The Exchanges

Q You also hear commonly that public companies have quarterly pressure for earnings. And is that real? I mean, do you feel that? Or it sounds like it's more like a, hey, Warren Buffett model. You know, we're going to make long-term investments. We're going to pay any attention to the quarters.

A Yes, I think if you're public, you have to play a little bit more to quarterly and short-term investing. I, I do, because There's expectations built in. And think about it, like, I always think about it, like, who's the stakeholders, the owners, the share? So, who are they? Largely active managers. What do active managers need? They need performance, and they need it soon. So, that begets shorter-term thinking. They, they have daily liquidity funds, most of them. They need performance, or people are just gonna redeem and move into, uh, the passive product. So, I think we have to, you have to create balance and, and set expectations. It's okay to take a profitable business and, And, and, and invest a portion of your profits to a longer term growth objective. But you probably need to be a little bit more transparent about the fact that you're doing that. So last year, we lost money at Cowan. And we told our investors very clearly, this is the amount of money we spent on people and infrastructure that added no revenue this year. Because we expect that over the next two years, we're going to get multiples of that back. In M&A fees, in In increased commissions, because we saw opportunities in a trough year last year to make investments that we think are going to be long-term sustainable. That's a very transparent statement that you have to make to the market. I still think our inves…

AI assessment note: “Yes, I think if you're public, you have to play a little bit more to quarterly”

Q You're from Pittsburgh. My mom's from Pittsburgh. You went to the same high school. What is it about a passionate sports fan that comes out of Pittsburgh?

A So just to be clear, your mom went to high school with my parents, so for those listening, like, I didn't go to high school with your mother, uh, but actually, no, my parents went to the same high school that my wife and I did, uh, and the same one that your mom did, Alderdice High School. Listen, Pittsburgh is an amazing town that is filled with so much energy, and, uh, Pittsburghers have been down and out more times than we can Mentioned, we always seem to come back, and we do it because we work super hard at whatever it is that we do, and we feel like our sports teams are a huge representative of who we are as people. So, you know, talk to me or talk to anybody who grew up in Pittsburgh, especially in the seventies, when the Steelers were in their heyday the first time, and it is a resilient bunch of folks who totally identify their personas with the sports teams. And I, by the way, I love how the sports teams in Pittsburgh root for each other. So, you know, I was at a Penguins game last year during the Stanley Cup final, and I ran into like three or four Steelers there. You know, and old Steelers like Franco Harris, and new Steelers like Ryan Shazier, and Antonio Brown, and Cam Hayward, and they're fans of each other, and they root for each other. The Penguins actually had a game scheduled during a Steeler playoff game earlier this year, regular season game, and they moved …

AI assessment note: “we feel like our sports teams are a huge representative of who we are as people”

Q So how does a Pittsburgh boy find his way to Wall Street?

A Yeah, I came here to be an actor, uh, actually. I did. Really? I did, yeah. I was at the University of Pennsylvania. Did a lot of theater as an undergrad, and I really wanted to come to New York with a lot of my friends who were going to be working on Broadway. I decided, though, that the acting thing was sort of risky. Wasn't sure that I would exactly be able to make it, and I thought I needed a critical skill in case it didn't all work out. So I got a job on Wall Street just for two years, make a little bit of money, put it away, so that if the acting thing didn't, didn't really work out for me, I'd A, have money, and B, I'd have skill. I did it, I actually worked on Wall Street for two years as an investment banking analyst at Shearson Lehman. And after I was done, I, I quit to work, to go to work acting. I was pitching Peter Cohen an investment idea. And Peter Cohen, at the time, had just left Shearson and was trying to figure out the next chapter of his life. And in the middle of the pitch, he asked me, what are you doing with yourself? And I'm like, well, I'm leaving and I'm going to be an actor. And he's like, what? And I'm like, yeah, I mean, uh, That's my life plan at the age of 24. And he said, well, why don't you, like, can you do the acting thing and come work for me and help me look at deals and opportunities and ideas? And I'm like, uh, I guess. Can I go on auditi…

AI assessment note: “I thought I needed a critical skill... So I got a job on Wall Street”

Q And so you, that business grew things pretty much in a steady state, right? Until the financial crisis.

A Well, I'd say, you know, up until 98. 98 was a tough time. It was the first time I really got to see how correlation worked. In real life. We talked about it, you know, mathematically, how in times of stress things correlate, but I've never seen parts of our portfolio that had nothing to do with a tie bot, you know, almost converge in terms of their performance. And fortunately for us, we, we've never really been a big user of leverage. So we definitely lived through periods of stress and pricing, but we've, we've recognized that as long as you're not leveraged and forced out of the trade at an inopportune time, you can last a long time. So A lot of our strategies are still very much alive and well. They may be smaller, they may be larger, but they're still here. And in large part because we're just conservative with the way we think about that.

AI assessment note: “Well, I'd say, you know, up until 98. 98 was a tough time.”

Q have an S&P 500 that's had a big run. Hedge funds for sure haven't really delivered what investors may have expected, but there is this dynamic that they're not supposed to keep up with a roaring bull market, certainly since oh nine. Yeah, I know you guys have done some work on it. How do you think about where we stand in active and passive? And, and what's your view?

A Well, I think it's changed investing. So, you know, if you were an investor in the nineties or the 2000 or the eighties, like the strategies that you pursued in order to achieve alpha, you know, may not be working the way that they were working before we had a significant portion of the market and passive product. So we're, we're getting to the point now where passive product is so dominant. That you have to begin to try to figure out how to model in the presence of significant passive players. Now, up until now, it's been a relatively low vol environment, you know, because money has been coming in, and coming in pretty consistently, and, you know, people are buying index product, that means everything in the index goes up. If I know anything about math, I know if you can have 10 vol, you could have 30 vol, or 40 vol, You know, it's just sort of, every day you spend at 10, you should be really thinking in your own head, and in a normal distribution curve, you could really have a tail at the other end, and that will likely happen when all of the individuals make a decision to take risk off the table, and they can do it, I mean, really easily today. It's a click of a button, or you touch your iPad, and you liquidate your ETF in the middle of the day, and We will see index vol a spike at some point in my life. I'm a hundred percent sure. And when it does, we don't quite yet know h…

AI assessment note: “we're getting to the point now where passive product is so dominant.”

Q What do you know now that you wish you knew 10 years ago?

A I know that I don't have to squeeze so hard. Sports people talk about this all the time. You know, you hear a baseball player when he's going through a slump, he's like, I'm just gripping the bat too tight. You know, hockey players talk about, I'm gripping the stick too tight. You're tight. I was tight. Coming into the financial crisis. I felt every trade was my responsibility. Every winner was somebody else's and every loser was mine. And I loved Ramius so much that I almost choked it. And I had no objectivity. And it would have been great if I had taken a step back and said, you know, let me just let go a little bit. And we're surrounded by some really good people, and give them a chance to breathe and listen to them. And if you've surrounded yourself with a really good team, which we had at Ramius at the time, and we still do, right, at Cowan, they will nourish you. They will give you oxygen in the moments where you most need it, and that's probably something I totally did not get, you know, in my late thirties, that I now look at what we've been able to accomplish here in a really tough environment over the last decade, and I'm thankful that I got the opportunity. I really am. I'm super thankful that my partners at Cowan, my, you know, my teammates embraced me, because I'm not an obvious choice. To do the things I'm doing. I came from a different place. And, uh, they believ…

AI assessment note: “I know that I don't have to squeeze so hard.”

Q and it's well understood. In 98, you experienced it, but you probably didn't have the term to say, oh, I must be suffering from risk aversion or whatever it was. How did, how did it feel going through it where things are just wacky? You'd never seen it before. Merger deals are breaking because the tie bots doing whatever. You probably didn't know in the moment that long term capital.

A So we actually had some insight around long term capital because of Tom Strauss and his relationship with John Merriweather. So all of those guys worked for Tom. So we had a pretty good idea of what was going on there. I don't think we fully appreciated the knock on effect. This is really the precursor to too big to fail. I mean, all the firms had to get around the table and figure out how to work out a very large, highly levered quant oriented fund. Sound familiar? I mean, it's, it's, you know, the older I get, the more I see things through a similar lens. It's just sometimes bigger. It's always a little bit different. But many of the themes there were the same. I just didn't fully appreciate the contagion risk. And that's really, when I look at behavioral investment, I think about individuals, generally speaking, know what they know, and they see what they see. And the hardest thing to do as a manager is to have peripheral vision and understand how something at the periphery might impact something in the middle of your vision. In that particular situation, with spreads widening and merger arbitrage deals, it wasn't that the deals themselves got riskier, per se, which is what it would tell you if spreads were widening, but it was that you had a distressed seller in there. And then other people who owned that position had to mark it down, and if they were levered, then they had…

AI assessment note: “we actually had some insight around long term capital because of Tom Strauss”

Q So what, what happened to the business then between say, 98 and the next 2008 in those 10 years?

A So it grew like tremendously. So I think from 98 after that, um, until 2000, we actually had a tough time raising money, not because of our performance, but because if you remember 98 to 2000, everybody was getting along internet stocks and tech, the tech bubble. So people thought it was their God-given right to achieve sort of 25 or 30% returns on their equity investments. We're like trying to tell them 500 over the risk-free rate is over the long haul is better than the long-term return on equities with a volatility that's a fraction of equities, right? If the S&P vol was 14, we were like, hey, we're two, a two vol. Monthly, standard deviation, pretty high bar, actually. And at the time, we actually had interest rates or short-term rates close, you know, not near zero. And so, you know, you're talking about High single digit returns to actually low double digit returns in around 10%, which seems pretty good. It just was hard to convince people that they should not invest in, you know, portfolios of internet stocks, and so we didn't really raise a lot of money until things broke. We actually took some money in from Bank Austria as a strategic investor and sold 25% of the firm to them, and they gave us a bunch of money to manage in that conservative style, and then by The middle to the end of 2000 people are like, okay, okay, okay, I need to actually focus on long-term wealth c…

AI assessment note: “So it grew like tremendously. So I think from 98 after that”

Q And how about risks? I mean, people see them everywhere they turn in the market today, but what are the, what are the big things you're looking, keeping your eye on?

A I just think I want to see what happens when ETFs, by the way, are the thing that just, You know, so like there's known knowns and known unknowns, right? We know that there's going to be a market correction. We don't know how it's going to happen. We can surmise. ETFs are just structured products. There's a couple of things I just have noticed in my career. It seems to me that structure always, structure and leverage, and the combination of structure and leverage always ends up in a bad place. CDS was the fastest growing credit default swaps, the fastest growing Tradable instrument in the history of mankind. It went from nowhere in 2003 to everywhere in 2008. Trillions and trillions of dollars of it. CDS, there's something inherently wrong with CDS, right? It's an interesting way for two individuals to take a bet on a credit that's, you know, offline or not in the non-cash markets. It's just, we had too much of it and no one could keep, can, can keep control of it. And so when it, when it went the other way, there was massive amounts of losses, right? An inverted pyramid. We've all Heard about it. To me, we don't know what will happen when ETFs, if ETFs find massive outflows. Um, There are, in many ETFs, significant mismatches between the liquidity that the ETF promises and the underlying liquidity of the instruments. And in times of stress, if I know anything, liquidity gets w…

AI assessment note: “significant mismatches between the liquidity that the ETF promises and the underlying liquidity”

Q You know, one of the things that often doesn't get talked about, and certainly in the public context, Media in the hedge fund space is the great work that people who have made money have done for others. I know you've been involved in a couple of pretty interesting organizations, nonprofits. Why don't you tell a story of how you got involved in each and where that goes?

A Well, look, I, I think everybody has their own philanthropic journey. I feel extremely fortunate. I have more money than I thought I would have. I never really thought about how much money I would have, but I, I kind of feel pretty good. I still have to work, right? I'm, I'm still, I'm not ready to be done working, but there's an element of that, that I feel fortunate enough that I can help others who have less than me, and it's really interesting, the psychic joy you get from doing that. I, I never really focused on it. I used to feel bad that I couldn't do more, and that Feeling bad that I couldn't do more overwhelmed the joy I got from doing something. So what I would say is you don't have to be the CEO of a firm to make an impact. Actually, I wish if I, if I have a few regrets, but one of the ones is I wish I had realized that earlier, that the little bit that I could have done was just good. I was doing what I could do as opposed to feeling bad about not being able to do more. My involvement with UJ Federation, actually, in particular, was late. I was, I didn't really come to it until I was 40 years old, and part of that is because my experience with UJ Federation in Pittsburgh, or United Jewish Federation in Pittsburgh, was one where they always asked my parents to give money that we didn't have, and we felt bad at the dinner table that we couldn't do more. And so I was r…

AI assessment note: “My involvement with UJ Federation, actually, in particular, was late.”

Q So I imagine that filters through everything at the firm, your, your hiring process. Are the types of people that work at Cowan a little of a different breed than the common maligned Wall Street employee?

A You know, I'd like to think so. I mean, everyone wants, but that's part of it. Like everyone wants to think they're special. And I believe the people who work at Cowan are special. I do. I also think they're individuals though. So let's be really clear. Empathy does not Is not a substitute. It does not mean that you have to be giving up your individualism for the sake of the whole. Actually, let's acknowledge the fact out of the gate that everybody who comes to Wall Street has an entrepreneurial spirit. So I'm willing to listen to what other people have to say, because I believe at the end of the day, provided that they're on the same rationality spectrum as I am, that the teammates we have at Cowan are giving me advice based on What will make them better? Could be more selfish or less selfish, but let's face it, they want Cowan to help them be better here than anywhere else. That's actually my job. And I don't discount the fact that they're individuals and they want to succeed on their own. I just want to be the enabler of that. And if they value the enablement, if they value the way that we permission them with tools and products and services and relationships, one, they can be better here than anywhere else. But they're still individuals who want to win desperately. And that is the essence of teamwork. And to me, like, that's sort of how you embrace this notion of empathy in…

AI assessment note: “I'd like to think so. I mean, everyone wants, but that's part of it.”

Q What were the basic tenets of investing that Peter brought that you took on?

A It was interesting. I got to do something at Shearson that was pretty unique. In retrospect, I didn't know at the time we were going to do a public offering at Shearson. We were already public, but we were going to raise more capital in 1990. And so I got to actually draft the S-one for the follow-on offering and raise additional capital. And in the In the course of doing that, I got to see all these different businesses that Shearson was in, because I drafted the S-One. I would literally walk around from department to department and write down, like, what does private placements mean? What are convertible bonds? What does an equities trader do? And what do volumes mean? And what I learned is that there were all these little businesses that we had inside Shearson that made a lot of money. They were unique, like merger arbitrage and event business, like securities lending business, like all these things that are like Really interesting businesses that were really the purview of Wall Street at that time. And what we've been able to do at Ramius when we started that in 94 is essentially take a number of those businesses that were really profitable inside investment banks of the eighties and do them for investors. If you think about the way the hedge fund business evolved, it evolved from people who were on the prop desks, you know, Goldman Sachs, Lehman Brothers, you know, all the…

AI assessment note: “Can we import those people to come and build those businesses for investors that Peter had”

Q you know, let's say independent of these major market moves, if we look out 10 years, so many of the functions we're talking about were core Wall Street functions, providing liquidity to the markets and trading side. What does Wall Street look like? I mean, there's a lot of questions about regulation, the current administration, but what, what do you think Wall Street might look like 10 years from now?

A Wow. I mean, I, I, you know, I don't want to punt on that question, but I think about where, where I was personally 10 years ago, and I could have never imagined this. So, you know, I, I really, I mean, I, I was, it would have been 2007, and things were looking pretty darn good in May of 2007. I thought I was the king of the world, and I, everything I touched turned to gold. I had a great year in the first month of 2007. That's like a, that should have been a warning signal to me in retrospect. There's nothing in my portfolio that would have suggested I would have ever outperformed the way we outperformed in the first quarter. I never took the time to say, oh my, I should really think about de-risking because I've made the entire year this quarter. I'm like, no, it's a paradigm shift. I had all these rationales for, I backed into a rationale in explaining our performance in the first quarter of I would just say, I, I, all, the only thing I know is it's going to be different. 10 years is an eternity. It's like a, it's a generation and a half on Wall Street. You know, we still haven't, this generation of capital committers, the thirty-somethings, the last time we had five percent short-term rates, they might have been in diapers. We're in a very different spot, and so I can't imagine, you know, what risk-taking is going to look like in 10 years. There's a few things that I will s…

AI assessment note: “There's a few things that I will say. One, active management isn't going away.”