Apr 6, 2020 · 51m · capital-allocators
Eric Peters – Trading and Evolution at One River (First Meeting, EP.18)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Eric Peters, founder and CIO of One River Asset Management, exploring his journey from Chicago floor trading to managing volatility and trend-following strategies. Peters offers critical insights on market fragility, the pitfalls of excessive leverage, and why government interventions are creating a prolonged low-return environment for institutional allocators.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 18.2% of the talking time here. How this is scored →
Ted as informed peer 2.2 Guest teaching 4.0 Guest disagreement 0.8 Ted pushing back 0.3
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 39:49 Eric proclaims private equity is done
Eric bluntly dismisses conventional allocator wisdom by declaring that private equity is done and predicting major regulatory fallout over excessive leverage.
Hardest push from Ted ▶ 42:26 Ted presses Eric on allocator return alternativesTed counters Eric's thesis by pointing out that allocators stretched into levered private markets specifically because baseline returns were insufficient to meet mandatory liabilities.
Biggest teaching moment ▶ 16:20 Eric details the fatal mechanics of asymmetric relative-value carry hedgesEric gives a masterclass on how Peloton's AAA/BBB levered basis trade unraveled in 2008, extracting a fundamental rule on the hidden dangers of cheap risk mitigation.
Ted holds their own ▶ 42:26 Ted outlines the institutional dilemma of spending targetsTed articulates the core structural challenge facing institutional portfolios, directly challenging Eric to explain how institutions can meet liabilities without private market complexity.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Eric Peters on Early Influences and Chicago Floor Trading | 2 | 3 | 0 | 0 | Ted opens with open-ended foundational questions about Eric's entry into investing and learning to trade. Eric recounts his early career search, observing a floor trader in Chicago, and trading corn in the pits. | |
| Formative Trading Lessons and the Near-Catastrophic Wheat Trade | 1 | 2 | 0 | 0 | Ted asks a classic conversational prompt about Eric's hairiest trading experience. Eric shares an anecdote about a massive wheat trade on the close and a prank that taught him emotional discipline. | |
| Prop Trading Career, Tech Ventures, and Joining Peloton Partners | 1 | 2 | 0 | 0 | Ted prompts Eric on his progression from pit trader to investment firm founder. Eric summarizes his transitions through Lehman Brothers, tech venture CEO duties, and joining Peloton Partners. | |
| The Fall of Peloton Partners and Risk Mitigation Lessons | 2 | 6 | 1 | 0 | Ted asks about Peloton Partners' famous collapse in 2008. Eric delivers a detailed technical breakdown of how their 7x levered AAA/BBB subprime relative value trade blew up despite winning Hedge Fund of the Year weeks prior. | |
| Launching Grant Capital and the Genesis of One River | 2 | 4 | 0 | 0 | Ted asks how Eric evolved after Peloton. Eric explains launching Grant Capital and later One River to solve institutional client frustration with low-volatility, fee-heavy multi-manager hedge funds. | |
| Developing Early Macro Investment Themes at One River | 3 | 5 | 0 | 0 | Ted asks about early macro bets and firm evolution. Eric explains macro themes like Dutch disease in emerging markets and why One River transitioned from funds-of-one to commingled products because allocators lacked the governance bandwidth to tilt dynamically. | |
| Overview of Volatility Strategies and Trend Following Products | 2 | 4 | 0 | 0 | Ted asks about the current vehicle lineup. Eric details their five offerings across dedicated discretionary long vol, systematic dynamic convexity, relative value vol, core trend, and alternative trend. | |
| Finding Edge in Macro Trends and Managing Downside Asymmetry | 3 | 6 | 2 | 0 | Ted asks about edge and competitive advantage in systematic macro trading. Eric explains why trend-followers get paid on multi-year human underestimation of macro cycles, contrasting his stop-loss discipline with mega-funds that become liquidity-trapped. | |
| Sponsor Message: Ridgeline Front-to-Back Investment Management Platform | 2 | 4 | 1 | 0 | Following a mid-episode sponsor message, Ted directs the conversation to the unfolding 2020 market crisis. Eric analyzes equity overvaluation, Fed liquidity injections, and the breakdown of traditional 60/40 portfolios. | |
| The Build-Up of Financial Fragility and Unprecedented Tail Shocks | 3 | 6 | 2 | 0 | Ted asks for a 2-3 year macro outlook. Eric explains how central banks fighting the 2008 crisis conditioned corporations and pensions to rely on artificially low volatility, fueling excessive leverage that proved fragile when cash flows stopped. | |
| The Uncertain Future of Leveraged Buyouts and Portfolio Diversification | 3 | 6 | 3 | 0 | Ted asks how portfolios will look in 5-10 years. Eric makes a provocative contrarian claim that private equity is effectively done due to impending regulatory and tax backlashes against levered buyouts and un-diversified risk models. | |
| The Reality of Suppressed Future Returns and Avoided Capital Destruction | 5 | 7 | 3 | 4 | Ted challenges Eric's view by noting allocators stretched into private assets precisely because expected returns were low, asking what alternative exists if they simplify. Eric reframes, arguing that suppressing capital destruction guarantees depressed future returns. | |
| Writing Weekend Notes to Articulate Macro Insights and Build Community | 2 | 3 | 0 | 0 | Ted pivots to Eric's well-known 'Weekend Notes' publication. Eric shares how the weekly writing discipline forces deep synthesis and fosters relationships with global central bankers and CIOs. | |
| Closing Questions on Personal Pursuits, Humility, and Mentorship | 2 | 2 | 0 | 0 | Ted guides the closing question sequence covering hobbies, outdoor pursuits, pet peeves regarding arrogance in investing, and life lessons on mentorship and intellectual humility. | |
| Episode Conclusion and Standard Legal Disclaimer | 0 | 0 | 0 | 0 | Ted wraps up the interview with closing thanks followed by the standard legal disclaimer read by the announcer. |
Statements from this episode (19)
Peters: Floor trading offers no fundamental information, only emotion and flows
“The problem is on the floor is you don't have any information really. You have a ticker that's running across. You're just trading off of emotion and flows and things like that.”
Peters: Peloton ABS fund ran 7x levered subprime relative-value trade
“And then they had their ABS fund and that ABS fund was a big bet against subprime mortgages. It was a relative value bet. So they were long, a few, three units of Triple A mortgages short one unit of triple B's levered seven times.”
Peters: Peloton won Hedge Fund of the Year a month before failing
“I think it won hedge fund of the year award in January of 2008 and then failed in February.”
Peters: Cheaper hedges that offset negative carry often blow up in dislocations
“So what inevitably happens, and this is a hugely important lesson is when people are trying to mitigate a risk, there is an expensive way to do it, which is usually sound. And there are a whole range of cheaper ways to mitigate it in ways where you offset the …”
Peters: One River launched using fund-of-one structures for every initial client
“Every one of the clients that we had initially had a fund of one with us, and we would identify what we thought were the most important opportunities, either bullish or bearish, that we saw on the horizon, and then they could allocate to one or more of those s…”
Peters: Countries frequently see capital markets peak after hosting the Olympics
“It's not infrequent. That countries can kind of peak in terms of their capital markets once they get past the glow of the Olympics.”
Peters: Most Allocators Lack Infrastructure for Active Macro Tilting
“There was a much, much bigger group of interested investors who loved the idea of being able to tilt their portfolio with the types of themes that we developed. But when push came to shove, we looked so different that they didn't have the investment team infra…”
Peters: Post-COVID relative value volatility will be a target-rich environment
“And I think coming out of this crisis, it's going to be a very target rich environment for a strategy like that, because there are so few players left in it. And whenever you start dislocating markets like this, The people who can manage the risk well through …”
Peters: Trend following works because humans cannot comprehend the scale of change
“I think that we get paid to trade long-term trends because the world is always changing, and there are certain times in history it's changing more dramatically and perhaps quickly than others, but the world is always changing, and it's difficult for humans to …”
Peters: One River exited all equity positions in late February 2020
“We got out of all of our equities in the second half of February.”
Peters: Investors will stop worrying about tail risk within 3 to 5 years
“And then I guarantee you in three or five years, people won't be that worried about stuff like that anymore.”
Peters: Without COVID stimulus, equities would have fallen 30% to 50% further
“And in the absence of what the fed and what the government have done with this, I think the equities would be down 30 to 50% from where they are right now.”
Peters: Pensions will not be able to hit 7.5% return targets
“There's no way pensions are going to be able to even come close. They're not even to be able to pretend that they can anymore.”
Peters: Equities are likely to drop much lower before crisis ends
“I think we're a lot closer to the ceiling in terms of equity prices here than we are to the floor. I think it's highly likely that we'll be a lot lower in equities before this is over.”
Peters: Private equity managers are the most over-leveraged actors in markets
“Everyone's over levered, and private equity guys, they're the worst in terms of this.”
Peters: Post-COVID deleveraging will slow growth and expose public pension insolvency
“So the question I think you have to ask yourself is, will we go back to that type of financialized leveraged Corporate sector and investment portfolio. And I would say that it's pretty clear to me that is not happening. Okay. And so if that's not happening, th…”
Peters: Private equity is done and managers will emerge looking terrible
“This is the kind of thing that may make me look foolish. I think private equity is done. I think that it will always be an investment style like it has for over the course of my career. It was just LBO investing when I started, I guess now it's private equity,…”
Peters: Portfolios leveraging pseudo-diversification will be the worst performers
“I think we're going to find that the portfolios that applied that logic to the greatest degree are the worst performing. And so that behavior will be significantly curtailed, whether it's through regulation or whether it's through investment committees and end…”
Peters: Fed bailouts preventing capital destruction guarantee a prolonged low-return environment
“What the Fed is doing and the Treasury is they're saying, let's just make sure that no one goes broke, and let's make sure that none of this capital gets destroyed, and so I don't see how that doesn't lead to a long period of really low returns.”