, you know, just some like reinforcing some good lessons of public speaking. You mentioned Michael Semblist. So I consume his regular output.

1:00:47and then the JP Morgan quarterly guide to the markets is just a spectacular, spectacular resource. Agreed. Really find it amazing. Let's talk about what's keeping you entertained these days. Are you watching or listening to anything interesting? Like Netflix and, you know. So, yeah, well, so I have a five and a half year old and so she's dominating the Netflix account. Usually it's the K-pop Demon Hunters. That's the number one thing on Netflix now. I was going to say, I don't know if you know what that is. Every time I'm searching for anything, I put it on for 30 seconds and my wife is, what are we watching?

1:01:30Can you take this one, please? So unfortunately, it's a little too much of K-pop Demon Hunters. But away from work, I like wine. so it's probably some podcasts or or related to wine just to when i'm not reading the you know the all right notes so but there's a there's a great one called wine with jimmy which is uh wine with if you want to do a deep dive on yeah yeah that's i literally just bought um the i forgot the name of it but during amazon prime it was on my wish list and it was like 98 bucks and it showed up for 30 books the 30 bucks the um atlas guy to wine around the world that's a fat book fat and i'm like all right that's absolutely worth having on the on the dry bar now you have to read it you look you look look good look smart absolutely it's more of a reference guy but give us some of your favorite wines if you're not going to give us more books give us some wines what do you like what do you drink what do you like well this is um i mean i I like red more than white.

1:02:38I like, you know, I don't know, like a Barolo. So a nice tannic red wine. So I drink Barolos, Tempranillo. So we're always looking for a house wine, just like something reasonable that you could pop open any time. this Intre Natale Verga is about a$20 bottle, and it drinks like a$50 bottle. Nice, finding those values. Where is it from? Italy. Okay. But they only, like it's a small winery, they make a few thousand cases you can't get. Like I'll get a case and that's it, you're done until next year. We'll swap great value wines after. There was another one called Xanthos that was Emeritage, X-A-N-T-H-O-S.

1:03:29Okay. And the 2017 was spectacular. You can't find any. Yeah. It was like a$15 bottle of wine, drank like a$50 bottle of wine. I don't feel like I have a palate to go much beyond that. Like, all right, I appreciate. Listen, if you could find$20 bottles of wine and drink like$60 wine, but you know. I'm forgetting your name, but I have a Sangiovese like that. Which I founded one of the wine, you know, you go to these like wine tasting events, but you go around and you could taste a bunch of wine tastings, right? It could be blind, but this is like a James Suckling one. You taste all different types of wines.

1:04:04And then, you know, you, I don't know, for me, I take pictures of the ones I like, and then you go back and then you look it up and some of them are like$150. You're like, oh, I didn't find anything. And then, you know, you see one that's like 20 bucks and you're like, all right, maybe I found the Juul. Right. It's easy to get disappointed in$150. bottle of wine at$20. There's a lot of great wine. And then you go to Italy and you sit at a cafe and you get an$8 carafe and it's the best thing you've had. It's just so crazy trying to figure that out. So our final two questions, what sort of advice would you give to a recent college grad interested in a career in either investing or hedge funds or alternatives?

1:04:50yeah so um i mean first you know and i guess it's cliche but like the like do what you love thing is so real and valuable but i think you have to like find what you love first like when you're when you're 20 years old i don't know that anyone it's a big world yeah like has a great vision on it i would say like trust your instinct you know so like it's obvious to me today why i'm doing what I'm doing. It's like, this is, I don't know, I'm skeptical, I'm structured, I'm creative, I'm like curious, like it makes sense today. It didn't make sense completely at the time. But like you follow your instinct, you're like, oh, I love to do this.

1:05:31So I'm working on the weekend every week, because like, this really intrigues me. And it's interesting. And like, you know, I don't know, they could not pay me and I'm still doing this, right. So like, I think being true to yourself and really exploring what makes you happy, what makes you intrigued, what really makes you dive deep on things, and then continue to lean in and continue to pursue it and learn more and more. Maybe the second part of it is just be a student of history. So I like baseball, and I think when I was young, how much I learned about Ty Cobbs and DiMaggio and Ruth and everybody.

1:06:07I think if you're a baseball player, you should know the history. if you're going to the hedge fund industry like you should know the history when i say david askin you know you should know that it you know so like take the time to understand the history because it it i mean a number of reasons one it gives you context but two like the mistakes and the opportunities often you know often rhyme with each other right so like how do you like investing in 2020 in march 2020 turns out it looked a lot like 2018 2008 um 1998 like there are elements that are very, very similar. And being a student of history helps you navigate much better in the future.

1:06:46To say the very least. Final question. What do you know about the world of investing in hedge funds today that would have been useful back in 1994 when you were first launching JP Morgan alternative asset? I mean, there's no internet, right? So back in 1995, I mean, I don't know. We knew a fraction. We knew 5 % of what we knew today, but it was 50 % more than next person knew, right? So, I mean, it's all about getting an edge and continue to reinvent yourself. I think the biggest lessons learned for us, but for the industry is, and what I would have taken back if I could, is just the depth of understanding on financing.

1:07:36So, in financing agreements, like prime broker agreements and term and triggers and all sorts of things that have caused problems over the years. if you could take that one, you know, and it's caused a lot of, you know, pain historically from time to time. And if you had that knowledge and you pull that back to 1995, wow, you would be able to, you know, navigate near seamlessly across the industry in a way that, you know, was much bumpier for everybody along the way. Paul, thank you. This has been absolutely fascinating. And thank you for being so generous with your time. We have been speaking with Paul Zumo.

1:08:16He's chief investment officer at J.P. Morgan Alternative Asset Management. If you enjoy this conversation, well, check out any of the 600 we've done over the past 12 years. You can find those at Spotify, iTunes, Bloomberg, YouTube, wherever you find your favorite podcasts. And be sure and check out my new book, How Not to Invest, The Ideas, Numbers and Behaviors That Destroy Wealth and How to Avoid Them wherever you buy your favorite books. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Anna Luke is my regular producer.

1:08:58Sage Bauman is the head of podcasts here at Bloomberg. Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.