The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
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Ellis: Man Group refuses fee structures taking 60% of alpha
“I firmly believe that the client needs to get the majority of the returns needs to get the majority of the alpha. And so we won't do something which while it might make a net return for the client that the client might be interested in, but where 60% of the al…”
Ellis: Strategy alpha degrades non-linearly and collapses off a cliff
“What I experienced in investing in funds is alpha maintains much more than people expect for a certain period of time in a strategy, certain size growth in a strategy. But once it starts to drift off, it collapses and goes negative. And once you fall off the c…”
Ellis: Unconstrained AI in financial markets reliably overfits on noise
“In financial markets, the vast majority of what happens is just noise. And so you have to be very careful to not try to find a signal in the noise when there isn't one. We've had some real success doing things with machine learning and AI, but equally we've se…”
Ellis: Only roughly 1,000 credible hedge funds remain globally today
“The days of talking about 10,000 hedge funds are over. I don't know what the right number today is, but the reality is that probably there's a thousand credible hedge funds out there, and the top hundred have a significant proportion of the assets.”
Ellis: Allocators shouldn't pay active management fees on long-short equity beta
“So I think if you run an equity long short fund, and you run with a 60% net long all the time, you ought to not charge any fees, or clients should look at that and go, ok, I'm going to work out the fees on the alpha You make, and I'm going to net out the 60% t…”
Ellis: A disproportionate share of top finance leaders had bad paternal relationships
“It's amazing what a high proportion of the really successful people in our industry have either had or have really bad relationships with their fathers.”
Ellis: In alpha investing, average managers lose money
“And in alpha space, average managers lose money. You don't make alpha unless you are exceptionally good. And people think as long as you're reasonable, you'll do all right. Good isn't good enough. You've got to be great.”
Ellis: Managers should scale down volatility when out of sync, not push harder
“I like people or processes where their process is in tune with the market. They push hard. And when their process is out of tune with the market, They don't push hard, but they don't do something different. So you can think of it as if your average vol over ti…”
Ellis: Taking too much capital into a strategy is alpha's second-biggest enemy
“If hubris is the biggest enemy of alpha, the second biggest enemy is taking too much capital into a strategy.”
Ellis: Running a private business required more shareholder time than a public company
“I've run a private business. I've run a public business. I spend more time on shareholder issues running a private business than I do running a public business.”
Ellis: Man Group avoids US equity products due to lack of alpha
“We don't have a discretionary long only U S equity offering that we're out there pushing because we haven't found a team that we think does that in a way that has consistent alpha over time.”
Ellis: Internal competition between investment teams creates bad behavior and corner-cutting
“I think if you look at a number of the problem things in history and you see that the bit of internal competition often creates bad behavior because people are competing with each other and then they start the temptation to cut the corner against the person si…”
Ellis: Compensation Should Not Be Used as a Management Tool
“In the end, I don't think compensation is the way that you create behaviors. Compensation matters. People in this industry get paid a lot of money. One should never Not treat the process of how people get paid seriously, but I don't believe in using compensati…”
Ellis: Alternatives cannot achieve perfect alignment because investors pay and managers receive fees
“Everybody talks about alignment of interest in the alternatives industry, but the reality is, unless you sit around and discuss it, you have a situation where The investors pay the fees and the managers receive the fees, and you can't be perfectly aligned in t…”
Ellis: Zero management fees destabilize hedge funds and harm long-term investors
“You get some investors who say, look, you should never have a management fee on a hedge fund. And I can understand why, from an investor's point of view, that might feel good, but actually it's not good from the long-term health of the business, because if you…”
Ellis: Allocators consistently accept paying 25% to 30% of generated alpha
“I think the proportion of alpha that clients are happy to leave with a manager Has not really changed over years. You know, you can debate, and maybe it's something to do with the quality of the returns, some number between 25 and 30% of alpha that clients are…”
Ellis: The 2-and-20 model is no longer the modal hedge fund fee
“We talk about two and 20, but two and 20 is not the average fee in the industry by a long way, and it's certainly not the modal fee either. Two and 20 is now the unusual.”
Ellis: Finance careers quickly eliminate money worries, enabling optionality
“If you have any successful career in finance, the point where you're worrying about money for life goes pretty quickly. And so my view is you should use the fact that you can afford to live. That gives you options, gives you choices, and you should take those.”
Ellis: Top-down asset allocation to predict alpha added zero value
“We spent an enormous amount of time in conference rooms doing asset allocation meetings, trying to predict where did we think there was going to be alpha next year? Was it going to be an event year where there's going to be more alpha in stock picking in Europ…”
Ellis: Alpha portfolios require asset selection before portfolio construction
“If you're running a long only bonds plus equities portfolio, portfolio construction has to come first. And the selection of the assets is a definite second in an alpha portfolio. It's the other way around.”
Ellis: Alpha generation requires a repeatable process rather than style drifting
“You have to have a repeatable process. It doesn't happen that one day you're a growth investor and the next day you're a value investor, that you're a bit of macro and then you're a bit of bottom up and you're, I don't believe in that.”
Ellis: Evaluating fund managers by debating individual stock picks is a mistake
“I think one of the things people get wrong in trying to pick managers is they try and argue with a manager about a particular stock pick. And if the manager agrees with them about the stock that they've got, then they're a good manager. And if they don't agree…”
Ellis: Asset management operates at roughly 30% profit margins
“And the incredible thing is asset management as an industry is way nearer the social media end than it is the outsourcing end. It's a sort of 30% margin industry and some parts are significantly better than that.”
Ellis: Man Group Caps Strategies at the Lower of PM or Management Limits
“Everything has a capacity constraint, and we shut them at the lower of the number the team thinks it's starting to affect the way they're investing, or we as management think it's the lower of those two.”
Ellis: Counterparties in modern trading are almost always high-frequency traders
“The other side of execution in markets today is a high-frequency trader. Whatever you think, the other side of your trade, whether it's a stock trade, a bond trade, an FX trade, it's essentially a high-frequency trader. So if you go in thinking you could call …”
Ellis: The End of Current Macro Regime Will Be Extremely Messy
“And personally, I think when it ends, it will be extremely messy. It's got to happen one day because you can't just keep increasing government debt and all other debt and Having no return on capital and have asset prices go up every day.”
Ellis: Trend Following Will Profit in a Downturn, but Clients Will Lose Net
“And even if I think the best thing to somewhere between hope and expect to make money out of that change when it happens is trend following. We have a bunch of products, which I think will make our clients a whole load of money in that environment, but it's no…”
Ellis: Investors Irrationally Avoid Buying Back Stocks They Previously Lost Money On
“People who lost money in a particular stock never want to invest in that stock again. Even 10 years later, they sold Amazon at the wrong place and you find that they've never bought Amazon again. It's like, look, you can buy things at the wrong place, you can …”
Ellis: CEOs Cannot Get Unbiased Feedback Internally or From External Advisors
“There is nobody inside the organization that you can talk to that it's not a leading conversation. I can't talk to somebody about, yeah, I'm wondering whether this is working or not working. That immediately creates a bad impact you don't want to do. And you c…”
Ellis: Fund managers should not double dip on trade execution fees
“Is it appropriate that you're charging fees on the fund, and you're also charging a fee for putting trades into the fund? Well, no. That's an easy standard to say, no, you're getting paid to run the fund. You shouldn't double dip.”
Ellis: Passive Market Beta Is Free While Alpha Merits Management Fees
“The fee for beta today is nothing, right? I mean, you can go and buy a passive index of whatever beta you want for nothing. The alpha is what's valuable, and people are happy to pay for that and should pay for that.”
Ellis: Quant researchers must disclose algorithm trial runs to prevent data mining
“We obviously have a very big quant business and it is so important that people are honest about how many goes they've had at a problem to avoid a data mining issue.”
Ellis: Man Group Runs 100 Strategies Through One Shared Infrastructure
“We have a hundred different strategies put through a single infrastructure. The infrastructure is more expensive than if you had one strategy, but it's a heck of a lot cheaper than having a hundred of them.”
Ellis: Man Group is roughly 70% quantitative strategies
“So we are order of magnitude, 70% quant. So from a pure mass point of view, we're way heavier quant than the industry.”