Inside The Hedge Fund Industry

[Music] okay good morning everyone let's dive straight into your next conversation I also wanted to say thanks for Sarah thanks to Sarah for that wonderful introduction and thank you all for sticking around uh what we know is that above average investment returns are often expected and embraced by the hedge fund or the hedge fund industry but how do they make this happen so over the next few minutes we're going to unpack this with our expert panel very pleased to say that Aon Landy is here he's the CEO of Bon Howard it's a leading Global alternative investment management firm specializing of course in macr trading strategies leader bragger also joining us the CEO and co-founder of systematica Investments which focuses on systematic trading strategies and Bill Stone is the chairman and CEO of ss and C Technologies a global provider of investment software and services so let's dive straight into this and first of all uh focusing in with Aon and leer let's talk about focus and approach here so how do each of your firms this is brevan Howard as a discretionary manager systematica as a quantitative manager keep a long-term focus in a world that really loves short-term trades L do you want to kick us off yeah certainly uh so uh for for us as a systematic uh firm as a systematic manager uh articulate ating the process is is necessary H you know in the discretionary world the the the the discretionary Trader has a process often in their minds and and are not necessarily forced to articulate it externally H for us in the systematic world of course by coding and by and by uh uh setting out our algorithms that the process focus is somewhat natural and also the use of technology which kind of promotes the process View and it it's important in a in an industry that has become predominantly institutional right our investors have gone I started in the industry in uh 2001 there was a good number of high net worth individuals no that were clients of ours then nowadays it's all institutions so the the the Horizon is 10 10 years plus so the process is super important Aaron on focus and approach walk me through it sure I think the first thing to say is that like later we have been delivering long-term returns for investors for 20 years and that Superior return stream has been something which has driven the business and been the source of incredible net returns to a broad range of investors so short-term returns of course are important but we all know that long-term returns are what we're all LPS are looking for and every long-term return by definition is a combination of a bunch of short-term returns the power of brevan Howard is that the portfolios are managed by an expert team of portfolio managers some of those individuals are focused on a specific strategy which has short-term Horizon some on a long-term Horizon and it's the teamwork and the power of the collection of those individuals that really drives the returns which as I mentioned over time have delivered Superior returns over more than two decades then of course we also have complimentary strategy we have the largest liquid crypto Fund in the world and that's an asset class which as we all know is extremely volatile so investors in that product definitely need to have a longer term perspective so partly it's about an appropriate perspective for the product set and partly it's about making sure that the individuals managing the money in combination are able through the short-term returns to deliver the powerful long-term returns that we're all looking for and Bill come on into the conversation here as well walk us through how ssnc uses technology and Investments to help institutional investors focus on the long term yeah I think we take a little bit of a different perspective obviously we're not um investors like like like Lita and ARL here you know we we really look at at how do we make sure that our customers our clients can operate where they want to operate and the rules are different around the world there's different Regulators obviously there's different currencies there's different taxing regimes and the more you can give your clients the information that they need when they need it and they have to be confident that it's right and they're doing a lot of things some of our clients can trade five or 10 million trades in a day you know so you have to be able to process that deliver it back to those portfolio managers and Traders and we all know how laidback they are when you don't get it to them on time so we we think that that focus on details this is a minutia business you know you have really some of the stars that that make the selections but they have to have the support in order to be able to make the selections again and again and again so let's talk about selections again and again and again I just wanted to take a deep dive into the investment strategy here just quickly of course we're going to talk about the importance of location because we're here in Abu Dhabi and that's important as well but let's talk about how to make money in this environment because uh with regards to hedge funds what we've seen is These funds being able to deliver consistent returns in some cases even in equity be markets like what we saw in 2022 so what are some of the current trends in allocation or risk management being utilized to actually deliver returns now where is it possible to make money as a hedge fund in this environment lader can you walk us through your strategy yeah so so uh we we take the quantitative approach but with this in that quantitative approach we we run a number of different styles I think um the so we run Equity Market neutral we run microt Trend following we run macro non Trend and we run multistat Vehicles as well I I I think that uh what investors are really looking for these days particularly institutional investors is low correlation low correlation to traditional asset classes if you think about these uh large institutional investors they've got a very large amount of money to deploy so they will have a very large allocation to equities and bonds probably equities for sure and so the hedge fund the the hedge fund piece is a piece of the puzzle it needs to behave in a way relative to these other big asset classes and and on that front the opportunities that we see in the the the global geopolitical scenario at the moment are actually quite good there's bit of volatility in fixed income uh there's you know changes structural shifts happening everywhere but but in terms of your question you know different styles for for different things and and I think the Common Thread is the this Institutional Investor wants that piece of the puzzle to have a certain decorrelation profile that's what they want from you and Aaron I want your take on a piece that was written by the financial times only a short time ago it said in September that investors were turning sour on multi-manager funds and this Financial Times p he cited Goldman Sachs research that said big firms had actually seen net client withdrawals for the first time since 2016 so what do you think that sentiment shift ultimately says about the industry today and the outlook for mmfs well there's definitely been a big regime shift over the last decade and that's seen a lot of LP money moving steadily into the larger firms particularly the firms that have multiple PMS a soal multi PM model that's been at the expense of smaller Boutique hedge fund operations and really some of the driving forces behind that have been the increased cost of running a small business The increased regulatory burden and increased power of the larger firms to utilize their size to attract the best talent to deploy economies of scale and also to offer flexibility to LPS particularly investors who need customized Solutions for specific investment needs you mentioned the article in the Ft I'm sure you're very aware that the Press often exaggerates things no so I think that trend has been very powerful over the last decade LPS I think are much more comfortable these days with investing in the larger companies partly because of all those economies of scale factors that I mentioned and also because the increased governance and better controls of larger institutional operations guard against unexpected behaviors from small boutique owners and that trend is here to stay and I think will remain there for a while and just quickly highest as you sit here almost mid December what's your highest conviction bet into 2025 in terms of markets we're looking very carefully of course at what the incoming us Administration might do uh it's clearly a very business friendly Administration and particularly be interesting to see how far they go down the track of reducing the regulatory burden on crypto I mentioned already that crypto is very important to us and we have a huge crypto fund that most likely will make the US economy remain strong at the same time deficits are high so that pressure of strong US economy High deficit will likely make the dollar strong or remain strong and that will put pressure on other countries such as Japan which had super low rates perhaps we'll see finally see significant rate Rises there and also pressurize some of the emerging economies particularly those that have dollar liability such as Brazil which has already been suffering some uh Market disruption over the last year or so ler did you want to react to can respond to that as well my question was the highest conviction bet coming into 2025 can you expand on what our Hors just said uh yeah sure I the the the the Quant investor you know tends to react to the data more as it comes I think structurally I I I completely agree with with Aaron you know there's an incoming us Administration with a lot of uh very alarming views I am quite alarmed by Europe I have to say we were just touching about this in in the Green Room uh you know France trading you know pretty much at the same level as Greece so so there are reasons to be worried uh there are also reasons to be optimistic huh glp drugs coming in you know affects societal effects that are Broad and and wide ranging and and of course AI which you know is enormous productivity tool so so in answer to your question uh I think that there are reasons to be optimistic I think Equity valuation are high but you know I mean human human beings make progress huh it it's it's the nature of the game so there are reasons to be optimistic uh there are some geopolitical risks there are some risks attached to the US Administration and a European risks as well but you know broadly I think that that's the way that that I see it and just bring it back to the hedge fund conversation as well Bill does location make a difference to investment returns or can you run a hedge fund from anywhere well I I think when you look at what they've done here in Abu Dhabi is they recognize that the infrastructure that you need in order to be able to really you know do highfrequency trading or be able to go into any kind of a structured product or derivative you you know you can't do it if if you're going to try to do it on the cheap and what you admire about what they've done here is they've invested in all of that infrastructure and that makes everything work better right you get your first iPhone it works okay except you're at 2400 B modem so it's really slow and you get frustrated but as that improves you get more confident and people make bigger bigger bets because they got bigger convictions and I I think having pools of capital as well like they have here you need liquidity right you need to be able to move in and move out without everybody going there's Lita you know it's you can't you can't do that right you got to be able to get in and get out without really impacting what what what the valuation is you know because of your trade and later mentioned something really interesting as well of course it's on everyone's Minds right now and it's AI I'm curious to get your take Bill who in the future will be more equipped more enabled and perhaps better able to deliver a higher investment return will it be human beings or will it be technology well I I think human beings are are an essential part of of of all we do because we interact on an emot level as well as an intellectual level you know technology is very powerful you know and everybody is yay y Yi I'm yeah yeah yeah be careful right you know you get ahead of yourself all of a sudden it's like wow I used to like crypto except I don't know where it went right so you got to have the right rules the right controls you got to do some stuff that people don't like like internal controls and separation of Duties and reconciliations and if you have any problem with those we can help you um as it stands today would you let AI manage a large fund would you let AI manage a 401k for example as it stands right now no why because I don't think it is all vetted so you know you get what they call hallucinations you get other things where it comes back and you read it and it sounds brilliant and then you dig into it a little harder and it's like well they made this up and they made this up and they made this up so you got to be careful right intelligent people sometimes put on an a facade and so will artificial intelligence so you know I'm I'm a big believer we spend a fortune on it but at the same time you know uh blindly letting them take over the investment decisions of my money or hopefully my client's money is is I I think ill advised I think it's such an interesting conversation and I'll get our other panelists to weigh in on it as well but adding to that what would you say is one big thing to watch that's going to shape the investment management space in the year ahead and why I might start with Aon and then give leer the final say Aon what's your take as we wrap up I just want to go back to the point on ai ai is obviously changing all of our lives very rapidly and it's uh also changing the landscape for investment in the world of rhow we're using technology now to pause and filter and score the enormous volume of incoming data and research that we receive on a daily basis we're using AI to assist portfolio managers with types of co-pilot to help them with a task of managing their money I completely agree with Bill that it's a combination of the human and the Machine that is the winning formula machines are brilliant at paing at identifying and analyzing but they're not that good at predicting things that might change and we saw even just this last weekend in this region a change which people weren't expecting these things happen all the time and machines are not that good on on those things and that's where human is incredibly powerful so the combination of human machine the machines are getting more powerful it's obviously particularly important in the crypto space where the whole industry is founded on technology and anyone with a deep understanding of Technology will win in the crypto space as long as we have a year like I anticipate next year where it's not just all about Bitcoin so technology is coming it's transformational and that's a thing that's really going to be different Bill same question yeah well I I think the same you know I it it it is you you know you're a smart person you can look at things you can get information you can collaborate you know and I just think that that it it's not it's not always you know you have Formula 1 here and it's so exciting but you know they got a break on those cars too not just a gas pedal you know and understanding that you better be aware of both of those powers in order to navigate in a safe way and and that's what you these guys are fiduciaries they have other people's money and it's stuff they care about deeply so I think that they're investing the time and effort to understand the capabilities but also what some of the risks are and later just finally one thing to watch that Will shape the investment manage management industry in the year ahead what is it well beyond AI because AI is really changing things huh I I could if we had more time I could take you to some examples concrete examples but uh but I I'm watching Europe with a somewhat fearful uh mindset uh you know as we worry about China or the US Administration or whatever I'm kind of watching Europe and a bit worried about that to be honest but uh but as I say still plenty to to celebrate and be optimistic about really fascinating conversation I certainly enjoyed it I hope you did as well ladies and Gentlemen please make my panel thank uh make my make my panel welcome it is later bill and Aron thank you all appreciate it thanks Dan oh [Music]