The Exchanges

Q On a day-to-day basis, how do you go about turning over those rocks?

A We take a lot of intro meetings. There's 35 members on the hedge fund team across the globe, US, Europe, Asia. On average, we take in excess of over 800 meetings a year. Roughly a third of those is spent on new opportunities or new ideas that are coming to market. So, New manager launches, and those really come from a pretty broad set of inputs. So we have our own network that we've built through that team of 35 and through the experience over the years. So we know of new launches and spin-outs maybe before they're actually formally announced in the market. We're obviously plugged into a lot of industry events and attend those. Very well plugged into the cap intro community, so see what comes through that pipeline. Our clients serve as a really good source To flag opportunities for us to look at, and then of course we have our database, which really any manager in the world can sign up to be on. Through that, I would say we take almost every meeting that's offered. We say no more than we say yes in terms of making it through the process, but this team is dedicated to finding the new opportunities before the rest of the market identifies them and to secure that capacity for the benefit of our clients. That's what we're focused on day in and day out.

AI assessment note: “On average, we take in excess of over 800 meetings a year.”

Q So on the margin, if you're less excited about that than you might've been a few years ago, What areas are you tilting capital towards?

A I wish I had something unique to say, but credit. I think credit and macro are the two areas that we are most excited about moving forward. I think everybody is well aware of the opportunity in credit. Global central bank policy has effectively removed the business cycle and the credit cycle for an extended period of time. With policy tightening, we're pretty sure that's going to reverse course in some way with rates at where they're at and the maturity walls coming. So we haven't had A distress cycle. We really haven't had a stressed cycle in credit, and we think there's going to be some pretty exciting opportunities. I think the one difference about this may be relative to past credit bust, if you will, is we don't think there'll be a big moment of bust and a de-leveraging. To us, this might be a more long drawn out period where we can produce maybe more than equity-like returns with bond-like volatility being higher up in the capital structure. And then macro, we just think volatility really across everything is going to stay elevated. So across equity markets, across credit markets, across interest rates, across commodities. And we think macro, both systematic and discretionary, are probably the best place to manage through the ebbs and flows of that volatility and changes over time for maybe the next three to five years. I would say that on our sourcing front, I probably s…

AI assessment note: “credit. I think credit and macro are the two areas that we are most excited about”

Q What are the things that you're looking for so that a manager makes it from that initial meeting to eventually getting down the road with your clients?

A Yeah, I would like to say that there's a checklist that you could just work from, but in practice, it really doesn't work that way. We haven't developed an algorithm, if you will, to say, if this, then that, and that will lead us to the right path. But I think maybe some of the broader ones may be just a little bit more obvious, frankly. So we're looking for structural or cyclical inefficiencies that can be exploited. So we're looking for investments, not trades. That's pretty important. We value a pretty strong pedigree. So where you learned this craft and how you learned it and who from and those lessons learned over time are very important. In general, we like a broader, more flexible mandate. So particularly a capital allocation process that can be opportunistic. So if you always invest one way, look the same way at all times in all environments, That's maybe less appealing for us. Even within a smaller niche strategy, we still want some opportunism. We place a heavy emphasis on risk management. So we want a pretty dynamic and robust risk management tool set. That's part of the reason you invest in hedge funds is for the risk management framework. And I would say you have to be macro aware. Markets are much more dynamic and volatile today, maybe than 20 years ago. And so you have to use those tools to protect capital. And to generate some persistency and consistency. We don…

AI assessment note: “we're looking for structural or cyclical inefficiencies that can be exploited.”

Q When you look at the composition of those 240 managers on the approved list, how do you think about that as a portfolio across strategies, across sizes of funds, whatever it is that if you were looking at, say, a dashboard of this is our approved list, what is it that you're looking at and what does it look like?

A It's a constant balance of trying to maintain a good enough breadth of options across the space and a number of different variables. So different types of hedge funds, different strategy types of hedge funds, different risk profiles of hedge funds. We have the regular hedge fund buckets, long short equity event, credit macro, but within that, we sort of have groups of managers that we would consider core positions and groups of managers that maybe are lower or higher on the risk spectrum, which can be used to complement the core managers, if you will. So that's kind of how we think about it broadly. The chief mandate really is to just make sure that we have pretty good diversification across the entire menu of options to where we can build portfolios really to meet Whatever, any client objective might come our way. I think the one extremely unique thing about hedge funds is just the variability across the space. It's not the same as buying a large cap growth manager, frankly. You buy a large cap growth. You pick maybe the Russell 1000 growth index. You try to find a manager that has a tracking error relative to that and maybe can add some alpha about that. With hedge funds, it just frankly doesn't work that way. There's too many differences, even within the same type of hedge fund. Too many differences in styles, approaches, risk management, risk profiles. I often use the chef …

AI assessment note: “We have the regular hedge fund buckets, long short equity event, credit macro”

Q If you looked at your approved list as a portfolio, you said, 240, you'd like it to be a little smaller. You have some newer managers you want to add in. How do you think about who comes in and who goes out?

A It's a constant balance of what capacity do we have currently? Do we have the right mix, meaning the right diversification across risk profiles, styles, strategies? What are we seeing in terms of client demand for a forward calendar? And then from there, it's relatively organic. Even if we don't see a lot of client demand for a particular opportunity, if we see a compelling opportunity, we're more than happy to add it to the list. And then it's just a constant revisiting and retesting of every manager on that list relative to the set of opportunities that are available to us in the market. And we can always upgrade. We're going to constantly try to improve that list, even if nothing else changes. Even if it's a static number, which it's not, we're going to try to improve that list over time as best we can. It comes down to a balance of what our clients need, what makes sense to add to the list, what makes sense to remove from the list, and those are the elements that go into it.

AI assessment note: “It's a constant balance of what capacity do we have currently? Do we have”

Q You look at the managers that your clients ultimately invest in. There's always this question of being on an approved list. How do you get from going through the research to say, this is a manager we're comfortable with putting in client portfolios to having a roster of managers that can be that universe that go into many different client portfolios?

A We do have an approved list. That is our mandate is basically to provide a pretty broad and robust list that will serve the needs of both our OCIO portfolios and how we would do it if we had discretion, as well as our advisory clients who might do things a little bit differently on their own. There's approximately 240 hedge funds on that list today. Frankly, larger than we would prefer, but at any point in time, 20 to 30% of those are closed due to capacity issues. It's a combination of our client needs and our philosophy in terms of what makes it on that list, ultimately. We do actively aim to keep the list as small as we can for a number of reasons, really. We don't think there's that many great options out there, honestly, relative to the pool of opportunities. We really want to reduce the room for error. And we want to express some conviction in our top ideas. So we do have a track record and reputation that we're trying to preserve. We'd rather not dilute that as much as we can.

AI assessment note: “It's a combination of our client needs and our philosophy in terms of what makes it”

Q If you just pick out, say, the risk management part of that process, what is it that you look for today that might be different from 10 years ago into a hedge fund that you think manages risk well?

A I think it really comes down to how opportunistic and dynamic they can be with the portfolio. So you want to see both at the position level and the portfolio level using some of the tools, whether it's shorting, whether it's hedges, Whether it's dialing up or dialing down risk in the aggregate for the portfolio, you want to see some element of active risk management to try and manage through the volatility and the drawdowns. And you can see it in a track record, but when you don't have a track record to base it on, you just spend a lot of time with the manager and the team to understand what does that process look like? How is the decision making made over time? How will they Intend to act under pressure because pressure is going to come. Markets are humbling in that way. And then you just test that over time and you continually revisit to make sure that they're delivering on the risk management processes and that they continue to evolve. I think a lot of it is you don't want to play Monday morning quarterback either. There's a lot of noise, but understanding when they will act, how they will act and how they will protect our client's capital is very important to us on the hedge fund side.

AI assessment note: “how opportunistic and dynamic they can be with the portfolio”

Q consultant, whether it's from other allocators, investors, or managers. That there's a little bit of a feeling of a black box of like, how does a consultant decide who's on their platform? And I would just love to try to demystify that from both perspectives. And maybe the way to do that is to start going through, how do you determine how you're going to do research on hedge funds?

A It really starts with sourcing and maybe to piggyback a little bit on what Eric was just talking about. It's been an iterative process that has been refined over many years and through many acquisitions, we take the best of both worlds. But what has come out of that is we cast a pretty wide net in terms of the opportunity set that's put in front of us. When I first got in this business, I didn't even know manager research, frankly, was an industry or a career. And now I find myself around year 20, but that is the gig. That's what gets us out of bed every day is really sourcing new opportunities that hopefully make sense for our clients and can add value over time. That carries a tremendous responsibility and challenge, but at the same time, it's very rewarding when we do get it right. So I often say we're effectively the equivalent of talent scouts. Attempting to identify the best talent and position players, if you will, and then assembling those together in a team that can deliver results for clients. The sourcing and the due diligence is obviously the most important things we do as researchers across the firm, and we're very deliberate in how we approach it.

AI assessment note: “It really starts with sourcing and maybe to piggyback a little bit”